/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190412.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, April 12, 2019, Vol. 20, No. 74 Headlines I R E L A N D AVOLON HOLDINGS: Fitch Places 'BB+' LT IDR on Watch Positive I T A L Y ASTALDI SPA: Sued BNP Paribas Over Contract Guarantee BANCO BPM: Moody's Rates Add'l Tier 1 Securities '(P)Caa1(hyb)' L U X E M B O U R G ITHACALUX SARL: S&P Affirms 'B-' ICR on Deleveraging Prospects S P A I N NH HOTEL: Fitch Corrects March 25 Ratings Release S W E D E N SAMHALLSBYGGNADSBOLAGET I NORDEN: Moody's Withdraws B1 CFR U K R A I N E METINVEST BV: Fitch Hikes IDRs to B+ on Improved Capital Structure U N I T E D K I N G D O M ARCADIA GROUP: Leonard Sells Back 25% Stake in Top Shop, Topman ARCADIA GROUP: Revamps Board Ahead of Radical Overhaul INTERSERVE PLC: FRC Opens Investigation on Grant Thornton Audit MEDERCO BLOCK: Enters Administration, Halts Operations SMALL BUSINESS 2019-1: Moody's Rates GBP18.9MM Class D Notes Ba3 X X X X X X X X [*] BOOK REVIEW: GROUNDED: Destruction of Eastern Airlines - - - - - ============= I R E L A N D ============= AVOLON HOLDINGS: Fitch Places 'BB+' LT IDR on Watch Positive ------------------------------------------------------------ Fitch Ratings has placed the 'BB+' long-term Issuer Default Rating of Avolon Holdings Limited and its wholly-owned subsidiaries, the senior secured debt ratings and senior unsecured debt ratings on Rating Watch Positive. These actions follow the firm's announcement to issue in aggregate, $1.8 billion in senior unsecured debt. Avolon intends to use the net proceeds from the offering for general corporate purposes, which may include the repayment of outstanding secured indebtedness. Fitch expects to resolve the Rating Watch Positive upon execution of the planned debt issuance, which is expected to occur on April 11, 2019, at which point Fitch would expect to upgrade Avolon's ratings by one notch to 'BBB-'. Concurrently, Fitch has assigned an expected rating of 'BBB-(EXP)' to Avolon Holdings Funding Limited's issuance of $1.8 billion in aggregate of unsecured notes. KEY RATING DRIVERS IDRs AND SENIOR DEBT The Rating Watch Positive reflects Fitch's expectation for continued funding profile improvement, as unsecured debt to total debt would improve to 53%, proforma for the $1.8 billion unsecured debt issuance, up from 42%, inclusive of the $1.1 billion senior unsecured debt issuance completed in February 2019, which Fitch believes would be more consistent with an investment-grade funding profile. The rating actions also reflect Avolon's stated intention to adhere to the enhanced corporate governance framework set forth under the Shareholder Agreement. This agreement between Bohai Leasing Co., Ltd. (Bohai Leasing) and ORIX Corporation (ORIX) limits dividends to a maximum of 50% of net income, subject to adherence to an investment-grade financial profile and ratings. Fitch views the dividend policy, combined with the revised board composition and recent deleveraging actions at Bohai Leasing, as important mitigants to the potential removal of the mandatory redemption covenants introduced as part of the insulation framework in 1Q18, which currently limits distributions to a general and builder basket, subject to certain leverage parameters. Per the terms of Avolon's existing bonds, this covenant would be suspended if it obtains investment-grade ratings from two nationally recognized statistical rating organizations. The ratings remain supported by Avolon's high quality commercial aircraft portfolio, scale and franchise strength as one of the world's largest aircraft leasing companies, strong profitability, robust risk controls and strong management track record. Avolon's ratings are constrained by growth via its order book, its stated acquisition appetite and qualitative considerations surrounding Avolon's ownership structure. Rating constraints applicable to the aircraft leasing industry more broadly include the monoline nature of the business, vulnerability to exogenous shocks, potential exposure to residual value risk, sensitivity to oil prices, reliance on wholesale funding sources and increased competition. At Dec. 31, 2018, Avolon was the third largest aircraft lessor in the world, with 971 owned, managed and committed aircraft leased to 150 customers. The largest exposures included Airbus A320ceo family aircraft (29% of carrying value at Dec. 31, 2018), Boeing 737NG family (21%), Airbus A330 family (15%), Boeing 787 family (13%) and Airbus A320neo family (8%). In addition to the diversification benefits that come with size, Fitch believes that increased scale provides certain strategic benefits to Avolon, such as a larger presence in the growing Asia-Pacific market, increased purchasing/negotiating power, a platform through which it can grow managed aircraft with institutional partners and more available channels to re-lease planes when needed. Fitch considers Avolon's asset quality to be strong, although this has been supported in part by the benign economic backdrop and the absence of material exogenous shocks. The average fleet age was 5.0 years at Dec. 31, 2018, which is young and more liquid relative to the majority of the aircraft lessor peer group. Avolon generated net spreads (lease yields, less borrowing costs) of 9.8% in 2018, up from 8.5% in 2017 due to portfolio growth. Fitch expects net spreads will taper over the next several years to around 6.1%, as a result of maintaining the unsecured debt component of its funding profile, which will be more expensive than secured debt, as well as the expectation for reduced growth given current economic conditions. Nevertheless, Fitch expects Avolon's profitability metrics will remain consistent with peers. Avolon's order book at Dec. 31, 2018 consisted of 410 planes, including new technology aircraft such as the A320neo, A321neo, A330neo, B737 MAX 8/9 and B787-8/9. The order book represented 42.2% of the owned, managed and committed fleet as of Dec. 31, 2018. The order book and other funding requirements will create a need for consistent access to the debt markets in Fitch's opinion. Avolon's gross debt to tangible equity ratio was 3.0x as of Dec. 31, 2018. There is not expected to be a meaningful change in the firm's leverage metrics, proforma as of Dec. 31, 2018, as a result of the proposed $1.8 billion debt issuance, as a majority of issuance proceeds are expected be used to repay existing senior secured debt. Over the medium term, Avolon expects leverage will decline to 2.5x given amortization on secured debt and growth in retained earnings. In Fitch's opinion, this would be more consistent with investment-grade peers given the quality of the fleet profile. Near-term liquidity is viewed as solid as liquidity sources (cash and liquid investments, next 12 months funds from operations, available undrawn debt facilities and expected proceeds from aircraft disposals) adequately cover uses (capex, debt principal repayments, pre-delivery payments and other corporate uses) by 1.5x over the next 12 months as of Dec. 31, 2018. The solid liquidity profile is a result of Avolon's recent capital markets activities, which include a $1.1 billion unsecured debt issuance and a $500 million unsecured term loan issuance in February and March 2019, respectively. Proforma for the $1.8 billion unsecured debt issuance, Avolon's unsecured debt would be expected to represent 53% of total debt. Fitch expects Avolon will maintain unsecured debt to total debt above 50% over the long term, which would be more consistent with an investment-grade funding profile. Avolon had approximately $8.7 billion of unencumbered aircraft assets at Dec. 31, 2018, which Fitch believes provides additional financial and operational flexibility. The long-term IDR of Avolon Holdings Funding Limited is equalized with the long-term IDR of Avolon, since the entity is a direct, wholly-owned subsidiary of Avolon created for the purpose of issuing unsecured notes. Avolon is the parent guarantor for the notes. The secured debt ratings are one notch above Avolon's Long-Term IDR and reflect the aircraft collateral backing these obligations, which suggest good recovery prospects. The equalization of the expected unsecured note rating with Avolon's IDR reflects an appropriate level of unsecured debt as a portion of total debt, as well as an assessment of the pool of unencumbered assets, which totaled $8.7 billion as of Dec. 31, 2018, which provides support to unsecured creditors and suggests average recovery prospects on the notes. RATING SENSITIVITIES IDRs AND SENIOR DEBT If the proposed debt issuance is completed as anticipated, Fitch expects to upgrade the long-term IDR of Avolon and its subsidiaries by one notch to 'BBB-' with a Stable Rating Outlook, reflecting the firm's improved financial flexibility. Thereafter, further upward rating momentum could be driven by a demonstrated track record of maintaining balance sheet leverage, on a gross debt to tangible common equity basis at or around 2.5x combined with demonstrated adherence to the enhanced corporate governance framework. Maintenance of a young, liquid fleet profile with limited impairments, demonstrated growth without exceeding internal capital generation and consistent access to the unsecured funding markets coupled with maintaining unsecured debt to total debt above 50%, would also be viewed positively by Fitch. However, should the debt issuance not proceed, Fitch would likely affirm Avolon's long-term IDR at current levels and maintain the Positive Rating Outlook. Although not currently envisioned by Fitch, increased ownership of Avolon by ORIX could result in the ratings benefiting from institutional support uplift, provided that Fitch believed ORIX had the willingness and ability to extend credit or liquidity support to Avolon. A sustained increase in gross debt to tangible common equity above 3.5x as a result of an increased risk appetite by Avolon's owners or underlying lease portfolio asset underperformance may result in the Outlook being revised to Stable from Positive. Additionally, a perceived material weakening of the credit risk profiles of Bohai Leasing and/or HNA, which serves to affect Avolon's funding access, franchise or other aspects of its business activities, higher-than-expected aircraft repossession activity, sustained deterioration in financial performance or operating cash flows and/or material weakening of liquidity relative to financing needs, may result in additional negative pressure on the ratings. The secured debt and unsecured debt ratings are primarily sensitive to changes in Avolon's long-term IDR and secondarily to the relative recovery prospects of the instruments. Fitch has placed the following ratings on Rating Watch Positive: Avolon Holdings Limited -- Long-Term IDR 'BB+'; -- Senior secured debt 'BBB-'. Avolon Holdings Funding Limited -- Long-Term IDR 'BB+'; -- Senior unsecured debt 'BB+'. Avolon TLB Borrower 1 (Luxembourg) S.a.r.l. -- Long-Term IDR 'BB+'; -- Senior secured debt 'BBB-'. Avolon TLB Borrower 1 (US) LLC -- Long-Term IDR 'BB+'; -- Senior secured debt 'BBB-'. CIT Aerospace International -- Senior secured debt 'BBB-'. CIT Aerospace LLC -- Senior secured debt 'BBB-'. CIT Aviation Finance III Limited -- Senior secured debt 'BBB-'. CIT Group Finance (Ireland) -- Senior secured debt 'BBB-'. Park Aerospace Holdings Limited -- Long-Term IDR 'BB+'; -- Senior unsecured debt 'BB+'. Fitch expects to assign the following ratings: Avolon Holdings Funding Limited -- Senior unsecured debt 'BBB-(EXP)'. ========= I T A L Y ========= ASTALDI SPA: Sued BNP Paribas Over Contract Guarantee ----------------------------------------------------- Stefano Bernabei at Reuters reports that BNP Paribas on April 10 denied having sued Astaldi SpA, adding that it was the Italian builder that had launched legal action against the French lender on March 13. The bank said it and other lenders were sued by Astaldi over the payment of an international guarantee issued by BNP Paribas at the request of the Italian group in favour of National Bank of Canada, Reuters relates. According to Reuters, BNP further said the legal move was "totally groundless". Earlier on April 10, Italian daily Il Messaggero reported that BNP had sued Astaldi over an alleged breach of a contract in Canada, complicating its rescue plan, Reuters recounts. Astaldi denied a lawsuit had been filed by BNP, Reuters notes. Rome-based Astaldi, hit by delays to plans to sell another bridge in Turkey, was granted court protection from creditors in October last year to allow it to continue business while restructuring its debt, Reuters relays. BANCO BPM: Moody's Rates Add'l Tier 1 Securities '(P)Caa1(hyb)' --------------------------------------------------------------- Moody's Investors Service assigned a (P)Caa1(hyb) rating to the expected issue of Additional Tier 1 non-viability contingent capital instruments by Banco BPM S.p.A. (Ba1 Stable/Ba2 Negative, b1). The (P)Caa1(hyb) rating assigned to the notes is based on (1) the standalone creditworthiness of Banco BPM as expressed by the bank's b1 baseline credit assessment (BCA); (2) the high loss-given-failure under Moody's Advanced Loss Given Failure (LGF) analysis, resulting in one notch downward adjustment from the BCA; and (3) the higher payment risk associated with the non-cumulative coupon skip mechanism, resulting in a further two notches of downward adjustment. The LGF analysis takes into consideration the principal write-down feature, in combination with the Tier 1 notes' deeply subordinated claim in liquidation. RATINGS RATIONALE According to Moody's framework for rating non-viability securities under its bank rating methodology, the agency typically positions Additional Tier 1 securities three notches below the bank's Adjusted BCA. One notch reflects the high loss-given-failure that these securities are likely to face in a resolution scenario, due to their deep subordination, small volume and limited protection from any residual equity. Moody's also incorporates two additional negative notches to reflect the higher risk associated with the non-cumulative coupon skip mechanism, which could precede the bank reaching the point of non-viability. The notes are unsecured, perpetual and subordinated to senior and subordinated unsecured obligations of Banco BPM. The notes have a non-cumulative full-discretionary coupon-suspension mechanism. There is a principal write-down if the bank's or the group's transitional Common Equity Tier 1 capital ratio drops below 5.125%, which Moody's views as close to the point of non-viability. The principal can be written up at the issuer's discretion. Consistent with the way Moody's assigns definitive ratings for any securities issued, the agency would determine the rating based on the security's features once they are known. The issuer can make changes to the conditions of the notes following changes in regulation or tax law, or to ensure the effectiveness and enforceability of the bail-in power. Moody's believes that there is a low likelihood that an amendment of the terms of the securities would result in materially riskier securities. What could change the rating up/down The rating of the notes is mainly driven by Banco BPM's b1 standalone BCA, and reflects the bank's modest solvency, constrained by a large although declining stock of problem loans, and the bank's good funding and liquidity profile. Any changes in the BCA of the bank would likely result in changes to the (P)Caa1(hyb) rating assigned to these securities. =================== L U X E M B O U R G =================== ITHACALUX SARL: S&P Affirms 'B-' ICR on Deleveraging Prospects -------------------------------------------------------------- S&P Global Ratings affirmed its 'B-' issuer credit rating on Ithacalux S.a r.l. (dba as Informatica), its 'B' issue-level rating on Informatica LLC's senior secured debt, and its 'CCC+' issue-level rating on Informatica LLC's senior unsecured debt. The outlook on the rating remains positive, reflecting the company's improved credit measures, along with S&P's expectation that the company's operating performance will continue to be strong, which should support additional deleveraging. The rating action follows the company's announcement that it will pay a $388 million dividend to its owners, funded with $265 million of cash on the balance sheet, and $125 million of an incremental first-lien term loan. Although this signifies a more aggressive financial policy than S&P previously anticipated and will raise pro forma leverage by approximately 0.5x to the 8.25x area, it still believes that, Informatica has solid prospects to increase profitability and reduce its leverage to about 7x-7.5x by fiscal 2019. The positive outlook on Ithacalux S.a r.l. reflects the company's improved credit measures, along with our expectation that the company's operating performance will continue to be strong, which should support additional deleveraging. S&P said, "In our view, there is at least a one-in-three chance that we could raise our ratings on Ithacalux if the company performs in line with our base case expectations and demonstrates a willingness and ability to sustain its S&P Global Ratings-adjusted leverage below 8x." S&P said, "We could raise our ratings on Ithacalux S.a.r.l. if the company can maintain debt to EBITDA below 8x, and we believe the company can sustain it below this level through acquisitions and shareholder returns. This is likely to occur if the company the company can sustain its stronger-than-expected operating performance and it does not engage in any additional leveraging transactions to fund shareholder returns. "We could revise our rating outlook to stable, if we expect the Ithacalux's adjusted debt leverage to remain above 8x. This could occur if the company pursues acquisitions or shareholder returns that substantially increase debt and impair credit metrics. This may also happen, although less likely, if a business downturn or heightened competition significantly erodes profitability." ========= S P A I N ========= NH HOTEL: Fitch Corrects March 25 Ratings Release ------------------------------------------------- Fitch corrected a release on NH Hotel Group S.A. published on March 25, 2019 to correct the amount of unencumbered assets. The revised release is as follows: Fitch Ratings has revised the Outlook on NH Hotel Group S.A.'s (NH) Long-Term Issuer Default Rating (IDR) to Stable from Positive and affirmed the IDR at 'B+' following the acquisition by Minor International (Minor) of a 94.1% stake in NH Hotel Group (NHH). The revision of the Outlook reflects the risk that the new shareholder may influence NHH's financial structure, leading to leverage increasing to a level not consistent with an upgrade of the IDR. The rating also now encapsulates the fact that despite the absence of legal links (such as guarantees or inter-company loans) between the parent, Minor, and the subsidiary, NHH, the rating of NHH is now constrained also by the credit profile of the consolidated Minor consolidated group, which Fitch estimates to be highly leveraged. Thanks to the benefits from efforts to improve asset quality and pricing power, NHH has continued to demonstrate strong operational performance and progressed on de-leveraging, supporting its 'B+' IDR. KEY RATING DRIVERS Possible Changes in Financial Policy: In October 2018, Minor completed the tender offer for NHH, acquiring a 94.1% stake. Minor has publicly stated in their Tender Offer presentation of October 5th 2018 its alignment with NHH's target of net financial debt/EBITDA of around 1.2x (as calculated and expected by the company) for 2019, but has also established a long-term target leverage ratio of around 2.5x (0.7x FY18). However, Minor would also consider upstreaming at least part of NHH's currently high cash balances, should there not be any opportunities for value-creation from the expansion of the business. Despite restrictions imposed by the bond and revolving credit facility (RCF) documentation in terms of dividends, investments, guarantees or new loans, Fitch views this as potentially detrimental to NHH's credit quality, impeding funds from operations (FFO) adjusted net leverage from sustainably remaining below 5.0x. Parent Subsidiary Linkage: The new ownership by Minor requires Fitch to apply its Parent Subsidiary Rating Linkage Criteria, whereby Fitch would assess the strength of the ties between the two entities and their relative strength. While legal and operational ties are currently limited, with its existing higher leverage, Fitch views Minor as displaying a weaker credit profile at present than NHH, and this constrains NHH's rating. Should Minor acquire full ownership of NHH, Fitch would likely equalise the rating of NHH to the consolidated profile of Minor. Currently, Fitch understands however that Minor could also be evaluating the possibility of selling down its stake closer to the initially intended acceptance of its offer (51%-55%). The rating case assumes that distribution of resources to the parent will remain at 50% of net income and potentially no more than a one-off EUR100m distribution of around half the existing cash balances. Deviation from these expectations or an intensification of returns to the shareholder would pressure the rating. New Business Opportunities: NHH and Minor are in the process of setting up a strategic plan to take advantage of their relationship and identifying possible investment opportunities. Minor is a hotel operator with a good position in the upscale and luxury segments in Asia, a segment where NHH is absent, but has a limited presence in Europe. This complementarity should lead to business opportunities for both groups, in particular through sharing respective booking platforms. At present, the two companies are still working on redefinition of the strategy that will encapsulate opportunities for both groups. New hotels to be managed by NHH and the upgrading of selective assets to Minor's luxury brands should lead to higher revenue per available room (RevPar) for NHH. Solid Operational Performance: NH's solid operating performance in 2018 illustrates the benefits from heavy improvement capex over 2014-2018. Those refurbishments have allowed increases in average room rates (ADRs) of 24% since 2014, and 2.3% in 2018 alone. Occupancy also contributes to higher RevPar (up 3.8%), driven by Italy and the Benelux region, which confirms the move towards adequate profitability (EBITDA margin 16.4% in 2018). Fitch expects occupancy, ADRs and profits to stabilise once the main capex is completed in 2019. Lease Portfolio Optimisation: NH's lease-adjusted leverage metrics remain affected by a rather high burden of operating leases, which account for around 86% of total adjusted indebtedness after a 7.6x capitalisation multiple. Most of these leases are fixed leases. However, NH has been actively renegotiating or cancelling some onerous leases, leading to a reduction of the number of hotels with negative EBITDA to just eight hotels in 2018 from 92 in 2013. The fixed lease costs are partially mitigated by a cap mechanism in around 13% of the total rents of 2018, under which after the consumption of an agreed "loss basket" over the minimum fixed rents, they turn fully variable, offering downside protection in a deep and prolonged downturn. Strong Liquidity and FCF Generation: Free cash flow was positive in 2018, due to enhanced profitability, working capital optimisation, a reduction of the financial burden and a slight phasing of capex plans. Following the early redemption of NH's EUR250 million convertible bond in 2018, the next sizeable debt maturity is not until 2023 for a EUR357 million bond. A sizeable unencumbered asset base is also positive for NH's future financial flexibility and rating, allowing for additional sales and leasebacks, such as the large sale of NH Barbizon palace for EUR155 million in 2018. These proceeds may remain transitory on NHH's balance sheet. Tourism Momentum to Slow: Europe remains the most visited region in the world, with France and Spain in the top world destinations, but the number of visitors is expected to slow down following strong increases in 2016 and 2018. Keen competition from APAC and European emerging markets, the stabilisation of Mediterranean countries and the effects from Brexit are likely to moderate growth in NHH's core region. DERIVATION SUMMARY NHH is the sixth-largest hotel chain in Europe, significantly smaller than worldwide peers such as Marriott International Inc (BBB/Stable), Accor SA (BBB-/Positive) or Melia Hotels International by breadth of activities and number of rooms. NHH focuses on urban cities and business travellers, while Accor and Melia are also more diversified across leisure and business customers. NHH is comparable with Radisson Hospitability AB (B+/Stable) in size and urban positioning, although Radisson is present in a greater number of cities. NHH operates with an EBITDA margin above 16% in 2018, which is above closer competitor Radisson, but still far from that of investment-grade, asset-light operators such as Accor or Marriott. NHH's FFO lease-adjusted net leverage at 4.9x (adjusted for variable leases) at end-2018 was higher than peers due to large exposure to leases. In this respect NHH remains a more asset-heavy hotel group than peers, although the use of management contracts has increased to now represent around 15% of the hotel portfolio. NHH nevertheless owns a material proportion of its hotel assets, which could provide some flexibility in a downturn. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer- Stable occupancy with slight increase in rates, leading to average RevPar growth around 2% per year. - Management fees adjusted with the termination of Hesperia and the addition of Tivoli's fees (more than 2,000 new rooms in Portugal). - EBITDA margin to improve on efficiency plan implemented in 2017 and 2018, before contracting from 2020. - EUR600 million of capex for 2019-2022 to develop current signed pipeline and some additional limited expansion. - Dividend distribution of 50% of net income (as per the company's announced policy) and assuming EUR100 million of extraordinary dividends in 2020. NH's 'RR2' Recovery Rating for the senior secured notes' rating reflects the collateral of the EUR356.8 million secured notes and the EUR250 million RCF, which rank equally with each other. Collateral includes Dutch hotels as properties that would be managed by NH group operators, share pledge on a Dutch hotel, share pledges on Belgian companies owning hotels which equally would be managed by NH group operator companies and finally a share pledge on NH Italy as a single legal entity operating and owning the whole Italian group. This includes both the assets and the operating contracts. The described collateral has a market value of EUR1,166 million at end-June 2018. The expected distribution of recovered proceeds results in potential full recovery for senior secured creditors, including for senior secured bonds. The Recovery Rating is, however, constrained by Fitch's country-specific treatment of Recovery Ratings for Spain effectively caps the uplift from the IDR to two notches at 'BB'/'RR2'. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Improvement in the credit profile of the consolidated Minor group - FFO lease-adjusted net leverage below 5x on a sustained basis (2018: 4.9x), due for instance to Minor's announced target of limited cash repatriation from NH) - EBITDAR/(gross interest + rent) consistently above 1.8x (2018: 1.6x). - Continued improvement in the operating profile via EBIT margin and RevPar uplift - Sustained positive FCF Developments That May, Individually or Collectively, Lead to Negative Rating Action - Weakening of the credit profile of the consolidated Minor group, and increasing legal or operational ties between Minor and NH - FFO lease-adjusted net leverage above 5.5x on a sustained basis, for example due to shareholder's initiatives such as increased dividend payments - EBITDAR/(gross interest +rent) below 1.3x- Weakening trading performance leading to EBIT margin (excluding capital gains) trending toward 6%- Evidence of continuing moderately negative FCF LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: With the signing of the five- year EUR250 million RCF in September 2016, NH has significantly enhanced its liquidity profile, providing substantial operational and financial flexibility. The RCF remained undrawn at end-2018 and provides a healthy liquidity buffer, in addition to EUR266 million of cash on balance sheet. Part of this cash is derived from the sale and lease-back of the Barbizon Palace in Amsterdam (EUR122 million net) and might be transitory on balance sheet. Available liquidity is sound and reinforced after the early conversion of the NH's EUR250 million convertible bonds in June 2018. The ownership of unencumbered assets (EUR888 million of unencumbered assets in addition to the collateral) provides additional financial flexibility. =========== S W E D E N =========== SAMHALLSBYGGNADSBOLAGET I NORDEN: Moody's Withdraws B1 CFR ---------------------------------------------------------- Moody's Investors Service has withdrawn the corporate family rating of Samhallsbyggnadsbolaget i Norden AB ("SBB"). At the time of the of withdrawal the CFR was B1. The rating had a positive outlook. RATINGS RATIONALE Moody's has decided to withdraw the rating for its own business reasons. SBB is a Sweden based real estate company managing and developing community service and residential properties in Sweden, Norway and Finland. The value of its real estate assets stood at SEK25.2 billion as of Q4 2018. Since the outlook was changed to positive in December 2018, Moody's notes as positive that the company has strengthened its financial position by the issuance of SEK2.3 billion in D-shares, as well as updated the financial policy to reflect the intention of deleveraging its balance sheet. ============= U K R A I N E ============= METINVEST BV: Fitch Hikes IDRs to B+ on Improved Capital Structure ------------------------------------------------------------------ Fitch Ratings has upgraded Ukrainian integrated steel company Metinvest B.V.'s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) to 'B+' from 'B' and senior unsecured bonds to 'B+' from 'B' with an unchanged Recovery Rating of 'RR4'. The Outlook is Stable. The upgrade reflects Metinvest's improved capital structure with a smoother maturity profile and its commitment to prioritise capital expenditure, debt repayment and working capital funding over dividends. Fitch expects capital spending to remain at elevated levels in 2019 and 2020, but the group will fund this from internal cash flow generation. The upgrade also factors in some flexibility for the business to reduce capital expenditure under less supportive market conditions. Fitch forecasts funds from operations (FFO) adjusted gross leverage to remain below 2.0x over the rating horizon. Fitch assesses Metinvest's business and financial profile in the 'BB' category. However, the company's credit quality is constrained by the operating environment in Ukraine. KEY RATING DRIVERS Rating above Country Ceiling: Metinvest's 'B+' Long-Term IDR is now two notches above Ukraine's 'B-' Country Ceiling due to a sustainable improvement in the company's hard currency (HC) external debt service cover ratio. The top line of the ratio is supported by higher forecast mid-cycle EBITDA, linked to the improving product mix as well as higher earnings over the short to medium term from tighter iron ore and pellet markets. The bottom line takes into account the smoother maturity profile after the refinancing completed in 2018. Fitch expects the HC external debt service cover ratio to remain above 1.5x on an 18-month rolling basis. Around 65% of Metinvest's earnings come from exports and 10% from assets located in Europe and the US, with most of its cash held offshore/outside Ukraine, enabling the company to service its HC debt with recurring HC cash flows and cash balances. Vertically Integrated Producer: Metinvest is an important Eastern European producer of steel products (8.8mt in 2018) and iron ore (27.3mt of concentrate and pellets in 2018), with 276% self-sufficiency in iron ore and 43% in coking coal. The group benefits from close proximity to Black Sea and Azov Sea ports and has downstream operations in Italy and the UK. According to CRU, Metinvest's Ukrainian steel assets are placed around the mid-point of the hot rolled coils (HRC) site cost curve, weaker than last year's reporting, but reflecting that the group is spending more on maintenance and upgrading existing assets for longer-term positioning of the business. Market Fundamentals Remain Supportive: A strong pricing environment has helped boost Metinvest's EBITDA to USD2.2 billion (excluding joint ventures). While steel margins are moderating after a peak in 2018, iron ore prices remain at high levels following Vale's tailings dam failure at Feijao. CRU forecasts a supply loss for iron ore to the seaborne market of 40mt-45mt, including 11mt of pellets. As a result, the iron ore market has shifted to a supply deficit and prices have risen to the highest level since 1Q17. Fitch expects Metinvest to generate in excess of USD500 million of positive free cash flow (FCF) before dividends each year over the rating horizon, with FFO adjusted gross leverage staying below 2.0x. Sizeable Investment Underway: The refinancing in 2018 raised additional liquidity for operational purposes, which allowed Metinvest to increase capital spending. In steel key projects include increasing production capacity at Azovstal and Ilyich Steel to 11mt, including a major overhaul of blast furnaces and a new continuous casting machine, further strengthen the product mix towards finished and higher value added products as well as implement cost efficiencies. In iron ore the group targets to increase iron content and enhance key mechanical and chemical characteristics of iron ore products to access premium markets as well as improve the cost position. Protectionist Measures May Distort Markets: Tariffs, anti-dumping measures and final safeguards across the US, Canada, Europe and other countries are impacting supply chains and diverting sales of steel products. The group imports slab to Italy for processing into HRC at its Ferriera Valsider plant, avoiding anti-dumping duties on HRC imported from the Ukraine. In addition, Metinvest's plate mills in Italy (Ferriera Valsider and Trametal) and the UK (Spartan) as well as the long production site in Bulgaria (Promet Steel) are not subject to European quotas or anti-dumping duties. Otherwise, Metinvest mainly sells flat products into Europe for which quotas were set at levels significantly above the actual imports. The rating forecast does not factor in any reduction of EBITDA linked to individual/specific protectionist measures, but it should be noted that trade barriers reduce steel companies' flexibility to respond to changing demand patterns over time. Sizeable Working Capital Position: Metinvest reported a working capital outflow of USD604 million for 2018 (after USD873 million in 2017; both numbers adjusted for factoring), only a small part of which is linked to related party transactions. Fitch will continue to monitor working capital movements and trade balances between Metinvest and its JVs and associates. Fitch notes that acting as a working capital provider in a downcycle to JVs and associates could unduly impact FCF generation. Resilient Operations Despite Ongoing Conflict: Real GDP growth for Ukraine is forecast at 2.6% for 2019, 3.1% for 2020 and 3.3% for subsequent years. Foreign capital has been flowing back into the country, but upcoming elections and associated political uncertainties are constraining higher investment in the country over the short term. Metinvest sells around 27%-28% of production domestically and exports the remainder, with Europe, Middle East and North Africa representing key markets. The Kerch Strait incident in November 2018, when the Russian navy exercised control over access to the Sea of Azov and captured Ukrainian ships and crew members, highlighted that the conflict in Eastern Ukraine continues to pose risks to day-to-day operations. Metinvest has considered alternative logistics options via Black Sea ports in Chornomorsk and Olvia, in case there were any disruptions to shipments from Mariupol. DERIVATION SUMMARY Metinvest has a smaller scale of operations and weaker cost position compared with the major CIS flat steel producers PJSC Novolipetsk Steel (NLMK, BBB/Stable), PAO Severstal (BBB/Stable) and PJSC Magnitogorsk Iron & Steel Works (MMK, BBB/Stable). The group also has a share of high value-added products on a par with Severstal and MMK's 45%-50% share. Metinvest is fully integrated into iron ore and pellets like NLMK and Severstal and well ahead of MMK, but only partly self-sufficient in coking coal, falling behind Severstal and MMK but ahead of NLMK. Despite vertically integrated business operations, Metinvest's overall cost position is closer to the middle of the global crude steel cash cost curve, compared with the first quartile for the three peers. The company's rerolling assets in Europe and smaller domestic steel market are behind Metinvest's 60%-65% export share, comparable with NLMK and above more domestically-oriented Severstal and MMK. Metinvest's scale with partial vertical integration, over 40% HVA share and substantial export share are factors behind its solid 'BB' business profile. Metinvest's ratings also take into consideration higher-than-average systemic risks associated with the business and jurisdictional environment in Ukraine. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Fitch iron ore price deck: USD75/t for 2019, USD70/t for 2020, USD60/t for 2021 and USD55/t for 2022 and thereafter; - Sales of steel products (excluding resales) increasing to around 9mt from 2019 and 10mt from 2021 (2018: 8.8mt) mostly driven by slabs and flat products - Further substitution of iron ore concentrate sales with higher-margin pellets (additional 1mt in 2021 compared with 2018) - Partial substitution of pig iron sales with higher-priced slabs (additional 1mt in 2021 compared to 2018) - EBITDA margin stable at around 17%-18% as weaker UAH and improving product mix offset falling prices - Neutral working capital movements reflecting declining mid-cycle price assumptions incorporated into the forecast - Capex at USD700 million - USD800 million for 2019-2020 and moderating towards USD650 million thereafter - Higher dividends facilitating positive FCF generation and incremental net debt reduction over time RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Upgrade of Ukraine's Country Ceiling Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO adjusted gross leverage sustained above 3.5x - Treasury policies or refinancing activity leading to HC external debt service cover ratio falling below 1.5x on an 18-month rolling basis - Debt-funded acquisitions - Sizeable related party transactions putting pressure on working capital and overall liquidity position - Downgrade of Ukraine's Country Ceiling - Development of the conflict in the eastern part of Ukraine affecting the group's profile or profitability LIQUIDITY Satisfactory Liquidity: At end-December 2018, Metinvest had available cash balances of USD234 million (excluding cash in transit) and unutilised trade finance facilities of USD237 million. Short-term maturities amounted to USD489 million, of which USD363 million related to trade finance facilities. Fitch forecasts the group will generate more than USD500 million of FCF before dividends per year over the rating horizon. The group can be expected to make use of trade finance and factoring to fund working capital, but all other funding needs can be covered with internal cash flow generation over the medium term. FULL LIST OF RATING ACTIONS Metinvest B.V. - Long-Term Foreign-Currency IDR upgraded to 'B+' from 'B'; Outlook Stable - Short-Term Foreign-Currency IDR affirmed at 'B' - Long-Term Local-Currency IDR upgraded to 'B+' from 'B'; Outlook Stable - Short-Term Local-Currency IDR affirmed at 'B' - Senior unsecured bond instrument rating upgraded to 'B+'/'RR4/50%' from 'B'/'RR4/50%' - National Long-Term Rating upgraded to 'AAA(ukr)' from 'AA+(ukr)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(ukr)' =========================== U N I T E D K I N G D O M =========================== ARCADIA GROUP: Leonard Sells Back 25% Stake in Top Shop, Topman --------------------------------------------------------------- BBC News reports that US investor Leonard Green has sold its 25% stake in retailers Topshop and Topman (TSTM) back to Sir Philip Green's Arcadia retail empire. According to BBC, there are reports it may now seek a company voluntary arrangement (CVA), allowing it to cut rents and close stores. The group also includes brands such as Burton and Miss Selfridge, BBC notes. In March, Arcadia said job cuts and store closures from any restructuring would not be "significant", BBC recounts. Arcadia has 1,170 shops in 36 countries, although the majority are concessions or franchises, BBC discloses. It has 300 shops in the UK after shutting 200 of them over the past three years, BBC states. Sir Philip has called in consultants Deloitte to plan a full restructuring of the group after a fall in profits and sales, BBC relates. ARCADIA GROUP: Revamps Board Ahead of Radical Overhaul ------------------------------------------------------ Ashley Armstrong at The Telegraph reports that Sir Philip Green's Arcadia Group has revamped its board following the departure of two long-serving directors as the retail empire prepares for a radical overhaul. According to The Telegraph, Jamie Drummond Smith, a former partner at Deloitte and restructuring officer at alternative credit provider Cattles, is joining Arcadia as interim chairman. Karren Brady stepped down as chairman in February amid mounting pressure and accusations of hypocrisy that the vocal critic of sexual misconduct had not spoken out about the allegations of inappropriate behaviour by Sir Philip Green, The Telegraph recounts. Baroness Brady had been chairman since 2017 and a director at Arcadia since 2010, The Telegraph notes. INTERSERVE PLC: FRC Opens Investigation on Grant Thornton Audit --------------------------------------------------------------- Michael O'Dwyer at The Telegraph reports that the accounting watchdog has opened an investigation into Grant Thornton over its audit of government contractor Interserve plc, which collapsed into administration last month. The Financial Reporting Council will scrutinize Grant Thornton's review of Interserve's accounts for 2015, 2016 and 2017, The Telegraph discloses. Shareholders in the outsourcing firm had their stakes wiped out as lenders took control as part of a pre-pack administration that saved 68,000 jobs worldwide, The Telegraph relates. An FRC spokesperson said the initial phase of the investigation could last for up to two years depending on the complexity of the case, The Telegraph notes. According to The Telegraph, it will involve interviews with key figures and reviewing tens of thousands of pages of emails and documents. MEDERCO BLOCK: Enters Administration, Halts Operations ------------------------------------------------------ Business Sale reports that the companies behind West Yorkshire student accommodation property developments have been forced to close their doors and enter administration. Mederco Block A Limited and Mederco (Huddersfield) Limited have called in London-headquartered insolvency practitioners RSM Restructuring Advisory to handle the administration process, with partners Jamie Miller -- jamie.miller@rsmuk.com -- and Damian Webb appointed as joint administrators, Business Sale relates. The two companies officially went under on March 28, 2019, Business Sale discloses. The administrators stated they would examine all avenues and aspects of the business, including investment structures, to determine all of its secured and unsecured creditors, Business Sale notes. The main assets of the Mederco businesses are its Manchester Road, Huddersfield purpose-built student accommodation blocks, Business Sale states. The Mederco businesses belong to ex-Bury FC chairman Steward Day, whose other two companies have also recently collapsed to owe a total of GBP27 million, according to Business Sale. SMALL BUSINESS 2019-1: Moody's Rates GBP18.9MM Class D Notes Ba3 ---------------------------------------------------------------- Moody's Investors Service has assigned the following definitive ratings to the notes issued by Small Business Origination Loan Trust 2019-1 DAC: GBP118.97M Class A Floating Rate Asset-Backed Notes due December 2027, Definitive Rating Assigned Aa3 (sf) GBP5.40M Class B Floating Rate Asset-Backed Notes due December 2027, Definitive Rating Assigned A3 (sf) GBP12.61M Class C Floating Rate Asset-Backed Notes due December 2027, Definitive Rating Assigned Baa2 (sf) GBP18.92M Class D Floating Rate Asset-Backed Notes due December 2027, Definitive Rating Assigned Ba3 (sf) Moody's has not assigned ratings to GBP 15.32M Class E Floating Rate Asset-Backed Notes, GBP 9.01M Class X Floating Rate Asset-Backed Notes and GBP 9.01M Class Z Variable Rate Asset-Backed Notes which will also be issued by the Issuer. The transaction is a static cash securitisation of term loans originated through Funding Circle online lending platform to small and medium-sized enterprises and individual entrepreneurs located in the United Kingdom. Funding Circle will act as the Servicer and Collection Agent on the loans and P2P Global Investments PLC will be the retention holder. RATINGS RATIONALE The ratings of the notes are primarily based on the analysis of the credit quality of the underlying portfolio, the structural integrity of the transaction, the roles of external counterparties and the protection provided by credit enhancement. In Moody's view, the strong credit positive features of this deal include, among others: (i) a static portfolio with a short weighted average life (WAL) of around 2.1 years; (ii) certain portfolio characteristics, such as a) high granularity with low single obligor concentrations (for example, the top individual obligor and top 10 obligor exposures are 0.28% and 2.66% respectively) and an effective number above 1,200; b) the loans' monthly amortisation; and c) the high yield of the portfolio, with a weighted average interest rate of 9.44%. (iii) the transaction's structural features, which include: (a) a cash reserve initially funded at 1.75% of the initial portfolio balance, increasing to 2.75% of the initial portfolio balance before amortising in line with the rated Notes; (b) a non-amortising liquidity reserve sized and funded at 0.25% of the initial portfolio balance; and (c) an interest rate cap with a strike of 3% that provides protection against increases on LIBOR due on the rated Floating Rate Asset-Backed Notes. (iv) No set-off risk, as obligors do not have deposits or derivative contracts with Funding Circle. However, the transaction has several challenging features, such as: (i) the rapid growth of origination volumes during the short operating history of the Originator and Servicer, without any experience of a significant economic downturn; (ii) potential misalignment of interest between the Originator and the noteholders as the Originator does not retain a direct economic interest in the transaction. This is partially mitigated by the Seller acting as retention holder, and repurchase and indemnification obligations of the Originator and the Seller in case the representations and warranties are proven incorrect; (iii) relatively high industry concentrations as around 41% of the obligors belong to the top two sectors, namely Services: Business (24%) and Construction & Building (17%), and the high exposure to individual entrepreneurs and micro-SMEs (over 62% of the portfolio); and (iv) the loans are only collateralized by a personal guarantee, and recoveries on defaulted loans often rely on the realization of this personal guarantee via cashflows from subsequent business started by the guarantor. Key collateral assumptions: Mean default rate: Moody's assumed a mean default rate of 12.50% over a weighted average life of 2.1 years (equivalent to a B2 proxy rating as per Moody's Idealized Default Rates). This assumption is based on: (i) the available historical vintage data; (ii) the performance of the previous transactions backed by loans originated by Funding Circle; and (iii) the characteristics of the loan-by-loan portfolio Moody's took also into account the current economic environment and its potential impact on the portfolio's future performance, as well as industry outlooks or past observed cyclicality of sector-specific delinquency and default rates. Default rate volatility: Moody's assumed a coefficient of variation (i.e. the ratio of standard deviation over the mean default rate) of 48%, as a result of the analysis of the portfolio concentrations in terms of single obligors and industry sectors. Recovery rate: Moody's assumed a 25% stochastic mean recovery rate, primarily based on the characteristics of the collateral-specific loan-by-loan portfolio information, complemented by the available historical vintage data. Portfolio credit enhancement: the aforementioned assumptions correspond to a portfolio credit enhancement of 45%. As of February 28, 2019, the asset pool of underlying assets was composed of a portfolio of 2,542 contracts amounting to GBP 180.26 million. The top borrower represents 0.28% of the portfolio and the effective number of obligors is 1,213. The assets were originated between May and November 2018 and have a weighted average seasoning of 6 months and a weighted average remaining term of 47.6 months. The loans in the pool are entirely fixed interest rate, with a weighted average fixed interest rate of 9.44%. Geographically, the pool is concentrated mostly in the South-East (24%) and London (17%). As of February 28, 2019, any defaulted loan or loan in arrears for more than 30 days has been excluded from the final pool. Key transaction structure features Cash Reserve Fund: The transaction benefits from a cash reserve fund initially funded at 1.75% of the initial portfolio balance, increasing to 2.75% of the initial portfolio balance before amortising in line with the rated Notes. The reserve fund provides both credit and liquidity protection to the rated Notes. Liquidity Reserve Fund: The transaction benefits from a separate, non-amortising liquidity reserve fund sized and funded at 0.25% of the initial portfolio balance. When required, funds can be drawn to provide liquidity protection to the senior Notes Counterparty risk analysis Funding Circle acts as Servicer of the loans for the Issuer; Link Financial Outsourcing Limited (NR) will act as a warm Back-Up Servicer and Collection Agent. All of the payments on loans in the securitised loan portfolio are paid into a Collection Account held at Barclays Bank PLC (A2 / P-1). There is a daily sweep of the funds held in the Collection Account into the Issuer Account, which is held with Citibank, N.A., London Branch (Aa3 / (P)P-1), with a transfer requirement if the rating of the account bank falls below A2/P-1. Principal Methodology: The principal methodology used in these ratings was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in March 2019. Factors that would lead to an upgrade or downgrade of the ratings: The notes' ratings are sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The evolution of the associated counterparties risk, the level of credit enhancement and the United Kingdom's country risk could also impact the notes' ratings. =============== X X X X X X X X =============== [*] BOOK REVIEW: GROUNDED: Destruction of Eastern Airlines ---------------------------------------------------------- Grounded: Frank Lorenzo and the Destruction of Eastern Airlines Author: Aaron Bernstein Publisher: Beard Books Softcover: 272 Pages List Price: $34.95 Order a copy today at http://www.beardbooks.com/beardbooks/grounded.html Barbara Walters once referred to Frank Lorenzo as "the most hated man in America." Since 1990, when this work was first published and Eastern Airlines' troubles were front-page news, there have been many worthy contenders for the title. Nonetheless, readers sensitive to labor-management concerns, particularly in the context of corporate restructurings, will find in this book much to support Barbara Walters' characterization. To recap: For a few brief and discordant years, Frank Lorenzo was boss of the biggest airline conglomerate in the free world (Aeroflot was larger), combining Eastern, Continental, Frontier, and People Express into Texas Air Corporation, financing his empire with junk bonds. TAC ultimately comprised a fleet of 451 planes and 50,000 employees, with revenues of $7 billion. But Lorenzo was lousy on people issues, famously saying, "I'm not paid to be a candy ass." The mid-1980s were a bad time to take that approach. Those were the years when the so-called Japanese model of management, which emphasized cooperation between management and labor, was creating a stir. The Lorenzo model was old school: If the unions give you any trouble, break 'em. That strategy had worked for him at Continental, where he'd filed Chapter 11 despite the airline's $60 million in cash reserves, in order to exploit a provision in Bankruptcy Code allowing him to abrogate his contracts with the unions. But Congress plugged that loophole by the time Lorenzo went to the mat with Charles Bryan, I AM chapter president. Lorenzo might have succeeded in breaking the machinists alone, but when flight attendants and pilots honored the picket lines, he should have known it was time to deal. He didn't. Instead he tried again for a strategic advantage through the bankruptcy courts, by filing Chapter 11 in the Southern District of New York where bankruptcy judges were believed to be more favorably disposed toward management than in Miami where Eastern was headquartered. Eastern had to hide behind the skirts of its subsidiary, Ionosphere Clubs, Inc., a New York corporation, in order to get into SDNY. Six minutes later, Eastern itself filed in the same court as a related proceeding. The case was assigned to Judge Burton Lifland, whom Eastern's bankruptcy lawyer, Harvey Miller, knew well, but Lorenzo was mistaken if he believed that serendipitous lottery assignment would be his salvation. Judge Lifland a year later declared Lorenzo unfit to run the airline and appointed Martin Shugrue as trustee. Most hated man or not, one wonders whether the debacle was all Lorenzo's fault. Eastern's unions, in particular the notoriously militant machinists, were perpetual malcontents, and Charlie Bryan was an anti-management zealot, to the point of exasperating even other IAM officers. The book provides a detailed account of the three-and-a-half-year period between Lorenzo's acquisition of Eastern in the autumn of 1986 and Judge Lifland's appointment of the trustee in April 1990. It includes the history of Eastern's pre-Lorenzo management, from World War I flying ace Eddie Rickenbacker to astronaut Frank Borman. Aaron Bernstein won numerous awards during his 20-year career as a professional journalist. He is an associated editor for Business Week. Aaron Bernstein is the editor of Global Proxy Watch, a corporate governance newsletter for institutional investors. He is also a non-resident Senior Research Fellow at the Pensions and Capital Stewardship Project at Harvard Law School. He left BusinessWeek magazine in 2006 after a 23-year career as an editor and senior writer covering workplace and social issues. ********* 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 * * *