/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190404.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 Thursday, April 4, 2019, Vol. 20, No. 68 Headlines B E L G I U M NYRSTAR NV: Banks May Derail Rescue Deal; At Risk of Liquidation C R O A T I A AGROKOR: Sberbank to Work on Improving Group Performance F R A N C E CASINO GUICHARD-PERRACHON: Moody's Cuts CFR to Ba3, Outlook Neg. G E R M A N Y PROVIDE BLUE 2005-2: S&P Raises Class E Notes Rating to B- (sf) SEUDZUCKER AG: Moody's Cuts Hybrid Notes Rating to B2 SUEDZUCKER AG: S&P Cuts Hybrid Debt Rating to 'CC', On Watch Neg. TUI AG: Moody's Affirms Ba2 CFR, Alters Outlook to Neg. I T A L Y MEDIOBANCA SPA: Moody's Rates Subordinated EMTN Program (P)Ba1 [*] Fitch Assigns Long-Term Deposit Ratings to 16 Italian Banks R U S S I A BANK URALSIB: S&P Ups ICR to 'B' on Improved Operating Performance U N I T E D K I N G D O M CABLE & WIRELESS: Fitch Rates Proposed $400MM Notes 'BB-' CABLE & WIRELESS: Moody's Rates $400MM Sr. Sec. Notes Ba3 CABLE & WIRELESS: S&P Rates New $400MM Sec. Notes 'BB-' CROSSRAIL LTD: Taxpayer Bailout "May Not Be Enough", MPs Say DEBENHAMS PLC: Refinancing Package Fees May Offset Savings FLYBE GROUP: Cancels Dozens of Flights Amid Job Loss Talks OFFICE OUTLET: Reveals Location of 16 Stores Set to Close - - - - - ============= B E L G I U M ============= NYRSTAR NV: Banks May Derail Rescue Deal; At Risk of Liquidation ---------------------------------------------------------------- Neil Hume and Henry Sanderson at The Financial Times report that banks risk derailing a rescue deal for Europe's largest zinc producer Nyrstar, threatening thousands of jobs in the process if the company is forced into liquidation. According to the FT, people familiar with the matter said lenders to the Belgian-registered company are currently unwilling to take a loss on metal-for-loan deals as part of a restructuring deal that has been agreed by Nyrstar bondholders and Trafigura, its largest shareholder. Nyrstar, the FT says, is in a race against time to head off a debt crisis that will come to head later this year when EUR350 million of debt are due to mature. The company has already deferred paying coupons on some of its bonds, the FT recounts. If Nyrstar is forced into liquidation it would result in thousands of job losses in Europe, Australia and North America, the FT states. It would also cause big disruptions to supply chains and remove one of the only big non-Chinese zinc smelters from the market, according to the FT. Under the deal, bondholders have agreed to swap their debt for perpetual securities, or notes, issued by Trafigura, a move that would hand control of the company to the world's second biggest metals trader, the FT discloses. But the plan is conditional on Nyrstar's lenders agreeing to write down some of the EUR287 million they are owed under the metal-for-loan agreements, or prepayments, the FT notes. The people, as cited by the FT, said the banks will not suffer any losses on other loans they have made to the company. It is unclear at this time whether a deal can be reached, the FT relays. About Nyrstar Headquartered in Belgium, Nyrstar N.V. is a global multi-metals business, with a market leading position in zinc and lead and growing positions in other base and precious metals, such as copper, gold and silver. ============= C R O A T I A ============= AGROKOR: Sberbank to Work on Improving Group Performance -------------------------------------------------------- Igor Ilic at Reuters reports that Russia's Sberbank said on April 3 it was committed to improving the performance of Croatian food group Fortenova following reports that it is already in talks to sell its newly acquired stake. Agrokor, the largest firm in the Balkans with 52,000 staff, was put under state-run administration after it was consumed by debts built up during an ambitious expansion drive, Reuters recounts. On April 1, Agrokor changed its name to Fortenova Grupa and Sberbank, formerly the biggest creditor of Agrokor, is now the biggest single shareholder with a 39.2% stake, Reuters discloses. Sberbank, as cited by Reuters, said it plans to work on increasing the value of the group, which it sees achievable in the next two years, but did not give any details. A settlement deal was reached last summer among creditors of Agrokor which included a debt-for-equity swap and some loan write-offs, Reuters relates. Bondholders own 25%, local Croatian banks 15.3% and Russia's second largest bank VTB holds a 7.5% stake in Fortenova, Reuters states. According to Reuters, Maxim Poletaev, head of Fortenova's management board and representative of the Russian bank, said that, together with boosting profitability, a key immediate task is to refinance an expensive EUR1.1 billion (US$1.24 billion) loan that was taken out to keep the company afloat during a two year restructuring process. =========== F R A N C E =========== CASINO GUICHARD-PERRACHON: Moody's Cuts CFR to Ba3, Outlook Neg. ---------------------------------------------------------------- Moody's Investors Service has downgraded French grocer Casino Guichard-Perrachon SA's (Casino) long-term corporate family rating (CFR) to Ba3 from Ba1 and its probability of default rating (PDR) to Ba3-PD from Ba1-PD. Moody's has also downgraded Casino's senior unsecured long-term ratings to Ba3 from Ba1, the deeply subordinated perpetual bonds' rating to B2 from Ba3 and affirmed the Not Prime short-term ratings. The outlook is negative. "The free cash flows generated by Casino's French operations fell well below Moody's previous expectations, limiting the company's ability to reduce its gross debt despite large asset disposals," says Vincent Gusdorf, a Moody's Vice President -- Senior Credit Officer and lead analyst for Casino. "Our decision also reflects the weakening liquidity and persistently high leverage of parent Rallye, which creates substantial uncertainties with regards to Casino's future financial policy, despite some protections stemming from Casino's listing and large minorities," Mr. Gusdorf added. RATINGS RATIONALE The rating downgrade to Ba3 from Ba1 reflects Moody's view that Casino has so far been unable to address all of the challenges constraining its credit quality, especially its high leveraged capital structure, despite sizable divestments. Reported gross debt increased to EUR9,027 million from EUR8,722 million between 2017 and 2018. As a result, the company's credit metrics deteriorated in 2018. Its Moody's-adjusted (gross) debt/EBITDA ratio increased to 6.4x from 6.1x at the group level. Moody's deems this sustained level of leverage as being incommensurate with a strong Ba rating, although the rating agency expects it to decline to about 6x in 2019, with a subsequent reduction afterwards. Based on a proportional consolidation of partly-owned subsidiaries, leverage stood at about 7.5x in 2018 compared to 6.7x in 2017. The company was unable to repurchase its bonds and therefore to reduce its gross debt during much of the second half of 2018, as it held privileged information on ongoing asset disposals. In addition, weak cash flow generation in France hindered deleveraging. Excluding cash from asset disposals, Moody's calculates that free cash flow after interest and dividends was negative EUR703 million in 2018. The rating agency forecasts that free cash flow after interest and dividends will remain negative in France in 2019 and 2020, at about minus EUR300-400 million, as per the rating agency's definition. Liquidity at Casino's parent company Rallye is again weakening. The average maturity of Rallye's loans and bonds fell to 2.3 years on December 31, 2018 compared to 3.2 years at year-end 2017. According to Moody's forward-looking liquidity analysis over the coming quarters, unless it extends the maturity of its bank debt or obtains new sources of funding, Rallye could face a liquidity shortfall by 2020. A liquidity shortage could occur earlier if Casino's share price declines because EUR1,410 million of Rallye's credit facilities are subject to a share pledge requiring Rallye to post 130% of the borrowed amount in Casino shares as collateral. Despite its deteriorating liquidity, Rallye will pay a cash dividend of EUR1 per share, or EUR52 million in total, on May 2019. This is a change from its previous approach of preserving its cash resources: in 2017 and 2018, Rallye proposed to its shareholders an option to pay dividends in shares, which reduced the cash outflow to EUR15-18 million. More positively, Casino has increased its EUR1.5 billion asset disposal program, which it completed at the beginning of 2019, to EUR2.5 billion. The group has already sold EUR0.4 billion of assets in 2019 and plans to divest an additional EUR1 billion by the first quarter of 2020. Casino's credit quality remains supported by its strong presence in proximity and online. In contrast to other French grocers such as Carrefour S.A. ((P) Baa1 negative), Casino has limited exposure so the declining hypermarket segment, which it is reducing further by selling loss-making stores. The company has also developed a number of ancillary revenue sources, such as 3W.RelevanC, a digital display agency, and GreenYellow, an energy subsidiary. However, the rating agency forecasts a Moody's-adjusted EBITDA margin stable at 6.8% over the next 18 months because of higher rental expenses and restructuring costs. The liquidity of French operations is adequate. On December 31, 2018, this division had EUR2,097 million of cash and EUR3,431 million of undrawn committed credit facilities, which should cover the repayment of a EUR681 outstanding million bond in August 2019 and another EUR507 outstanding million bond in March 2020. However, seasonal variations in working capital are substantial and the amount outstanding under the French reverse factoring program has increased to EUR704 million from EUR573 million at year-end 2017. STRUCTURAL CONSIDERATIONS Casino's debt is located at the level of Casino France (EUR5.9 billion as of December 31, 2018), the Brazilian subsidiary GPA (EUR1.2 billion), the Colombian subsidiary Exito (EUR1.0 billion) and the Latin American holding Segisor (EUR0.4 billion). There is no cross-default clause or guarantees between these subsidiaries. Moody's considers all the debt instruments at the subsidiaries to be unsecured and to rank above the deeply subordinated perpetual bonds issued by Casino France, which amounted to EUR1.35 billion at year-end 2018. The probability of default rating is based on a 50% family recovery assumption, which reflects a capital structure including bonds and bank debts with loose financial covenants. According to management, Casino's debt does not have a cross default clause with that of Rallye. RATIONALE FOR THE NEGATIVE OUTLOOK The negative outlook reflects Moody's view that Casino will need to successfully execute its asset disposal program and use proceeds for debt repayment to deleverage, in spite of possible negative free cash flows in France. It also factors in the high leverage and weakening liquidity of parent Rallye, which creates uncertainties with regards Casino's financial policies, despite some protections stemming from Casino's listing and large minorities. WHAT COULD CHANGE THE RATING UP/DOWN Further negative pressure on the ratings could materialize if Casino failed to reduce its Moody's-adjusted debt/EBITDA, on a fully consolidated basis, towards 5.5x or if French operations' cash flows do not improve sustainably, excluding proceeds from asset disposals. Moody's could also downgrade the ratings if Rallye's liquidity fails to improve, as shown for instance by an inability to refinance upcoming debt maturities. A more aggressive financial policy, with for instance an increase in shareholder remuneration, or any other steps causing Casino's creditors to become more exposed to Rallye's current unsustainably weak financial structure, would also lead to a negative rating action. Although an upgrade is currently unlikely, Moody's could raise Casino's ratings if it lowered its Moody's-adjusted debt/EBITDA comfortably and sustainably below 5x, assuming that the group structure does not change. An upgrade would also require that French operations' cash flows move closer to zero, excluding proceeds from asset disposals. A positive rating action would necessitate decisive and sustainable improvements in Rallye's weakening liquidity and high loan-to-value ratio. LIST OF AFFECTED RATINGS Issuer: Casino Guichard-Perrachon SA Affirmations: Commercial Paper, Affirmed NP Other Short Term, Affirmed (P)NP Downgrades: LT Corporate Family Rating, Downgraded to Ba3 from Ba1 Probability of Default Rating, Downgraded to Ba3-PD from Ba1-PD Subordinate Regular Bond/Debenture, Downgraded to B2 from Ba3 Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba3 from (P)Ba1 Senior Unsecured Regular Bond/Debenture, Downgraded to Ba3 from Ba1 Outlook Action: Outlook, Remains Negative PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail Industry published in May 2018. COMPANY PROFILE With EUR37 billion of reported revenue in 2018, France-based Casino is one of the largest food retailers in Europe. Its main shareholder is the French holding Groupe Rallye, which owned 51.7% of Casino's capital and 63.0% of its voting rights as of 31 December 2018. Casino's Chief Executive Officer (CEO) Jean-Charles Naouri controls Groupe Rallye through a cascade of holdings. ============= G E R M A N Y ============= PROVIDE BLUE 2005-2: S&P Raises Class E Notes Rating to B- (sf) --------------------------------------------------------------- S&P Global Ratings raised its credit ratings on PROVIDE BLUE 2005-1 PLC's class E notes and PROVIDE BLUE 2005-2 PLC's class D and E notes. The upgrades follow S&P's analysis of the transactions and the application of our European residential loans criteria. S&P said, "In our opinion, the current outlook for the German residential mortgage and real estate market is benign. The generally favorable economic conditions support our view that the performance of German residential mortgage-backed securities (RMBS) collateral pools will remain stable in 2019. Given our outlook on the German economy, we consider the base-case expected losses of 0.4% at the 'B' rating level for an archetypal pool of German mortgage loans, and the other assumptions in our European residential loans criteria, to be appropriate." As the notes pay down fully sequentially, available credit enhancement has increased proportionally for the rated notes in both transactions since our previous review in 2017. Over the same time, defaulted reference claims (90+ days arrears and bankruptcies, which have been reported to the trustee) have significantly reduced in both transactions. S&P said, "We have raised our ratings on PROVIDE BLUE 2005-1's class E notes and PROVIDE BLUE 2005-2's class D notes because we consider the increased credit enhancement to be commensurate with our recommended ratings on these classes of notes. We also considered our view of the tail-end risk, given the transactions' small pool factors (the outstanding collateral balance as a proportion of the original collateral balance) and their sensitivity to recoveries. However, at this stage in the transaction, we believe the tail-end risk factors is less likely to occur given the stable performance of these deals to date and the short time remaining before we expect the notes' repayment. "We have also raised our rating on PROVIDE BLUE 2005-2's class E notes because given improved collateral and transaction performance, we consider the payment of principal and interest on this class as not dependent upon favorable business, financial, or economic conditions. In our view, this, in conjunction with the increased credit enhancement is commensurate with our recommended rating. "We also consider credit stability in our analysis. To reflect moderate stress conditions, we adjusted our weighted-average foreclosure frequency assumptions by assuming additional arrears of 8% for one- and three-year horizons. This did not result in our rating deteriorating below the maximum projected deterioration that we would associate with each relevant rating level, as outlined in our credit stability criteria." PROVIDE BLUE 2005-1 and PROVIDE BLUE 2005-2 are partially funded synthetic German RMBS transactions using the Provide Platform provided by Kreditanstalt fur Wiederaufbau. RATINGS RAISED Class Rating To From PROVIDE BLUE 2005-1 PLC E AA- (sf) BBB (sf) PROVIDE BLUE 2005-2 PLC D A- (sf) BBB (sf) E B- (sf) CCC+ (sf) SEUDZUCKER AG: Moody's Cuts Hybrid Notes Rating to B2 ----------------------------------------------------- Moody's Investors Service has placed under review for downgrade the Baa3 long-term issuer rating and the Prime-3 (P-3) short-term rating of Suedzucker AG ('Suedzucker' or 'the company'), as well as Suedzucker International Finance B.V.'s Baa3 long-term issuer rating and the Prime-3 (P-3) short-term rating. Suedzucker is the leading beet sugar producer in Europe. Concurrently, Moody's has downgraded Suedzucker International Finance B.V.'s junior subordinated notes (or 'the hybrid') to B2 from B1 and left the rating on review for downgrade. The outlook for both entities will be changed to under review from negative. The rating action follows the company's publication of its profitability guidance for fiscal year end February 2020 (fiscal 2020) and the announcement that the coupon on the hybrid notes is likely to be suspended for at least one year. "We have placed Suedzucker's ratings on review for downgrade to reflect our expectation that the company's profitability and credit metrics over the next 12 to 18 months will be weaker than anticipated when we downgraded the rating to Baa3 in December. In addition, cash flow generation during fiscal 2019 was lower than expected, leading to the likely suspension of the coupon payment on the company's hybrid notes, as a result of which, we have lowered the rating on the hybrid by one notch", says Paolo Leschiutta a Moody's Senior Vice President and lead analyst for Suedzucker. RATINGS RATIONALE Moody's expects Suedzucker's profitability and credit metrics over the next 12 to 18 months to be weaker than previously anticipated, following the company's publication of its EBITDA guidance for fiscal 2020, which will be within a range between EUR360 million and EUR460 million. This is at the lower end of what Moody's expected when the rating was lowered to Baa3 in December. The rating review was also prompted by the company's announcement that the coupon payment under its hybrid notes is likely to be suspended between June 2019 and March 2020, indicating that cash generation during fiscal 2019 was below the company's expectations. Moody's understands that cash generation during fiscal 2019 was affected by both the drop in profitability and provisions related to the company's restructuring programme announced in January 2019 and agreed by Suedzucker's supervisory board in February. Based on the company's preliminary results, the rating agency estimates that the company's Moody's adjusted debt to EBITDA will be close to 7.0x at fiscal 2019, slightly above Moody's previous expectation of 6.6x. The implementation of the restructuring programme will cost Suedzucker's around EUR180 million to EUR220 million, of which around 70% will be cash costs over the next three years, the bulk of which Moody's expects during fiscal 2020. The rating agency also expects that most of the cost savings will materialize only at a later stage, most likely between the next 12 to 24 months, implying that the company's profitability will remain depressed in the meantime. Suedzucker's decision to pay a dividend during fiscal 2020, despite the likely suspension of the coupon payment on the hybrid, reflects a less conservative than expected financial policy that favours the interests of shareholders to that of creditors. Nonetheless, Moody's notes that the proposed dividend for Suedzucker AG has been cut by 56% to EUR41 million from EUR92 million, and that this still has to be approved by the company's supervisory board on 15 May. More positively, Moody's notes that, despite the fact that sugar market conditions remain challenging across Europe, EU sugar production during the campaign 2018/19 that has just terminated reduced by approximately 15%, according to the European Commission, which should support a better balance between supply and demand for this sugar marketing year starting October 1, 2019. While prices locked by the company in long term contracts over the last six months were still close to historic minimum levels, spot sugar prices have slightly recovered more recently which, if sustained, could support some recovery in profitability after fiscal 2020. The company's liquidity remains good and supports the rating in view of the earnings volatility. Moody's notes, however, that the company's main EUR600 million syndicated revolving credit facility, fully undrawn at the moment, matures in November 2020, and the rating agency expects the company to refinance this about twelve months ahead of the maturity. The review process will focus on (1) the execution risk associated with the implementation of the company's restructuring programme and the time it will take to Suedzucker to improve its profitability; (2) the sugar market dynamics across Europe over the next 12 to 18 months, with specific reference to spot price evolution and supply/demand balances and the prevailing market conditions in both the European and global sugar markets, which are more interconnected following the liberalization across the EU; (3) the measures that the company can take to reduce its financial leverage and improve credit metrics, at a time when visibility on operating performance is low; and (4) the assessment of the company's liquidity profile. Moody's cautions that if Suedzucker's issuer rating was downgraded to below investment grade, the company's hybrid instrument would lose the equity credit (currently of 75%) that the rating agency assigns to the instrument for debt ratios computation, resulting in a negative impact on the company's Moody's-adjusted financial leverage calculation. If the rating review process had to conclude with a downgrade of the issuer rating, Moody's would replace this with a Corporate Family Rating (CFR), used for non-investment grade issuers. Because of the loss of the equity credit, a CFR might be two notches below the existing Baa3 rating. However, in this case the senior unsecured instruments would continue to benefit from the loss absorption provided by the hybrid notes in the debt waterfall, which might result in senior unsecured debt ratings potentially been rated one notch above the CFR. RATIONALE FOR DOWNGRADE OF HYBRID INSTRUMENT TO B2 The downgrade to B2 from B1 of the junior subordinated notes, five notches below the company's issuer rating, reflects the expected suspension of payments on the coupon for at least one year. The review on the hybrid instrument rating reflects the fact that Moody's shall review the prospects of future potential suspensions, which could lead to further downgrade of the instrument rating. In addition, a downgrade to non-investment grade would also likely imply a further downgrade of the instrument notwithstanding a downgrade linked to a reassessment of the probability of further suspensions after the expected suspension in 2019-2020. WHAT COULD CHANGE THE RATING UP/DOWN Positive pressure on the rating is currently unlikely given the review for downgrade. Prior to the ratings review process, Moody's said that a recovery in profitability, together with the company's ability to demonstrate greater earnings stability or higher contribution from non-sugar activity could lead to upward pressure on the rating. Any upward pressure would follow the company's success in achieving and maintaining a Moody's adjusted leverage towards 3.0x on a sustainable basis. Conversely, negative rating pressure could develop in case of further deterioration in both operating margin and credit metrics or in case the company's EBITDA does not start to recover, after an expected weak fiscal 2019. Quantitatively a Moody's adjusted debt to EBITDA ratio sustained above 4.0x for a prolonged period of time and a retained cash flow/net debt ratio sustainably below 15% could result in a downgrade. Any deterioration in the company's liquidity profile could also lead to a downgrade. LIST OF AFFECTED RATINGS Issuer: Suedzucker AG On Review for Downgrade: LT Issuer Rating, Placed on Review for Downgrade, currently Baa3 Commercial Paper, Placed on Review for Downgrade, currently P-3 Outlook Action: Outlook, Changed To Rating Under Review From Negative Issuer: Suedzucker International Finance B.V. Downgrade and On Review for Downgrade: BACKED Junior Subordinated Regular Bond/Debenture, Downgraded to B2 from B1; Placed Under Review for Downgrade On Review for Downgrade: BACKED LT Issuer Rating, Placed on Review for Downgrade, currently Baa3 Commercial Paper, Placed on Review for Downgrade, currently P-3 Outlook Action: Outlook, Changed To Rating Under Review From Negative The principal methodology used in these ratings was Global Protein and Agriculture Industry published in June 2017. COMPANY PROFILE Suedzucker is the leading beet sugar producer in Europe with an overall reported market share of around 24% in the EU-28. Suedzucker is also active in three other business segments: Special Products, CropEnergies and Fruit. On a preliminary basis, in fiscal 2019, Suedzucker reported sales of around EUR6.75 billion and EBITDA of EUR350 million. The company generates around 80% of its sales in Europe (fiscal 2018 data). SUEDZUCKER AG: S&P Cuts Hybrid Debt Rating to 'CC', On Watch Neg. ----------------------------------------------------------------- S&P Global Ratings lowered its issue rating on Suedzucker AG's subordinated hybrid instrument to 'CC' from 'B+' and placed all ratings on Suedzuecker on Creditwatch with negative implications. S&P said, "The CreditWatch negative reflects our opinion that Sueduzcker will likely post weaker-than-expected credit metrics and cash flow generation in fiscal 2020 (fiscal year ends February 2020) due to weak sugar prices and higher restructuring costs. In its recent press release, the company mentioned it expects EBITDA of EUR350 million at year end, and EUR360 million-EUR460 million next year, which is below our base-case expectations. We now view it unlikely that Suedzucker will achieve adjusted debt to EBITDA of below 4x this fiscal year." The group's weak profitability mainly stems from continued low sugar prices in the second half of fiscal 2019, and uncertainty regarding sugar price rebound in the first half of fiscal 2020, and in fiscal 2021. S&P also takes into account the negative effects of the significant cash restructuring measures in the sugar business in Germany, France, and Poland, and the volatile price environment for ethanol activities. S&P said, "We understand that Suedzucker doesn't expect cost savings benefits from lower capacities and administrative costs will support profitability until at least next year. That said, we continue to see the noncommodity businesses like special products and fruit concentrates as performing in line with expectations, steadying the EBITDA base. "We are lowering our issue rating on the company's subordinated hybrid instrument following the company announcement that there is an increasing likelihood it will defer the coupon payment on its hybrid instrument in the next quarter. The 'CC' rating reflects our belief that an interest non-payment at the next payment date is almost certain. We aim to resolve the CreditWatch placement within the next three months, after meeting with management and receiving more in-depth information. We will discuss in detail the group's financial policy and deleveraging path, as well as plans for operating improvements and growth prospects--mainly for the sugar operations. We could affirm the ratings if Suedzucker can demonstrate a satisfactory plan to achieve the required credit metrics through measures other than those announced on March 27, 2019." The ratings could be lowered if the group cannot clearly demonstrate how it will restore credit metrics, particularly debt to EBITDA of 3x by the end of fiscal 2021. TUI AG: Moody's Affirms Ba2 CFR, Alters Outlook to Neg. ------------------------------------------------------- Moody's Investors Service has affirmed the Ba2 corporate family rating (CFR), the Ba2-PD probability of default rating (PDR) and the Ba2 senior unsecured rating of the world's leading tourism company TUI AG (TUI). Concurrently, TUI's outlook has been changed to negative from stable. "The outlook change to negative reflects the downward trend of TUI's operating performance in 2019 due to structural challenges in the tour operator business, increasing macroeconomic challenges and the negative cost impact of the recently announced grounding of the Boeing 737 MAX 8", says Vitali Morgovski, a Moody's Assistant Vice President-Analyst and lead analyst for TUI. RATINGS RATIONALE The grounding of the Boeing 737 MAX 8 has prompted the company to revise its guidance for the second time this year. Instead of a stable underlying EBITA the company now expects a decline of 17% to 26% in fiscal 2019, depending on whether Boeing 737 MAX 8 will resume flying by mid-July or the issues will persist for the end of season. In addition to the one-off costs related to the 737 MAX grounding, Moody's has lowered the expectations of TUI's operating performance in the coming 12-18 months given the market challenges. Moody's now expects TUI's leverage ratio to increase towards the upper end of the previous required 3.5x -- 4.5x range for the Ba2 rating, which is in contrast to the previous expectation of a flat operating performance trend in fiscal 2019. In contrast to the previous guidance of broadly stable underlying EBITA in fiscal 2019, TUI now expects EUR200 million negative impact in connection with the Boeing 737 MAX 8 grounding. The impact is attributable to the leasing of additional aircraft in order to secure customer holidays, higher fuel costs related to the extension of expiring leases for older aircraft that were supposed to be replaced by 737 MAX 8 as well as other disruption costs. Having around 150 aircraft in its fleet TUI has grounded 15 737 MAX 8 while another eight 737 MAX 8 are scheduled for delivery by the end of May 2019. TUI's measures are covering the time until mid-July. However, should 737 MAX 8 not return to service and TUI will have to extend the extraordinary measures until September 2019, an additional negative impact of up to EUR 100 million is to be expected. Moody's now expects a material deterioration in TUI's credit metrics due to the abovementioned effects while there is a considerable uncertainty on their full impact and duration. Higher lease expenses, that TUI estimates at around 55% of total extraordinary costs, will lead to higher debt adjustments, for which Moody's applies a multiplication factor of 5x. At the same time, there are material costs other than leases that will reduce Moody's adjusted EBITDA. As a result, Moody's expects TUI's gross leverage (Moody's adjusted) to increase towards the upper end of the required 3.5x -- 4.5x range for the Ba2 rating by the end of fiscal 2019. Moreover, there is a considerable uncertainty whether the ratio can be reduced in the following fiscal year as it depends on 737 MAX 8 resuming flying, which is outside of TUI's control, and also improving earnings in times when the tourism market is facing a number of challenges ranging from an intensified competition in the tour operator segment, continued cost pressure, capacity shift from Western to Eastern Mediterranean, which can negatively affect TUI's highly profitable hotel business segment and the uncertainty with regard to the final outcome of Brexit negotiations and their impact on consumer confidence and behavior. In addition to one-off costs related to 737 MAX 8 grounding, Moody's has lowered its expectation of TUI's operating performance in the coming 12-18 months given these market challenges. Furthermore, Moody's expects TUI's free cash flow to be distinctly negative this year, especially if the company keeps its capex program unchanged, which appears likely at the moment. TUI's liquidity position consisting of EUR2.5 billion cash in September 2018 (EUR0.9 billion in December 2018) as well as EUR1.5 billion revolving credit facility (RCF) available for cash drawings (EUR0.2 billion utilized in December 2018) may decline by EUR700 -- 900 million during fiscal 2019. While this would still be sufficient to meet TUI's high seasonal working capital needs during the first fiscal quarter that Moody's estimate to be around EUR1.5 billion, the overall liquidity will become weaker compared to the previous few years when TUI's liquidity benefitted from the EUR2 billion asset disposals in fiscals 2016 and 2017. Moody's expects TUI to remain in compliance with financial covenants under its RCF throughout the next 12-18 months. However, Moody's adjusted free cash flow next year can potentially benefit from lower capex spending after the reinvestment of EUR2 billion asset disposal proceeds are concluded and also from lower dividends that according to TUI's dividend policy are linked to the development of the underlying EBITA, both in positive and negative way. Moreover, IFRS16 adoption for fiscal years starting in October 2019 onwards can potentially strengthen Moody's adjusted credit metrics by reducing adjustments currently applied for operating leases. More public disclosures on this topic during 2019 would allow Moody's to fine-tune its expectations and to include the impact more implicitly into the rating. Moody's views positively TUI's adaption of its business model away from a classic tour operator to an integrated provider of holiday experiences during the recent few years. Since the merger with TUI Travel in 2014, the combined group has increasingly invested in new hotels, cruise ships and more recently in the development of destination services business and has diversified away from the concentration on the classical tour operator business. This led to a steadily increasing share of underlying EBITA coming from the more predictable Cruises and Hotels businesses, as the profitability share of Markets & Airlines (formerly called Source Markets) has declined to 36% of the group's underlying EBITA in fiscal 2018 from 75% in fiscal 2014. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook reflects the uncertainty in regards to the length of the Boeing 737 MAX 8 grounding and TUI's ability to recover its credit metrics to the extend required for the Ba2 rating given the market challenges in the tourism sector and the risk of a no-deal Brexit. WHAT COULD CHANGE THE RATING UP/DOWN Moody's would consider upgrading TUI's rating if the company were to demonstrate further resilience of its business model to external shocks and to continue the adaption of its business model to structural challenges. Quantitatively, positive pressure could arise if the group's gross leverage ratio (Moody's adjusted) were to fall below 3.5x and the retained cash flow/ net debt (Moody's adjusted) to remain above 25% throughout the seasonal swings of the year. The group is expected to retain a good liquidity profile to address the high seasonal cash swings during the year. The rating could be under negative pressure should TUI not be able to fully offset any additional external shocks that might occur or shows a lack of ability to offset structural challenges. Quantitatively, the rating could be lowered if the leverage ratio (Moody's adjusted) were to increase above 4.5x and the retained cash flow/ net debt (Moody's adjusted) were to fall below 15%, or if the group's liquidity profile were to deteriorate materially. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. PROFILE TUI AG, headquartered in Hanover, Germany, is the world's largest integrated tourism group. In the fiscal year to September 2018, the group reported revenues and underlying EBITA of EUR19.5 billion and EUR1.1 billion, respectively. TUI is listed on the Frankfurt and London Stock Exchanges with a current market capitalisation of EUR4.9 billion. ========= I T A L Y ========= MEDIOBANCA SPA: Moody's Rates Subordinated EMTN Program (P)Ba1 -------------------------------------------------------------- Moody's Investors Service has assigned a Baa1 long-term senior unsecured rating to Mediobanca S.p.A. (Mediobanca), with stable outlook. Moody's has also assigned provisional ratings to Mediobanca's long-term and short-term senior unsecured Euro medium-term note (EMTN) program of (P)Baa1/(P)P-2, and provisional junior senior unsecured and subordinated EMTN program ratings of (P)Baa3 and (P)Ba1 respectively. Furthermore, Moody's has assigned provisional long-term and short-term guaranteed senior unsecured EMTN program ratings of (P)Baa1/(P)P-2 to Mediobanca International (Luxembourg) SA. All other ratings of Mediobanca are unaffected by the rating action. RATINGS RATIONALE In assigning various ratings to the EMTN program of Mediobanca as well as the long-term senior unsecured notes, Moody's has taken into account the bank's standalone baseline credit assessment (BCA) and adjusted BCA of baa3 as well as the results of Moody's Advanced Loss Given Failure (LGF) analysis which incorporates the severity of loss faced by the different liability classes in resolution and which leads to different notches of rating uplift for the securities issued under the EMTN program. Further, Moody's maintained its assessment of a low probability of government support from the government of Italy (Baa3, stable) for Mediobanca as a modestly-sized bank domestically, which translates into no further uplift to the rated EMTN program debt classes. More specifically, the assigned Baa1 for the senior unsecured notes as well as the (P)Baa1 provisional senior unsecured EMTN program rating reflect the very low loss-given-failure under Moody's LGF analysis, resulting in two notches of uplift from the baa3 adjusted BCA. Further, the assigned (P)Baa3 provisional junior senior unsecured EMTN program rating reflects moderate loss-given-failure under Moody's LGF analysis, leading to no uplift from the baa3 adjusted BCA. Similarly, the (P)Ba1 provisional subordinated EMTN program rating indicates high loss-given-failure under Moody's LGF analysis (LGF), resulting in one notch of downward adjustment from the baa3 adjusted BCA. Mediobanca International (Luxembourg) S.A. is a wholly-owned subsidiary of Mediobanca and it is co-issuer for the EMTN program. The assigned ratings are aligned with Mediobanca's as the issuances under the subsidiary are fully guaranteed by Mediobanca. RATIONALE FOR THE OUTLOOK The stable outlook on Mediobanca's long-term senior unsecured rating reflects Moody's expectation that the bank's main financials will remain broadly stable in the next 12-18 months, and that the Italian and European economy will continue to grow at a moderate pace. WHAT COULD CHANGE THE RATING UP An upgrade of Mediobanca's senior unsecured and provisional senior unsecured EMTN program rating is unlikely as the ratings already exceed Italy's sovereign rating by two notches and are constrained at that level under Moody's methodology. This reflects the agency's view that asset-loss rates would likely be higher under a sovereign default and that the expected loss of the bank's debt and deposits would, therefore, be unlikely to be significantly below that of the sovereign's own debt. The provisional junior senior unsecured and subordinated EMTN program rating could be upgraded following the issuance of material amount of subordinated instruments and/or junior debt. WHAT COULD CHANGE THE RATING DOWN A downgrade of Mediobanca's BCA could lead to a downgrade of the bank's senior unsecured and provisional EMTN program ratings. The BCA could be downgraded if reliance on capital market activities were to increase; if capital ratios decreased materially; or if its dependence on short-term wholesale funding were to rise. Mediobanca's senior unsecured and EMTN program ratings could also be downgraded following a downgrade of Italy's sovereign debt rating. LIST OF AFFECTED RATINGS Issuer: Mediobanca International (Luxembourg) SA Assignments: Senior Unsecured Medium-Term Note Program (Local & Foreign Currency), assigned (P)Baa1 Other Short Term (Local & Foreign Currency), assigned (P)P-2 No Outlook assigned Issuer: Mediobanca S.p.A. Assignments: Senior Unsecured Regular Bond/Debenture (Local Currency), assigned Baa1, outlook stable Senior Unsecured Medium-Term Note Program (Local & Foreign Currency), assigned (P)Baa1 Junior Senior Unsecured Medium-Term Note Program (Local & Foreign Currency), assigned (P)Baa3 Subordinate Medium-Term Note Program (Local & Foreign Currency), assigned (P)Ba1 Other Short Term (Local & Foreign Currency), assigned (P)P-2 Outlook remains unaffected PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in August 2018. [*] Fitch Assigns Long-Term Deposit Ratings to 16 Italian Banks --------------------------------------------------------------- Fitch Ratings has assigned long-term Deposit Ratings to 16 banks based in Italy. All other ratings of the issuers in this Rating Action Commentary are unaffected by the rating actions. Full depositor preference became effective in Italy on January 1, 2019, after being introduced via law decree 181/2015 that transposed the Bank Recovery and Resolution Directive (BRRD) into national legislation. This resulted in changes to the hierarchy of claims of banks in liquidation and resolution, resulting in bank deposits (including uninsured deposits) becoming 'preferred' to other senior unsecured claims in resolution or liquidation. Fitch can assign Deposit Ratings to banks when it believes a jurisdiction's bankruptcy regime clearly provides a stronger bankruptcy claim to depositors versus other senior unsecured creditors. In countries with full depositor preference, deposits may be rated one notch above a bank's Long-Term Issuer Default Rating (IDR) to reflect a lower probability of default or superior recovery expectations over senior unsecured debt in case of default, if a bank has sufficient and sustainable combined buffers of qualifying junior and senior debt that could be used to absorb losses ahead of uninsured deposits. Fitch has not assigned short-term Deposit Ratings to the Italian banks at this stage. Short-term ratings are likely to be assigned after the agency's final short-term rating criteria have been published. KEY RATING DRIVERS INTESA SANPAOLO SPA (INTESASP), UNICREDIT SPA, MEDIOBANCA SPA, UNIONE DI BANCHE ITALIANE SPA (UBI) Fitch has assigned IntesaSP (IDR BBB/Negative, Deposit Rating BBB+), UniCredit (BBB/Negative; BBB+), Mediobanca (BBB/Negative; BBB+) and UBI (BBB-/Negative; BBB) long-term deposit ratings at one notch above their respective Long-Term IDRs. In Fitch's opinion, these banks have sufficient combined buffers of junior and senior debt (preferred and non-preferred) that results in a lower probability of default on deposits relative to their Long-Term IDRs. The one-notch uplift also reflects theexpectation that the banks will maintain sufficient buffers, given their status as domestically (or globally in the case of UniCredit) important institutions and the need to comply with minimum requirement for own funds and eligible liabilities MREL (and minimum total loss-absorbing capacity (TLAC) in the case of UniCredit) requirements. BANCA POPOLARE DI SONDRIO - SOCIETA COOPERATIVA PER AZIONI (SONDRIO), BANCO DI DESIO E DELLA BRIANZA, BANCA IFIS SPA (IFIS), CREDITO EMILIANO SPA (CREDEM), BANCA POPOLARE DELL'ALTO ADIGE SPA (VOLSKBANK), BPER BANCA SPA (BPER) Fitch has assigned Sondrio (BBB-/Stable), Desio (BBB-/Stable), IFIS (BB+/Stable), Credem (BBB/Negative) Volksbank (BB+/Stable) and BPER (BB/Positive) long-term Deposit Ratings in line with their Long-Term IDRs. Fitch believes that these banks' buffer of qualifying junior and senior debt do not provide sufficient protection to uninsured depositors in a resolution or liquidation to give sufficient comfort that a default on deposits could be avoided in case of a default on other obligations. This is either because the outstanding debt buffer is insufficient to fully recapitalise the bank, or is in Fitch's view likely to decline to low levels in the foreseeable future, or because there is uncertainty over future buffer evolution. BANCA MONTE DEI PASCHI DI SIENA SPA (MPS), BANCA CARIGE SPA - CASSA DI RISPARMIO DI GENOVA E IMPERIA (CARIGE) Fitch has assigned MPS (B/Stable) and Carige (CCC/RWE) long-term Deposit Ratings in line with their Long-Term IDRs. In its view, there are doubts over the sustainability of current debt buffers and therefore Fitch has not given any Deposit Rating uplift. This is based on the banks' weak standalone credit profiles, Fitch's opinion of their very uncertain access to the unsecured debt markets for funding and a large portion of their outstanding debt being in the form of senior state-guaranteed debt, with reasonably short maturities. ICCREA BANCA SPA (IB), ICCREA BANCAIMPRESA SPA (IBI) Fitch has assigned IB and IBI (both rated BB/Stable) long-term Deposit Ratings in line with their Long-Term IDRs. Fitch has not assigned any Deposit Rating uplift to the two banks given the very recent establishment of the cooperative banking group Gruppo Bancario Cooperativo Iccrea (BB/Stable) which consolidates over 140 mutual banks, and current uncertainty over future debt buffer evolution. BANCA NAZIONALE DEL LAVORO SPA (BNL), UNIPOL BANCA SPA BNL's (BBB+/Negative) and Unipol Banca's (BB+/RWN) IDRs are driven by institutional support from the banks' respective parents, BNP Paribas and Unipol Gruppo S.p.A.. Their long-term Deposit Ratings are aligned with their Long-Term IDRs because, in Fitch's opinion, debt buffers do not afford any obvious incremental protection to deposits over and above the support benefit already factored into the banks' IDRs. The support benefit results in IDRs being well above their standalone creditworthiness as reflected in their VRs (bb+ for BNL and b/RWP for Unipol Banca). RATING SENSITIVITIES The long-term Deposit Ratings are primarily sensitive to changes in the banks' Long-Term IDRs. For the banks that do not benefit from an uplift, the Deposit Ratings are also sensitive to an increase in the buffers of senior and junior debt being issued and maintained by the banks. For the larger banks, this could take place for example when subordination requirements under MREL become clearer. For IB and IBI, greater visibility into current levels of debt issued outside of the group and of future funding plans could lead to uplift for the Deposit Rating. For those banks that benefit from uplift, the Deposit Ratings are also sensitive to a reduction in the size of the senior and junior debt buffers, although Fitch views this unlikely in light of current and future regulatory requirements regarding MREL. The rating actions are as follows: Banca Carige S.p.A. - Cassa di Risparmio di Genova e Imperia Long-Term Deposit Rating assigned at 'CCC' and placed on Rating Watch Evolving Banca IFIS S.p.A. Long-Term Deposit Rating assigned at 'BB+' Banca Monte dei Paschi di Siena S.p.A. Long-Term Deposit Rating assigned at 'B' Banca Nazionale del Lavoro S.p.A. Long-Term Deposit Rating assigned at 'BBB+' Banca Popolare dell'Alto Adige S.p.A. - Volksbank Long-Term Deposit Rating assigned at 'BB+' Banca Popolare di Sondrio -Societa' Cooperativa per Azioni Long-Term Deposit Rating assigned at 'BBB-' Banco di Desio e della Brianza Long-Term Deposit Rating assigned at 'BBB-' BPER Banca S.p.A. Long-Term Deposit Rating assigned at 'BB' Credito Emiliano S.p.A. Long-Term Deposit Rating assigned at 'BBB' Iccrea Banca S.p.A. and Iccrea BancaImpresa S.p.A. Long-Term Deposit Rating assigned at 'BB' Intesa Sanpaolo S.p.A. Long-Term Deposit Rating assigned at 'BBB+' Mediobanca S.p.A. Long-Term Deposit Rating assigned at 'BBB+' Unione di Banche Italiane S.p.A. Long-Term Deposit Rating assigned at 'BBB' UniCredit S.p.A. Long-Term Deposit Rating assigned at 'BBB+' Unipol Banca S.p.A. Long-Term Deposit Rating assigned at 'BB+' and placed on Rating Watch Negative =========== R U S S I A =========== BANK URALSIB: S&P Ups ICR to 'B' on Improved Operating Performance ------------------------------------------------------------------ S&P Global Ratings said that it had raised its long-term issuer credit rating on Russia-based BANK URALSIB (PJSC) to 'B' from 'B-'. At the same time, S&P affirmed the short-term issuer credit rating at 'B'. The outlook is stable. URALSIB's operating performance has recovered since the start of its financial rehabilitation at the end of 2015. S&P said, "We expect the bank will post a healthy net profit of about Russian ruble (RUB) 6 billion (about US$86 million) as of year-end 2018 under International Financial Reporting Standards (IFRS), which corresponds to return on equity of around 8% and is not influenced materially by any one-off items. We also estimate that the bank's loan portfolio increased by approximately 15% in 2018, mainly owing to the retail segment. We consider the bank's strategy in the retail segment as moderately conservative, however, because URALSIB mainly focuses on mortgage and consumer loans to employees of the salary projects it services. We expect that the bank's loan portfolio growth will be about 10% annually in the next two years." S&P said, "We see as positive that URALSIB has managed to retain its regional network with historically strong positions in Bashkortostan and Krasnodar. In our view, this allows the bank to develop its business in the retail and small and midsize enterprise segments that are currently its key strategic areas. URALSIB's branch network consisted of 272 offices in 46 Russian regions on March 1, 2019. The bank ranked No.17 among Russia's 479 banks by net assets (RUB506 billion or about US$7.7 billion under local accounting standards) on the same date. "In addition, we believe that URALSIB's capital buffers improved in 2018, supported by the positive effect of IFRS 9 implementation, recovered earnings, no dividends, and moderate asset growth. We estimate our risk-adjusted capital ratio for URALSIB will be around 8% in the next two years, assuming no significant changes to the bank's growth plans or any unexpected one-off items. "We note, however, that URALSIB remains exposed to legacy problem and related-party assets, although the bank has made progress in cleaning its balance sheet. We estimate that the bank's exposure to related-party and non-core assets decreased to about 13.2% of total assets as of March 1, 2019, from about 15.0% at the end of 2017. We also note that around 3% of total assets due from related-parties were extended to factoring and leasing sister companies that currently perform relatively well, in our opinion. "We estimate URALSIB's exposure to problem loans account for 14.9% of its total loans as of Sept. 30, 2018. These loans are covered by loan loss provisions by around 61%. We see it as a risk, although some loans are also covered by real estate collateral, because we consider that collection of collateral may be difficult and lengthy in Russia. We note, however, that the share of URALSIB's loans overdue more than 90 days had decreased to 8.1% of total loans as of Sept. 30, 2018, from 17.6% on Dec. 31, 2016. "The stable outlook reflects our expectation that URALSIB's credit profile will remain largely unchanged in the next 12 months as the bank proceeds with its moderately conservative lending strategy and balance sheet clean-up. "We may take a negative rating action if the bank's operating performance were to deteriorate significantly due to increased credit costs or other losses, contrary to our expectations. We may also consider a downgrade if the bank were to increase its risky exposures or if we saw instability in its ownership structure leading to corporate governance weaknesses." A positive rating action is remote at this stage. It would depend on the bank's progress with cleaning up its balance sheet and decreasing its exposure to problem, non-core, and related-party assets. =========================== U N I T E D K I N G D O M =========================== CABLE & WIRELESS: Fitch Rates Proposed $400MM Notes 'BB-' --------------------------------------------------------- Fitch Ratings has assigned a rating of 'BB-'/'RR4' to Cable & Wireless Communications Limited (CWC) proposed USD400 million notes issuance due 2027. The notes will be issued out of Sable International Finance Limited (SIFL), an indirect subsidiary of CWC. The notes will be guaranteed on a senior basis by CWC, Cable & Wireless Limited, as well as other guarantors in the CWC corporate structure. The proceeds from the notes will be used to partially refinance an existing term loan, as well as partially repay existing SIFL unsecured notes. CWC's ratings reflect its leading market positions across well-diversified operating geographies and offerings, underpinned by solid network competitiveness. The long-term growth opportunities for data use and the concentrated nature of these markets -- often with only one major competitor -- provide additional support for the 'BB-' ratings. Further factored in the ratings are the company's strong liquidity position and manageable debt amortization schedule. Pressured growth in its mobile and fixed-voice segments due to unfavorable near-term industry trends, high leverage, and cash flow leakage remain credit concerns that constrain the rating at 'BB-'. KEY RATING DRIVERS Strong Diversified Operator: The company's operations are well diversified into mobile and fixed services, and it has the No. 1 or No. 2 market position in the majority of its markets. The company's revenue mix per service is well balanced, with mobile accounting for 29% of total sales during 2018, fixed-line at 24%, and business to business services (B2B) at 46% of revenues. The company's geographic diversification is also solid, with a substantial fixed and mobile presence in line operations in both Panama and Jamaica, which together account for approximately 77% of mobile and 49% of fixed subscribers. Finally, the company's B2B and subsea networks across the Caribbean provide strong growth prospects. Favorable Market Structure: The market structure in the Caribbean is mostly a duopoly between CWC and Digicel Group Limited (Digicel). Due to Digicel's stressed capital structure, pricing is expected to remain rational in the near term and Fitch does not believe the risk of a sizable new entrant to be high, given the relatively small size of each market amid the increasing market maturity, especially for mobile services. Under this environment, Fitch expects the company's market positions to remain stable over the medium term. CWC's continued high investment for network upgrades should bode well for its network competitiveness in the coming years. High Leverage: Fitch expects that EBITDA leverage will likely remain above 4.0x in the medium term, as CWC employs a leveraged equity return model, where excess cash is upstreamed to parent company LLA for dividends and/or M&A activity. Fitch expects leverage should remain below recent highs following an aggressive investment cycle during a period of stagnant cash flows. Fitch forecasts modest EBITDAR (subtracting for dividends paid to minority shareholders) growth and average capex of approximately USD350 million-USD400 million, which should result in improved FCF. Stagnant Cash Flow: Fitch believes that CWC's broadband and managed services segments will be the main growth drivers backed by its increasing subscriber base and relatively low service penetrations, and growing corporate/government clients' IT service demands. Fitch does not expect data ARPU improvements in the mobile segment to fully mitigate voice ARPU trends. Legacy fixed-voice revenue erosion is also unlikely to abate due to waning demand given cheap mobile voice or Voice-over-internet-protocol (VoIP) services. Potential Refinancing and Restructuring Activities: CWC intends to simplify its capital structure in the future in a manner that would lead to the creation of a new holding company, as well as the refinancing of all existing CWC senior notes. Fitch expects the group to continue holding debt through its credit facilities at SIFL and Coral-US Co-Borrower LLC (Coral), as well as the proposed SIFL notes, and the SPV notes. The group's SPV notes have been structured in a manner that would allow them to be moved to the new holding company. At that time, the SPV notes would be both subordinated to CWC's credit facilities, including its Term Loan B-4 (TLB), revolving credit facility (RCF), the proposed notes, and operating company debt, and would likely be downgraded, based on their diminished recovery prospects. Capped Recovery Ratings: The ratings have been capped at 'RR4' due to Fitch's Country-Specific Treatment of Recovery Rating Criteria, which does not allow uplift for issuance of by companies that operate in countries where concerns exists about whether the law is supportive of creditor rights, and/or where there is significant volatility in the enforcement of the law and legal claims. DERIVATION SUMMARY CWC's leading market position and diversified operations and relatively stable EBITDA generation compare in line or favourably against other regional telecom operators in the 'BB' category. This strength is offset by its higher leverage than most peers in the 'BB' rating category, as well as LLA's financial strategy, which could limit any material deleveraging. The company's overall financial profile is stronger than its regional competitor, Digicel Group Limited (B-/Stable), which recently restructured its debt. The company has a weaker financial profile and higher leverage than Millicom Group (BB+/Stable), which supports a multi-notch differential. No country ceiling, parent-subsidiary linkage, or operating environment aspects impact the ratings. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Low single-digit revenue growth, primarily driven by B2B segment as residential revenue growth remains stagnant; -- EBITDA margin to remain stable at 35% in medium term; -- Capex to sales ratio of 15%-17% in the medium term. For the purposes of projecting recovery rates, Fitch makes estimates for maintenance capex, interest and rent payments. Stressed EBITDA from operating entities in Panama and the Bahamas have been excluded from the recovery analysis, based on CWC's minority ownership stake and expected treatment in a default scenario. Fitch uses a 5.5x multiple, based on historical precedent and the duopoly structure in CWC's main markets. RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action -- A positive rating action is not like to occur given management's history of maintaining moderately high levels of leverage, which have been in excess of 4.0x. Developments that May, Individually or Collectively, Lead to Negative Rating Action -- Sustained EBITDAR-based adjusted net leverage ratios above 5.0x; -- An erosion of the company's strong business position or liquidity position. LIQUIDITY CWC's liquidity profile is sound, backed by its long-term debt maturities profile, relatively stable operational cash flow generation, as well as committed revolving credit facility. As of Dec. 31, 2018, the company held cash and equivalents of USD416 million, against current portion of debt and capital leases of USD201 million. Since that time, the group has completed the repayment of the 2019 Sterling bonds (USD107 million), issued an additional USD300 million of SPV notes due 2027, and partially repaid USD115 million of existing SIFL notes. The proceeds from the proposed transaction would be used to continue paying down SIFL debt, as well as the company's Term Loan B-4 facility. Fitch expects cash and cash equivalents of USD314 million following the proposed transaction. The company has an undrawn USD625 million revolving credit facility due 2023, which bolsters its financial flexibility. The company has good access to international capital markets, when in need of external financing. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating: Sable International Finance Limited -- USD400 million senior notes due 2027 'BB-'/'RR4'. CABLE & WIRELESS: Moody's Rates $400MM Sr. Sec. Notes Ba3 --------------------------------------------------------- Moody's Investors Service has assigned a Ba3 rating to the proposed USD400 million senior secured notes due 2027, to be issued by Sable International Finance Limited (SIFL), an indirect wholly-owned subsidiary of Cable & Wireless Communications Limited (CWC). At the same time, Moody's has affirmed the Ba3 corporate family rating (CFR) of CWC, and the ratings of all other debt instrument ratings within the group. The outlook on all ratings is stable. CWC will use the issuance proceeds to repay USD150 million of its existing 2022 notes at SIFL (rated B2) and about USD235 million of its existing term loan (rated Ba3), and pay fees and expenses related to the issuance and debt repayments. The rating of the proposed notes assumes that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and that these agreements are legally valid, binding and enforceable. The following rating actions were taken: Assignment: Issuer: Sable International Finance Limited USD400 million Senior Secured Regular Bond/Debenture, Assigned Ba3 Affirmations: Issuer: Cable & Wireless Communications Limited Corporate Family Rating, Affirmed Ba3 Issuer: CORAL-US CO-BORROWER LLC Senior Secured Bank Credit Facility, Affirmed Ba3 Issuer: Sable International Finance Limited Senior Secured Bank Credit Facility, Affirmed Ba3 Senior Unsecured, Affirmed B2 Issuer: C&W Senior Financing Designated Activity Senior Unsecured, Affirmed B2 Rating withdrawn: Issuer: Cable & Wireless Communications Limited Probability of Default Rating, previously rated Ba3-PD Outlook Actions: Issuer: C&W Senior Financing Designated Activity Outlook, Remains Stable Issuer: Cable & Wireless Communications Limited Outlook, Remains Stable Issuer: CORAL-US CO-BORROWER LLC Outlook, Remains Stable Issuer: Sable International Finance Limited Outlook, Remains Stable RATINGS RATIONALE The Ba3 rating of the proposed USD400 million senior secured notes reflects their pari passu ranking with the existing term loan and revolving credit facility (RCF) at SIFL, both rated Ba3. The USD400 million notes will have the same guarantors and share the same collateral as the term loan and RCF. The USD400 million notes, as well as the term loan and RCF, rank ahead of the 2026 and 2027 notes issued by C&W Senior Financing Designated Activity Company and the 2022 notes issued by SIFL, all rated B2. The issuance proceeds will serve to repay a portion of the group's term loan rated Ba3 and a portion of the 2022 notes rated B2 and will not materially change the proportion of debt of each class, leaving notching unchanged. Proceeds of the USD400 million issuance will essentially be used to repay existing debt of the group and has therefore no material impact on the group debt level. The affirmation of CWC's Ba3 corporate family rating reflects its effective business model, strong profitability and leading market positions throughout the Caribbean and Panama. At the same time, the rating also takes into consideration the company's large exposure to emerging economies, high competitive pressures in most of its markets and its fairly high leverage (i.e. gross debt/EBITDA, including Moody's adjustments) for the Ba3 rating, at about 4.5x. The stable outlook on CWC's rating reflects Moody's expectations that the company's revenue growth will be modest, with its EBITDA margin (including Moody's adjustments) maintained at around 40% and liquidity remaining adequate in the next 12-18 months. The outlook also incorporates slightly positive free cash flow for the next 12-18 months and a gradual decline in adjusted debt/EBITDA. A rating upgrade could be considered if more conservative financial policies lead to deleveraging to under 2.5x (adjusted debt/EBITDA) on a consolidated basis, while maintaining a stable adjusted EBITDA margin and generating strong positive free cash flow, all on a sustained basis. CWC's ratings could be downgraded if (1) the company's adjusted debt/EBITDA remains over 4.0x (on a consolidated basis) on a sustained basis; (2) its adjusted EBITDA margin declines toward 35% on a sustained basis; (3) the company's market shares decline or its liquidity position weakens; (4) it makes a large cash distribution to its parent company. CWC is an integrated telecommunications provider offering mobile, broadband, video, fixed-line, business and IT services in Panama, Jamaica, the Bahamas, Trinidad and Tobago, and Barbados in addition to 13 other markets in the Caribbean and Seychelles. In 2018, the company generated revenue of USD2.3 billion. CWC is a subsidiary of Liberty Latin America Ltd., which was split off from Liberty Global plc (Ba3 stable) on December 29, 2017, and is listed on the NASDAQ. Moody's has decided to withdraw the probability of default rating for its own business reasons. The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. CABLE & WIRELESS: S&P Rates New $400MM Sec. Notes 'BB-' ------------------------------------------------------- S&P Global Ratings assigned its 'BB-' issue-level rating on Sable International Finance Ltd.'s new $400 million secured notes due 2027. Sable International Finance is a subsidiary of Cable & Wireless Communications Limited (CWC; BB-/Stable/B). S&P said, "We view the transaction to be debt neutral because CWC will use proceeds to repay $235 million of the existing $1.875 billion term loan B-4 due 2026 at Coral-US Co-Borrower LLC, the $150 million principal amount of its $360 million at Sable International Finance's notes due 2022, and pay any fees in connection with the new notes. The new notes will also have several incurrence covenants in line with those of CWC's current notes: net senior proportionated debt incurrence ratio of maximum of 4.0x and net proportionated debt ratio maximum of 5.0x. "Our ratings on CWC reflect its leading position as a wireline and wireless telecommunications and cable TV provider in most of the markets in which it operates; solid profitability; wide geographic, product, and customer diversification; intense competitive pressures; and overall relatively high country risk. The stable outlook on CWC reflects our expectations that its performance has recovered from damage following Hurricanes Irma and Maria in 2017. The company bolstered its EBITDA despite the stiff competition it continues to face in some markets. We expect CWC's adjusted debt to EBITDA ratio to remain closer to 4.0x and funds from operations to debt of 20%." RATINGS LIST Cable & Wireless Communications Limited Issuer credit rating BB-/Stable/B Rating Assigned Sable International Finance Ltd. Senior secured BB- CROSSRAIL LTD: Taxpayer Bailout "May Not Be Enough", MPs Say ------------------------------------------------------------ Oliver Gill at The Telegraph reports that an influential committee of MPs has warned that Crossrail's mammoth GBP2.8 billion overspend "may not be enough". According to The Telegraph, in a withering assessment of Europe's biggest infrastructure project, the Public Accounts Committee (PAC) said "key warning signs were missed or ignored" by officials. It lambasted a "laissez-faire" attitude by the Department for Transport (DfT), Crossrail Limited and Transport for London (TfL) towards the multibillion-pound taxpayer bailout that was required after the project delays were revealed, The Telegraph discloses. And the influential parliamentary body warned it is "not convinced" an already delayed timetable to launch Crossrail in 2020 can now be met, The Telegraph notes. As reported by the Troubled Company Reporter-Europe on Dec. 12, 2018, The Financial Times related that the opening of Crossrail was thrown into further doubt as the government announced a further bailout of up to GBP2.15 billion for London's new east-west railway line and suggested it may not open until 2020 at the earliest. Crossrail was originally estimated at GBP15.9 billion in 2007 but increased to GBP17.8 billion in 2009 before the coalition revised it to GBP14.8 billion, according to the FT. DEBENHAMS PLC: Refinancing Package Fees May Offset Savings ---------------------------------------------------------- Jonathan Eley at The Financial Times reports that Debenhams is set to burn through tens of millions of pounds in fees after securing its latest rescue deal, ratcheting up the pressure on the struggling retailer as it battles to stem falling sales, cut costs and fight off the attentions of its biggest shareholder. Last week, the department store group agreed a refinancing package with its lenders and bondholders, designed to give it more time to rationalize its store estate, reduce its operating costs by GBP80 million and improve its product offering, the FT relates. But while it has secured additional breathing space, the fees it has to pay for that funding could offset any savings found elsewhere, the FT states. The arrangement fees payable to lenders for up to GBP200 million of new money secured last week, plus a fee for extending its existing facilities for a year, total more than its entire GBP15 million interest bill for the financial year to September 1, 2018, the FT discloses. On top of that, Debenhams paid inducements of more than GBP1 million to its bondholders in return for their assent to changes in the terms and conditions of the bonds, along with fees to professional advisers, the FT notes. With an annual interest rate of 12%, the new facilities are also considerably more expensive than Debenhams' existing revolving credit line, which was agreed in February 2016, the FT says. Even if the facility agreed last week were in place for only half the group's financial year, it would still result in GBP12 million of interest costs when fully drawn, the FT relays. Debenhams must also pay GBP10.5 million of interest a year on its unsecured notes, which mature in 2021, according to the FT. If Mike Ashley acquires the group, the existing debt could be called in and he would have to use the Sports Direct balance sheet to recapitalise Debenhams, a price some analysts think would be too high for him to justify, the FT discloses. If the lenders take control, then it is likely they will transfer Debenhams' assets into a new, privately held company and restructure the store estate using a company voluntary arrangement, the FT states. FLYBE GROUP: Cancels Dozens of Flights Amid Job Loss Talks ---------------------------------------------------------- BBC News reports that regional airline Flybe has cancelled dozens of April 3 flights as it enters discussions over potential job losses. According to BBC, the company blamed an industry-wide shortage of pilots for the delays, as well as its own pilots taking holidays. Flights from Belfast City Airport and Birmingham are among those affected, BBC discloses. Most of the flights are within the UK, BBC notes. Flybe's chief executive Christine Ourmieres-Widener told BBC Radio 5 live the discussions over jobs are at an early stage and the company will try and avoid job losses by filling internal vacancies with existing staff, including roles at other bases, BBC relates. Of the delays, she said the company would "follow all the rules of compensation" and that "we are expecting to go back to normal operation as soon as possible", BBC notes. Flybe was bought early this year in a rescue deal following poor financial results, BBC recounts. Connect Airways, a consortium led by Richard Branson's Virgin Atlantic, paid a total of GBP2.8 million for Flybe's assets and operations, BBC discloses. The Exeter-based regional airline put itself up for sale last November, following a profit warning the previous month, BBC relays. Virgin, Stobart Air and Cyrus Capital set up Connect Airways in December, BBC states. Flybe fell into difficulty in 2017, after what was considered a too-aggressive expansion strategy, according to BBC. The company ran up a near-GBP20 million loss in the financial year ending March 31, 2017, BBC notes. OFFICE OUTLET: Reveals Location of 16 Stores Set to Close --------------------------------------------------------- Sebastian McCarthy at City A.M. reports that Office Outlet, the stationery retailer formerly belonging to Staples, has revealed the location of 16 store closures following its collapse into administration. According to City A.M., the troubled high street retailer, which has drafted in administrators from accountancy firm Deloitte, revealed on April 2 that 161 jobs and 16 outlets face the axe. The stationery giant approved a controversial restructuring process in August, known as a company voluntary arrangement (CVA), which included a three-year rent holiday for a number of its stores, City A.M. relates. Office Outlook stores set to close on April 7 and jobs at risk: -- Beckton (13 jobs) -- Catterick (13 jobs) -- Gloucester (9 jobs) -- Newport, Isle of Wight (9 jobs) -- Merton (7 jobs) -- Newcastle (10 jobs) -- Plymouth (9 jobs) -- Staples Corner (8 jobs) -- Stratford (10 jobs) All the Office Outlook stores set to close on April 10: -- Cardiff (11 jobs) -- Carlisle (8 jobs) -- Manchester (13 jobs) -- Old Kent Road (9 jobs) -- Southampton (12 jobs) -- Walsall (8 jobs) -- Weston Super Mare (12 jobs) ********* 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 * * *