/raid1/www/Hosts/bankrupt/TCREUR_Public/191113.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
Wednesday, November 13, 2019, Vol. 20, No. 227
Headlines
B O S N I A A N D H E R Z E G O V I N A
SECERANA: Creditors Reject Pavgord's BAM5MM Offer for Assets
G E R M A N Y
NIDDA BONDCO: Fitch Affirms B LT IDR, Outlook Stable
NIDDA BONDCO: Moody's Affirms B3 CFR, Outlook Stable
NIDDA BONDCO: S&P Affirms 'B+' ICR on Planned Acquisition
G R E E C E
PIRAEUS BANK: S&P Alters Outlook to Positive & Affirms 'B-' ICR
I R E L A N D
ADAGIO CLO VIII: Moody's Gives B3 Rating on EUR10.5MM Cl. F Notes
HIPOTOTTA PLC 4: Fitch Affirms BB-sf Rating on Class C Debt
L A T V I A
DZINTARS: Declared Insolvent by Riga District Court
L U X E M B O U R G
CORESTATE CAPITAL: S&P Affirms BB+ Issuer Credit Rating
N E T H E R L A N D S
JUBILEE CLO 2019-XXIII: S&P Assigns Prelim B(sf) Rating on F Notes
R O M A N I A
RADET: Bucharest Court Opts to Launch Liquidation Procedures
S P A I N
GESTAMP AUTOMOCION: Moody's Alters Outlook on Ba2 CFR to Negative
S W I T Z E R L A N D
SCHMOLZ + BICKENBACH: Has Few Weeks to Agree on Cash injection
T U R K E Y
ARCELIK AS: S&P Affirms 'BB+' Issuer Credit Rating, Outlook Neg.
U N I T E D K I N G D O M
ALBA PLC 2007-1: Fitch Affirms CCCsf Rating on Class F Debt
CORPORATE ROAD: Enters Administration, 70 Jobs Affected
LUDGATE FUNDING 2006-FF1: S&P Affirms B+(sf) Rating on Cl. E Notes
LUDGATE FUNDING 2007-FF1: S&P Affirms B(sf) Rating on Cl. E Notes
PIZZAEXPRESS: S&P Lowers ICR to 'CCC-' on Potential Restructuring
TOYS R US UK: Seeks Creditor Approval for CVA Plan
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B O S N I A A N D H E R Z E G O V I N A
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SECERANA: Creditors Reject Pavgord's BAM5MM Offer for Assets
------------------------------------------------------------
SeeNews reports that the creditors of Bosnia's bankrupt sugar mill
Secerana have rejected the BAM5 million (US$2.8 million/EUR2.6
million) offer of local company Pavgord for the purchase of the
mill's assets.
According to SeeNews, the Serb Republic entity's news agency SRNA
reported on Nov. 8 the creditors said the bid was considerably
lower than the asking price of BAM10 million.
SRNA quoted the bankruptcy trustee of the sugar mill, Nebojsa
Matic, as saying the other potential buyer, Chinese investor Dragan
Guru Djuragin, is still interested in purchasing the sugar mill's
assets but currently lacks the money to finance the purchase and
pay the required deposit, SeeNews relates.
SRNA, as cited by SeeNews, said in their last week's discussion,
the creditors evaluated the BAM7 million offer made by Djuragin as
"too good to be true".
The creditors plan to meet again in December and talk with both
interested buyers, SeeNews discloses.
Secerana went bankrupt around four years ago over an outstanding
debt of BAM16.5 million, SeeNews recounts. The estimated value of
its assets stands at some BAM23 million, SeeNews relays, citing
earlier media reports.
Secerana is based in Bijeljina.
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G E R M A N Y
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NIDDA BONDCO: Fitch Affirms B LT IDR, Outlook Stable
----------------------------------------------------
Fitch Ratings assigned Nidda Healthcare Holding GmbH's upcoming
issue of EUR760 million incremental senior secured debt an expected
rating of 'B+(EXP)'/'RR3' to fund the company's two latest
acquisitions. Fitch has also affirmed Nidda BondCo GmbH's Long-Term
Issuer Default Rating at 'B' with Stable Outlook.
The assignment of final rating is subject to the debt issue
conforming materially to the terms as presented to Fitch for the
expected rating assignment.
The IDR of Nidda BondCo GmbH encapsulates a 'BB' business risk
profile and underlying operations of Stada Arzneimittel AG (Stada)
with a highly leveraged capital structure, following a
sponsor-backed acquisition of the company in 2017 and the latest
debt-funded acquisitions. The Stable Outlook reflects its
expectation of steadily improving earnings and free cash flows
(FCF) providing a deleveraging potential. Fitch forecasts funds
from operations (FFO)-adjusted leverage to ease to 6.5x on a gross
basis (6.3x net of cash) by 2022 from 8.6x (8.1x net of cash) in
2018.
KEY RATING DRIVERS
Acquisitions Rating-Neutral: Fitch projects a rating neutral impact
from the acquisitions of Takeda's Russian/CIS drug portfolio and
the purchase of Walmark a.s., which will reinforce Stada's
marketing and distribution capabilities in central and eastern
Europe (CEE) and the CIS given the company's growing consumer
business. The transaction is margin-accretive in the medium-term
due to a compatible profile of new assets by product and geography.
It will offer volume and cost-based productivity improvements and
balance the incremental debt used to fund these acquisitions.
Improved Operating Outlook: Stada's operating performance in 2019
will likely exceed its previous expectations of revenue and EBITDA,
by growing at least 10%, and to above a (Fitch-defined) 25%,
respectively. As the company continues to implement its product
portfolio development and cost improvement strategy, in combination
with incremental earnings contribution from the latest
acquisitions, Fitch projects sales will exceed EUR3 billion and
EBITDA margins to strengthen toward 27% by 2022. This is based on
growth in the organic product portfolio, new product launches and
additions of drug IP rights, together with a continuation of cost-
streamlining measures, which in its view will provide a sustainable
positive impact on Stada's operations.
Deleveraging Potential: Stada's improved operating performance
offers scope for an accelerated deleveraging, whereby Fitch
estimates FFO-adjusted gross leverage could decline toward 6.5x by
2022 (from 8.6x in 2018) - below its 7.0x threshold for a positive
rating action. Fitch also projects a material decline to 7.3x in
2019 versus a previously estimated 8.4x following Stada's buoyant
trading performance relative to its prior rating case projections.
Aggressive Financial Policy: The sponsors' entirely debt-funded
asset development strategy and the absence of commitment to
de-leverage will likely disrupt the company's deleveraging path
with FFO adjusted gross leverage effectively estimated to remain
between 7.0x and 8.0x in the medium term. This results in high but
manageable refinancing risk versus the sector.
Good Cash Flow Generation: Fitch regards Stada's healthy FCF as a
strong mitigating factor to the company's leveraged balance sheet,
which supports the 'B' IDR. Despite growing trade working capital
and capex requirements, Fitch expects sizeable and sustainably
positive FCF in excess of EUR100 million and robust mid-to-high
single-digit FCF margins, due to volume- and cost-driven EBITDA and
FFO expansion. Such solid cash flow generation could allow the
company to accommodate further product IP right acquisitions of
EUR100 million-EUR 200 million a year and to repay its legacy debt
by 2022.
Latent M&A Risk: The IDR reflects the possibility of further
debt-funded acquisitions as Stada actively screens the market for
suitable product and business additions. Any material transactions
would represent event risk, possibly leading to re-leveraging that
may put the ratings under pressure. Larger M&A transactions in
excess of EUR200 million-EUR250 million are, in its view, likely to
be funded with incremental debt given the ample liquidity headroom
available under a committed fully undrawn revolving credit facility
(RCF) of EUR400 million, and the permitted indebtedness cap under
the company's financing agreements.
Supportive Generics Market: The ratings reflect positive long-term
demand fundamentals for the European generics market and generally
supportive reimbursement schemes as governments and national
regulators address rising healthcare costs. Given limited overall
generic penetration in Europe compared with the US, Fitch sees
continued structural growth opportunities, further reinforced by
increasing introduction of biosimilars. Stada's well-established
market position in core geographies allows the company to take
advantage of positive sector trends.
Challenged Consumer Healthcare Market: Several big pharma issuers
are refocusing their portfolios towards innovation-driven medicines
and exiting consumer-driven healthcare markets, as the fragmented
sector is rapidly consolidating due to the growing importance of
scale in response to persisting price pressures and online
competition. While Stada remains a regional player, Fitch sees
strong industrial logic behind its acquisitions, which would allow
the company to fortify it product portfolio with established local
branded OTC products and strengthen its consumer outreach.
DERIVATION SUMMARY
Fitch rates Nidda BondCo according to its global rating navigator
framework for pharmaceutical companies. Under this framework, the
company's generic and consumer business benefits from satisfactory
diversification by product and geography, with a healthy exposure
to mature, developed and emerging markets. Compared with more
global industry participants, such as Teva Pharmaceutical
Industries Limited (BB-/Negative), Mylan N.V. (BBB-/RWP) and
diversified companies, such as Novartis AG (AA-/Stable) and Pfizer
Inc. (A/Negative), Nidda BondCo's business risk profile is affected
by the company's European focus. High financial leverage is a key
rating constraint, compared with international peers, and this is
reflected in the 'B' rating.
In terms of its size and product diversity, Nidda BondCo ranks
ahead of other highly speculative sector peers such as Financiere
Top Mendel SAS (Ceva Sante, B/Stable), IWH UK Finco Limited
(Theramex, B/Stable) and Cheplapharm Arzneimittel GmbH
(Cheplapharm, B+/Stable). Although geographically concentrated on
Europe, Nidda BondCo is nevertheless represented in developed and
emerging markets. This gives the company a business risk profile
consistent with a higher rating. However, its high financial risk,
with FFO adjusted gross leverage projected above 7.0x in 2019-2020
and deleveraging potential toward 6.5x by 2022, is more in line
with a weak 'B-' rating that is only supported by solid FCF. This
is comparable with Ceva Sante's 'B' IDR, balancing high leverage
and deleveraging potential, due to stable and profitable
operations, with high intrinsic cash flow generation.
In contrast, smaller peers such as Theramex is less aggressively
leveraged at 5.0x-6.0x. However, it is exposed to higher product
concentration risks. Cheplapharm's IDR of 'B+' reflects contained
leverage metrics, strong operating profitability and FCF
generation, which neutralise the company's somewhat lack of scale
and higher portfolio concentration risks.
KEY ASSUMPTIONS
- Sales CAGR of 5.7% for 2018-2022, due to volume-driven growth
of legacy product portfolio, new product launches, acquisition of
IP rights and business additions;
- Fitch-adjusted EBITDA margin improving towards 27% by 2022 from
23.6% in 2018, supported by revenue growth, further cost
improvements and synergies realised from the latest acquisitions
- Capex projected to rise at 5%-6% p.a. versus previously assumed
4%-4.5% due to higher production volumes
- M&A around EUR100 million each in 2019 and 2020, in addition to
the latest acquisitions of EUR760million by 1Q20. Thereafter
product in-licencing and further product IP rights additions
estimated at EUR200 million a year
- Incremental senior secured debt drawdown of EUR760 million in
1Q20
- Liability to non-controlling shareholders maintained at EUR3.82
gross per share resulting in around EUR15 million in payment, which
Fitch classifies as preferred dividend
- Stada's legacy debt (mainly a EUR267 million outstanding 1.75%
bond due 2022) to be repaid at maturity
Recovery Assumptions
- Nidda BondCo GmbH would be considered a going concern in
bankruptcy and be reorganised rather than liquidated.
- Fitch has maintained a discount of 30%, which Fitch has applied
to a Fitch-estimated EBITDA as of December 2019 of EUR650 million
with pro-forma adjustments for the acquisitions estimated at EUR55
million and excluding the annual cost of capital leases estimated
at approximately EUR2 million. This leads to a post-restructuring
EBITDA of around EUR490 million. This is the EBITDA level that
would allow Nidda BondCo GmbH to remain a going concern in the
near-term.
- As previously Fitch applies a distressed enterprise value
(EV)/EBITDA multiple at 7.0x.
Based on the payment waterfall, with the RCF of EUR400 million
assumed fully drawn in the event of default, Fitch assumes Stada's
senior unsecured legacy debt (at operating company level), which is
structurally the most senior, will rank pari passu with the senior
secured acquisition debt, including the term loans and the senior
secured notes. The new senior secured debt of EUR760 million will
rank pari passu with the existing senior secured term loans and
notes. Senior notes at Nidda BondCo level will rank below the
senior secured acquisition debt.
Therefore, after deducting 10% for administrative claims, its
waterfall analysis generates a ranked recovery for the new senior
secured debt in the 'RR3' category, leading to a 'B+(EXP)' rating.
The waterfall analysis output percentage on current metrics and
assumptions is 67%.
However, the existing senior secured term loans and senior secured
notes remain at 'RR3' with expected recoveries of 63% until
completion of the acquisitions. On completion Fitch expects to
assign a final rating to the new senior secured debt of 'B+' with
an output percentage on current metrics and assumptions at 67%.
Overall, whether the latest acquisitions proceed as planned or not,
expected recoveries for the senior secured debt will remain
consistent with the 'RR3' category, indicating a 'B+' instrument
rating, one notch above the IDR.
- Senior debt remains at 'RR6' with 0% expected recoveries. This
is unaffected by the latest acquisitions. The 'RR6' band indicates
a 'CCC+' instrument rating, two notches below the IDR.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Sustained strong profitability with EBITDA margin in excess of
25% (2018: 23.6%) and FCF margin consistently above 5%
- Sustained reduction in FFO-adjusted gross leverage to below
7.0x, or toward 6.0x on a net basis
- FFO-adjusted fixed charge cover remaining close to 3.0x
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Inability to grow the business and realise cost savings in line
with strategic initiatives, resulting in pressure on profitability
and FCF margins turning negative
- Failure to de-leverage to below 8.5x on a FFO-adjusted gross
basis, or toward 7.5x on a net basis
- FFO fixed charge cover weakening to below 2.0x
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch projects a comfortable year-end cash
position of EUR125 milion-EUR200 million until 2022, supported by
Stada's healthy FCF generation. Organic cash flows would
accommodate EUR100 million-EUR200 million of annual M&A activity
and cover maturing legacy debt at Stada. Fitch projects, however,
an RCF drawdown of EUR200 million in 2022 - out of the committed
EUR400 million facility- to redeem its EUR267 million bond to keep
readily available cash position above EUR100 million.
For the purpose of liquidity calculation Fitch has deducted EUR2
million-EUR3 million of cash held in China and a further EUR100
million as minimum operating cash, which Fitch increases gradually
to EUR120 million by 2022 as the business gains scale.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
NIDDA BONDCO: Moody's Affirms B3 CFR, Outlook Stable
----------------------------------------------------
Moody's Investors Service affirmed Nidda BondCo GmbH's B3 corporate
family rating and B3-PD probability of default rating.
Concurrently, Moody's has affirmed the B2 ratings on the EUR735
million 1st lien senior secured notes, the existing EUR406 million
and EUR235 million 1st lien term loan B, the EUR759 million and GBP
266 million term loan C, and the EUR400 million revolving credit
facility, all issued by Nidda Healthcare Holding GmbH; and assigned
a B2 rating to the add-on term loan E and the tap on the existing
senior secured notes, which in total will be EUR760 million.
Moody's has also affirmed the Caa2 rating on the EUR250 million and
the EUR340 million senior secured 2nd lien notes, both issued by
Nidda BondCo GmbH. The outlook is stable.
The rating action follows Nidda's acquisition of a portfolio of
products from Takeda Pharmaceutical Company Limited (Baa2 stable)
for $660 million, and the acquisition of Walmark, a.s. (unrated)
from Mid Europa Partners for an undisclosed consideration. Both
acquisitions are funded entirely with new debt amounting to EUR760
million, including the new term loan E added to the existing term
loans, and a tap on the existing senior secured notes.
The acquisitions are expected to add around EUR70 million to the
group's EBITDA in 2020, including synergies, and include leading
branded products in the Over-the-Counter business in Russia and
Central Europe and branded prescription products in cardiovascular,
diabetes and general medicine.
While the acquisitions will increase Nidda's leverage by around
0.3x, they will enhance its product diversification and
contribution from branded products.
"The affirmation of the ratings with a stable outlook reflects
Nidda's strong underlying earnings improvement, which compensate
for the group's highly leveraged capital structure," says Ernesto
Bisagno, a Moody's Vice President -- Senior Credit Officer and lead
analyst for Nidda. "Despite the debt increase, we expect Nidda's
Moody's adjusted leverage to decline towards 7.0x by 2020, absent
any further debt-funded acquisitions."
RATINGS RATIONALE
Nidda is adequately positioned in the B3 rating category reflecting
(1) its highly leveraged capital structure with 2019 pro-forma
Moody's adjusted gross debt to EBITDA of around 7.7x; (2)
relatively commoditized nature of its generic portfolio; (3)
ongoing price erosion for the industry; (4) exposure to foreign
currency fluctuations, which can cause volatility in earnings; (5)
relatively small size in the context of the European and global
pharmaceutical rated universe; and (6) modest execution risk in
implementing the additional cost initiatives and potential for
additional M&A activity.
The rating also factors in the group's (1) steady growth rate for
the industry driven by higher volumes more than offsetting weak
pricing; (2) diversified small molecule generics portfolio and good
geographical split across key European generics markets; (3) strong
OTC brand portfolio with leading market positions across various
therapeutic areas and geographic markets; and (4) improving
profitability and positive free cash flow generation.
The group reported growth in profits in September 2019 with a last
twelve month underlying EBITDA of EUR582 million, with an increase
of 20% compared to September 2018 and 15% versus December 2018.
This was driven by stronger performance of both generics and
branded products, on the back of positive volumes and contribution
from costs saving initiatives and acquisitions completed in 2018.
Pro-forma EBITDA for the 12 months to September 2019, as reported
by the company, was EUR745 million, which takes into account the
run rate contribution from past acquisitions and cost savings, as
well as some adjustments for exceptional items.
Moody's expects additional earnings improvements in the next 12-18
months driven by a combination of positive volume growth offset by
weaker pricing, additional cost improvements, as well as the
contribution from the acquired assets. The company's operating cash
flow is also expected to grow, driven by stronger earnings and
modest working capital needs, offset by higher interest paid and
modest restructuring costs. With annual capex forecast at EUR180
million per year, Moody's anticipates positive free cash flow of
about EUR150 - EUR200 million each year over 2020-21. However, with
the new debt incurred to fund these acquisitions, Moody's expects
leverage to remain high at 7.7x in 2019 (pro-forma for the
acquisitions), and to decline towards 7.0x in 2020, driven by
additional earnings improvement.
Moody's has factored into its analysis of Nidda the following
environmental, social and governance considerations. Social risk is
high for the pharmaceutical industry due to a far-reaching
regulatory oversight and related efforts to reduce drug
expenditures, which may dampen the industry's long-term growth
prospects. Responsible production considerations include product
safety risk, which generates continuing litigation exposures for
the pharmaceutical industry. In terms of governance, the company is
tightly controlled by funds managed by Bain Capital Private Equity
(Europe), LLP and Cinven Partners LLP which, as is often the case
in highly levered, private equity sponsored deals, has a high
tolerance for leverage. However, the high tolerance for leverage is
mitigated by positive free cash flow generation.
LIQUIDITY
The company's liquidity after the transaction is expected to remain
good, underpinned by: (1) a cash balance of about EUR256 million;
(2) a fully undrawn committed revolving credit facility of EUR400
million; (3) positive free cash flow generation in the next 12-18
months; and (4) limited near- term debt maturities. The RCF will be
subject to a total debt leverage covenant at 8.5x, tested quarterly
if more than 35% of the facility is drawn.
STRUCTURAL CONSIDERATIONS
In light of the mixed capital structure including both bank debt
and bonds Moody's has applied a recovery rate of 50% for the
corporate family. The recovery rate assumption of 50% also reflects
the covenant lite package with only a springing covenant on the
revolving credit facility.
The B2 ratings of the senior secured first lien term loans, senior
secured first lien notes and senior secured first lien RCF reflects
the creditors first lien claim over a security package consisting
of shares from operating subsidiaries accounting for at least 80%
of group EBITDA. However the security package is seen as weak as it
consists of a pledge on shares, and not on assets of the operating
subsidiaries. A further increase in the share of senior debt could
reduce the positive notching versus the CFR.
The Caa2 rating of the senior secured 2nd lien notes reflects the
second lien claim over the same security package.
RATIONALE FOR STABLE OUTLOOK
Despite the high leverage, the stable outlook reflects Moody's
expectation that credit metrics will improve driven by stronger
earnings and positive free cash flow generation.
WHAT COULD CHANGE THE RATING UP/DOWN
The company is adequately positioned in the B3 rating category and
positive pressure on the rating would reflect a decline in leverage
with adjusted gross debt/EBITDA trending to below 6.5x.
Conversely, negative pressure on the rating could materialize if
(1) free cash flow generation turns negative on a sustainable basis
with failure to reduce leverage; or (2) if operating performance
deteriorates.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Nidda Healthcare Holding GMBH
Senior Secured Bank Credit Facility, Assigned B2 (LGD-3)
Senior Secured Regular Bond/Debenture, Assigned B2 (LGD-3)
Affirmations:
Issuer: Nidda BondCo GmbH
LT Corporate Family Rating, Affirmed B3
Probability of Default Rating, Affirmed B3-PD
Backed Senior Secured Regular Bond/Debenture, Affirmed Caa2
Senior Secured Regular Bond/Debenture, Affirmed Caa2
Issuer: Nidda Healthcare Holding GMBH
Senior Secured Bank Credit Facility, Affirmed B2
Senior Secured Regular Bond/Debenture, Affirmed B2
Outlook Actions:
Issuer: Nidda BondCo GmbH
Outlook, Remains Stable
Issuer: Nidda Healthcare Holding GMBH
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceutical
Industry published in June 2017.
COMPANY PROFILE
Stada Arzneimittel AG, the company acquired by Nidda BondCo GmbH,
is a Germany-based pharmaceutical company specialised in the
production and marketing of small-molecule generics and OTC
pharmaceutical products. Nidda owns Stada through a sub-holding
company, Nidda Healthcare Holding GmbH. Nidda is the topco of the
restricted group and the issuer of the senior notes. Nidda
Healthcare is the issuer of the senior secured notes and the
borrower under the senior secured term loans.
In 2018, Stada generated revenue of EUR2.3 billion and EBITDA of
EUR504 million. The 2018 revenue was split 59%/41% between generics
and OTC. Stada's small-molecule generics and OTC products portfolio
is well diversified across molecules and therapeutic areas. The
business is largely focused on Europe and Russia, with no presence
in the US market.
NIDDA BONDCO: S&P Affirms 'B+' ICR on Planned Acquisition
---------------------------------------------------------
S&P Global Ratings affirmed its 'B+' ratings on Pharma company
Nidda BondCo GmbH (Stada), the recovery ratings are unchanged.
S&P said, "The affirmation reflects our view that the announced
acquisition of Takeda's Russian-CIS OTC portfolio and Walmark does
not change our overall opinion of Nidda's credit quality. Although
the acquisitions will lead to a substantial increase in debt, we
still expect adjusted debt-to-EBITDA to remain close to 7x in 2019
and below 7x in 2020."
Stada's ability to partially offset the increase in debt stems
primarily from strong underlying operating performance in its core
generics and OTC businesses over 2019, the successful launch of
margin-accretive products such as Bortezomib, and the acquisitions
of OTC and biosimilar products. S&P said, "Similarly, we expect the
company's initiatives around supply chain simplification and
inventory optimization to produce close to EUR75 million of cost
savings in 2019. Stada has realized EUR64 million of savings in the
first nine months of the year. As a result, we expect the group's
adjusted EBITDA to remain close to 25% in 2019 before rising to
about 26% as the company absorbs the acquisitions and continues to
realize synergies."
S&P said, "Overall, we expect Stada's EBITDA to be EUR710
million-EUR800 million over the next two years, with the two
acquisitions adding EUR55 million-EUR60 million of EBITDA per year,
primarily from Takeda's Russian-CIS OTC portfolio (Walmark has a
small scale). Similarly, we forecast the company will generate
positive FOCF of EUR160 million-EUR180 million in 2019 and EUR180
million-EUR200 million in 2019.
"We expect that Nidda's acquisition of the OTC portfolio will
reinforce the group's position in Russia, improve its margins and
diversify its overall product mix with a more even split between
generics (56%) and OTC products (44%) post-transaction. The
portfolio is composed of branded products in OTC; and branded
prescription products in cardiovascular, diabetes, and general
medicine. We view these as margin-accretive in light of local
willingness to purchase out-of-pocket OTC products. Nevertheless,
Russia remains a challenging market. Coupled with political
instability and foreign exchange volatility, this could lead to
increasing executions risks for Nidda.
"We consider Walmark's portfolio of OTC products and food
supplements should support Nidda's position in CEE and increase its
manufacturing capacity owing to the Czech manufacturing plant
included as part of the deal.
"Still, we consider the execution risks meaningful for Nidda given
the amount of acquisitions on which the group has embarked over the
past two years. Furthermore, we consider that Nidda has a more
aggressive acquisitive appetite than what we expected and failure
to maintain a disciplined financial policy of sustained
deleveraging could lead to a negative rating action."
Nidda is planning to raise EUR760 million of senior secured debt to
finance the acquisitions. Following the proposed issuance, the
company's debt will be close to EUR5 billion, which in S&P's view
further prolongs deleveraging and weakens the debt cash flow
payback ratios compared with its previous base-case scenario.
The negative outlook reflects there being a one-in-three chance of
a downgrade over the next 12-18 months if Nidda fails to maintain
its solid operational performance and a more disciplined
deleveraging policy, with adjusted debt-to-EBITDA remaining below
7x for a protracted period, supported by FOCF generation of at
least EUR150 million per year.
Downside scenario
S&P said, "We could lower the rating if Nidda cannot maintain
leverage (S&P Global Ratings-adjusted) below 7x, supported by FOCF
generation of at least EUR150 million per annum over the next 12-18
months. The most like cause of leverage above our base-case
scenario would be lower EBITDA due to higher than expected
competition in key markets or failure to win tenders, or
higher-than-expected cash outflow due to working capital
mismanaging or higher capital expenditures (capex) than planned.
"Similarly, we could lower the ratings on Nidda if the company
embarks on further aggressive debt-financed acquisitions that could
materially affect the capital structure and delay projected
deleveraging."
Upside scenario
S&P said, "We could revise the outlook to stable if Nidda
successfully integrates its acquisitions and maintains a strong
operational performance such that its adjusted debt to EBITDA
remained comfortably below 7x, supported by sizable FOCF exceeding
EUR150 million per year for a protracted period and financial
policy committed to deleveraging."
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G R E E C E
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PIRAEUS BANK: S&P Alters Outlook to Positive & Affirms 'B-' ICR
---------------------------------------------------------------
S&P Global Ratings said that it took various rating actions on
Greek banks. Specifically, S&P:
-- Raised its long-term issuer credit ratings (ICR) and resolution
counterparty ratings (RCR) on National Bank of Greece S.A. (NBG),
Eurobank Ergasias S.A, and Alpha Bank AE to 'B' from 'B-'. The
outlook on each bank is positive;
-- Revised its outlook to positive from stable and affirmed its
'B-' long-term ICR and RCR on Piraeus Bank S.A.; and
-- Affirmed S&P's 'B' long-term ICR on Aegean Baltic Bank S.A.
(ABB). The outlook is stable.
S&P is also assigning its 'CCC+' issue credit rating to Alpha
Bank's senior nonpreferred notes to be issued under its existing
euro medium-term note (EMTN) program.
RATIONALE
S&P said, "We believe that the ongoing recovery in the economic and
operating environment in Greece is gaining momentum, which we view
positively for Greek banks' financial profiles. We project the
Greek economy will grow by around 2.5% on average over
2019-2022--well-above the Eurozone average--as domestic demand
strengthens and solid export performance continues."
Fundamentals for Greek banks are improving since the conclusion of
the three-year European Stability Mechanism (ESM) program on Aug.
20, 2018. In September 2019, the remaining capital controls in the
Greek banking system were lifted without any adverse impact on
deposit trends. The commitment of the former and the new government
to structural reforms are bearing fruits as evidenced by the
improving sentiment of all economic agents and foreign investors.
S&P said, "As a result, on Oct. 25, 2019, we raised our long-term
ratings on Greece to 'BB-' from 'B+'. The positive outlook
signifies that we could raise the ratings on the sovereign within
the next 12 months if the government continues implementing
structural reforms that strengthen the country's economic growth
potential and public finance sustainability."
Domestic property markets are recovering as well. The price
correction ended in fourth-quarter 2017 after declining more than
40% since 2008. Residential and commercial real estate prices have
risen strongly since then (especially in first-half 2019) albeit
unevenly across the country; there are wide disparities even within
large cities. Increasing economic activity, recent changes in key
insolvency and foreclosure laws--notably the Katseli law--rising
employment and wages, high demand for touristic rentals, and golden
visa schemes are key factors behind this.
The pace of the recovery of residential and commercial real estate
prices matters a lot for four Greek banks, which are cleaning up
about EUR75 billion of nonperforming exposures (NPEs) as of Sept.
30, 2019. S&P believes that property market improvement could
support banks in their efforts to cut bad loans in secured debt
sales to domestic and foreign distressed debt purchasers. About 20
of these entities—-licensed by the Bank of Greece--are interested
in buying bad Greek debt as recovery prospects improve. It also
improves the prospects for millions of mortgage borrowers with
negative equity or small and midsize enterprise (SME) loans backed
by property, raising the chances of recovery or bad loans in these
segments.
S&P said, "Encouraged by these trends, Greek banks have accelerated
their NPE clean-up plans in the past 12 months. Based upon
announced NPE portfolio sales year-to-date, should the current,
more favorable conditions continue, we assume that the systemwide
NPE ratio could fall below 35% by end-2020, and 25% a year later,
from about 46.7% reported at Sept. 30. These levels look similar to
our NPEs expectations for Cyprus but are still significantly worse
than Italy and Portugal, other eurozone markets that have struggled
with NPE legacy problems recently. Most of the banks have already
signed (or are close to signing) collaboration agreements with
asset managers for servicing, outright sale, or securitization of
their legacy NPEs, a big part of which is collateralized by real
estate. Our expectations are also supported by DG Comp's recent
approval for Greek government's Hercules Asset Protection Scheme.
This plan, similar to the Italian GACs, will allow the Greek
government to extend its guarantee to the most senior tranches of
upcoming NPE securitizations. We therefore believe that the
Hercules plan could help banks to frontload their secured and
unsecured NPE sales, although the extent to which banks will access
it will largely depend on the plan's final conditions.
"In light of the above, we have revised our economic risk score for
the Greek banking sector to '9' from '10' (on a scale of '1' to
'10', '1' being the lowest risk). This is the first upward revision
to the score since Nov. 9, 2011, when we first applied our Banking
Industry Country Risk Assessment (BICRA) criteria. Some other
countries in group 9 are Azerbaijan, Egypt, Kazakhstan, Tunisia,
and Turkey. We now view the economic risk trend in Greece as
positive and anticipate that economic risks could ease further.
"Following this, we revised the anchor--our starting point in
determining a credit rating on banks--to 'b+' from 'b' to reflect
the accelerated economic recovery that we expect will benefit the
overall banking performance, including asset quality metrics.
Therefore, the upgrade on Alpha Bank, Eurobank, and National Bank
of Greece reflects our view that they are better placed to benefit
from the improving economy. Specifically, we believe that Alpha's
above-peers' regulatory capital buffer should help the bank with
its de-risking plans amid improving secondary market conditions for
NPEs. As of June 2019, Alpha phased-in common equity Tier 1 ratio
amounted to 17.8% with about EUR1.9 billion buffer above their
capital requirement. Moreover, we think Alpha's standardized
capital model could add flexibility to proceed with NPEs reduction
while preserving its regulatory solvency levels."
Eurobank is well positioned to benefit from improved economic and
market conditions, taking into account the de-risking actions it
has already undertaken so far. In particular, it is close to
disposing a big portion of its legacy NPEs and is working to
legally segregate part of the group assets, which are not core to
the banking business, into a separate legal entity. Its merger with
Grivalia in mid-2019 brought not only capital benefits but also
some skillset and expertise in the management of real estate
repossessed assets. S&P also understands that Eurobank is close to
selling its 80% stake in FPS. Cash from the deal should ease the
hit on capital and provisions of NPE disposals in 2020.
S&P said, "Similarly, we expect NBG to further progress in working
out its still-large stock of NPEs (36.3% of gross loans on June 30,
2019). We believe that additional provisioning needs for further
asset quality improvements will be contained given NBG's above
peers' loan loss reserves' coverage, as well as the balanced focus
it gives to inorganic (sales) and organic (recoveries) solutions.
"While we expect Piraeus to continue to gradually reduce its large
stock of NPEs, we think it has lower room to manoeuver than
domestic peers, in our opinion, hence the affirmation. This is
because the bank has the largest stock of NPEs among peers (about
50% of customer loans), the lowest cash coverage (below 50%) and a
capital buffer that is likely to make it more difficult for the
bank to accelerate its NPE reduction to a similar extent than other
peers. Still, the outlook revision reflects that's Piraeus
de-risking plan and creditworthiness could benefit from further
reduction of the economic risk we see in Greece.
"We also affirmed our ratings on ABB despite our improved view of
the overall riskiness of the Greek Banking system. This is owing to
the uncertainties around the implications that the recent change in
its ownership might have on the bank's business and financial
profile. ABB is targeting fast growth and higher diversification,
and we believe some of its growth targets might be ambitious. We
will continue to monitor the implementation of its new business
plan and the execution risk attached to it, and how it will shape
the bank's credit profile.
"While we raised our counterparty ratings on Alpha, NBG, and
Eurobank, we maintained our issue-level rating on the banks'
subordinated instruments at 'CCC'. This is because we now reflect
in the ratings the risk that the regulator could decide to convert
the hybrid instruments that are part of the banks' regulatory
capital into common equity if needed. We apply this adjustment to
most financial institutions operating in the eurozone or under a
comparable regulatory framework. According to our methodology, we
usually start applying an additional negative notch of adjustment
from the financial institution stand-alone credit profile (SACP) to
reflect this risk only when the SACP is higher than 'b-'."
OUTLOOK: National Bank of Greece
The positive outlook indicates S&P could raise the ratings over the
next 12 months if the economic and funding conditions for Greek
banks improve; and the bank delivers on its de-risking plan and
further improves its liquidity position.
Upside scenario
S&P said, "We could raise our ratings should NBG leverage the
improving fundamentals in Greece and deliver on de-risking efforts
by further reducing its NPE stock and bringing asset quality
indicators more in line with those of higher-rated peers.
Therefore, we will closely monitor how the bank delivers on its
de-risking process, which targets a NPE ratio of about 5% by the
end of 2022. We could also raise the ratings if the bank
demonstrates its recently restored capacity to access stable
wholesale funding at affordable prices is sustainable."
Downside scenario
S&P could revise the outlook stable over the next 12 months if
National Bank fails with its problematic asset clean-up plans and
in strengthening its funding and liquidity, or if the pace of
economic and operating environment recovery reduces and hampers the
bank's capacity to keep enhancing its financials.
OUTLOOK: Eurobank
The positive outlook indicates S&P could raise the ratings over the
next 12 months if the economic and funding conditions for the Greek
banks improve and the bank delivers on its de-risking plan and
further improves its liquidity position.
Upside scenario
S&P said, "We could raise our ratings if Eurobank further delivers
on de-risking efforts by reducing its NPE stock and bringing its
asset quality ratios more on par with higher rated peers.
Specifically, this could occur if it completes its restructuring
plans while preserving its financial profile, including recently
enhanced solvency and liquidity. Therefore, we will monitor the
bank's plan to bring its NPE ratio below 10% by the end of 2021. We
could also raise the ratings if Eurobank demonstrates that its
recently restored capacity to access stable wholesale funding at
affordable prices is sustainable."
Downside scenario
S&P could revise the outlook to stable if Eurobank fails in its
problematic asset clean-up plans and in strengthening its funding
and liquidity, or if the pace of economic and operating environment
recovery reduces and hampers the bank's capacity to keep enhancing
its financials.
OUTLOOK: Alpha Bank
The positive outlook indicates S&P could raise the ratings over the
next 12 months if the economic and funding conditions for the Greek
banks improve and the bank delivers on its de-risking plan and
further improves its liquidity position.
Upside scenario
S&P said, "We could raise the ratings if we believe that Alpha Bank
is delivering on its plan to reduce its stock of NPEs to EUR8
billion by 2021 from the current EUR21 billion, which would likely
correspond to 15% of gross NPE compared with the current high 48%.
"We could also upgrade Alpha Bank if it demonstrates that its
recently restored capacity to access stable wholesale funding at
affordable prices is sustainable."
Downside scenario
S&P could revise the outlook stable over the next 12 months if
Alpha fails in implementing its problematic asset clean-up plans
and in strengthening its funding and liquidity, or if the pace of
economic and operating environment recovery reduces and hampers the
bank's capacity to keep enhancing its financials.
OUTLOOK: Piraues Bank
The positive outlook on Piraeus Bank primarily reflects the
improving economic and operating environment in Greece likely
supporting the bank's plan to de-risk its balance sheet, increase
efficiency and profitability, and preserve its solvency.
Upside scenario
S&P said, "We could raise the ratings on Piraeus Bank over the next
12 months if NPEs fall markedly, to be in line with that committed
with European authorities, while the bank proves able to preserve
it enhanced capitalization. This could occur with material progress
in the bank's plan to reduce its stock of NPEs to EUR11 billion
(23% of the total) by 2021 compared with EUR26 billion (51%) as of
June 2019. We could also raise the ratings if we conclude that
economic and industry risks in Greece has further decreased, or if
Piraeus demonstrates that its recently restored capacity to access
stable wholesale funding at affordable prices is sustainable."
Downside scenario
S&P said, "We could revise the outlook back to stable over the next
12 months if, contrary to our expectations, we conclude the Piraeus
progress in strengthening its balance sheet would not accelerate in
the coming quarters or if conclude that the operating environment
has not improved further.
"A positive rating action on Piraeus would not automatically lead
to an upgrade on its subordinated debt within the EMTN program.
This is because we could factor in an additional notch of
adjustment for the risk that the regulator could decide to convert
the hybrid instruments that are part of the banks' regulatory
capital into common equity if needed. We currently don't apply this
in accordance to our methodology because the ratings are in the
'CCC' category. We apply this adjustment to most financial
institutions operating in the eurozone or operating under a
comparable regulatory framework."
OUTLOOK: Aegean Baltic Bank
S&P said, "The stable outlook on ABB balances improving economic
and operating conditions in Greece with potential downside risks we
envisage in the bank's new business plan and its strategic shift
following the recent ownership change. ABB is now targeting
accelerated expansion in new segments and customers, mostly
domestic SMEs. While we expect the loan book's quality will benefit
from a gradual increase of granularity and lower concentration in
the highly volatile shipping industry, the bank will be exposed to
new entrant risks and significant execution risk given its new
business plan. We also believe ABB will face significant challenges
to fund its expansion plans, and strong competition from
long-established large players.
"We expect ABB's exceptionally high capitalization and its good
asset quality to continue supporting the ratings."
Upside scenario
S&P sees limited likelihood of an upgrade over the 12-month outlook
horizon given the changing ownership and uncertainties it might
lead regarding business generation, risk management, and dividends.
Nevertheless, an upgrade would hinge upon the bank successfully
entering new segments and significantly increasing its market
position and business diversification while preserving its risk
profile and capitalization.
Downside scenario
S&P said, "We could lower the ratings on ABB should the new
strategy results in a sudden and sharp deterioration of its
capitalization or risk profile. This could stem from ambitious
growth at the expense of lending and underwriting standards or
pricing aimed at faster customer acquisition should it leads to the
bank's RAC ratio falling and staying below 10%, coupled with a
deteriorated risk profile. While our assessment of ABB's funding
and liquidity already takes into account intrinsically high funding
and liquidity risks in Greece, if the bank's funding or liquidity
profile were to deteriorate because of fast growth in new segments,
we could lower the ratings."
Greece BICRA Score Snapshot
To From
BICRA group 9 10
Economic risk 9 10
Economic resilience Very high risk Very high risk
Economic imbalances Very high risk Extremely high risk
Credit risk in the economy Very high risk Very high risk
Trend Positive Positive
Industry risk 8 8
Institutional framework High risk High risk
Competitive dynamics High risk High risk
Systemwide funding Extremely Extremely
Trend Positive Stable
*Banking Industry Country Risk Assessment (BICRA) economic risk and
industry risk scores are on a scale from 1 (lowest risk) to 10
(highest risk).
Ratings List
Aegean Baltic Bank S.A
Ratings Affirmed
Aegean Baltic Bank S.A.
Issuer Credit Rating B/Stable/B
Alpha Bank A.E.
New Rating
Alpha Credit Group PLC
Senior Subordinated* CCC+
Alpha Group Jersey Ltd.
Preference Stock§ D
Upgraded; Ratings Affirmed
To From
Alpha Bank A.E.
Issuer Credit Rating B/Positive/B B-/Stable/B
Resolution Counterparty Rating B/--/B B-/--/B
Eurobank Ergasias S.A
Upgraded; Ratings Affirmed
To From
Eurobank Ergasias S.A
Issuer Credit Rating B/Positive/B B-/Stable/B
Resolution Counterparty Rating B/--/B B-/--/B
National Bank of Greece S.A
Upgraded; Rating Affirmed
To From
National Bank of Greece S.A.
Issuer Credit Rating B/Positive/B B-/Stable/B
Resolution Counterparty Rating B/--/B B-/--/B
Ratings Affirmed
National Bank of Greece S.A.
Subordinated CCC
Piraeus Bank S.A.
Ratings Affirmed; Outlook Action
To From
Piraeus Bank S.A.
Issuer Credit Rating B-/Positive/B B-/Stable/B
Resolution Counterparty Rating B-/--/B-
Ratings Affirmed
Piraeus Group Finance PLC
Subordinated† CCC
*The debt is being co-issued with Alpha Bank A.E.
§Guaranteed by Alpha Bank A.E.
†Guaranteed by Piraeus Bank S.A.
=============
I R E L A N D
=============
ADAGIO CLO VIII: Moody's Gives B3 Rating on EUR10.5MM Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to Notes issued by Adagio CLO VIII
Designated Activity Company:
EUR217,000,000 Class A Senior Secured Floating Rate Notes due 2032,
Definitive Rating Assigned Aaa (sf)
EUR25,000,000 Class B-1 Senior Secured Floating Rate Notes due
2032, Definitive Rating Assigned Aa2 (sf)
EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032,
Definitive Rating Assigned Aa2 (sf)
EUR24,500,000 Class C Deferrable Mezzanine Floating Rate Notes due
2032, Definitive Rating Assigned A2 (sf)
EUR22,750,000 Class D Deferrable Mezzanine Floating Rate Notes due
2032, Definitive Rating Assigned Baa3 (sf)
EUR17,500,000 Class E Deferrable Junior Floating Rate Notes due
2032, Definitive Rating Assigned Ba2 (sf)
EUR10,500,000 Class F Deferrable Junior Floating Rate Notes due
2032, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in its methodology.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured loans and senior secured
bonds and up to 10% of the portfolio may consist of unsecured
obligations, second-lien loans, mezzanine loans and high yield
bonds. The portfolio is expected to be approximately 80% ramped up
as of the closing date and to be comprised predominantly of
corporate loans to obligors domiciled in Western Europe. The
remainder of the portfolio will be acquired during the 5 month
ramp-up period in compliance with the portfolio guidelines.
AXA Investment Managers, Inc. will manage the CLO. It will direct
the selection, acquisition and disposition of collateral on behalf
of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's four and a
half-year reinvestment period. Thereafter, purchases are permitted
using principal proceeds from unscheduled principal payments and
proceeds from sales of credit risk obligations or credit improved
obligations.
In addition to the seven Classes of Notes rated by Moody's, the
Issuer issued EUR 11,000,000 Class Z Notes due 2032 and EUR
35,200,000 Subordinated Notes due 2032, which are not rated.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the Notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated Notes' performance is subject to uncertainty. The Notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. AXA's investment decisions and management of the
transaction will also affect the Notes' performance.
Moody's modeled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in Section
2.3 of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in March 2019.
Moody's used the following base-case modeling assumptions:
Par amount: EUR 350,000,000
Diversity Score: 40
Weighted Average Rating Factor (WARF): 2,920
Weighted Average Spread (WAS): 3.80%
Weighted Average Coupon (WAC): 4.25%
Weighted Average Recovery Rate (WARR): 44.00%
Weighted Average Life (WAL): 8.5 years
Moody's has addressed the potential exposure to obligors domiciled
in countries with local currency ceiling (LCC) of A1 or below. As
per the portfolio constraints, exposures to countries with LCC of
A1 or below cannot exceed 10%, with exposures to LCC of Baa1 to
Baa3 further limited to 5% and with exposures of LCC below Baa3 not
greater than 0%.
HIPOTOTTA PLC 4: Fitch Affirms BB-sf Rating on Class C Debt
-----------------------------------------------------------
Fitch Ratings revised the Outlook on HipoTotta No. 4 Plc's class C
notes to Positive from Stable and affirmed the class A, B and C
notes.
The rating actions follow a periodic review of the transaction.
RATING ACTIONS
HipoTotta No. 4 Plc
Class A XS0237370605; LT Asf Affirmed; previously at Asf
Class B XS0237370787; LT Asf Affirmed; previously at Asf
Class C XS0237370860; LT BB-sf Affirmed; previously at BB-sf
TRANSACTION SUMMARY
The transaction comprises Portuguese residential mortgage loans
originated and serviced by Banco Santander Totta SA
(BBB+/Stable/F2).
KEY RATING DRIVERS
Credit Enhancement (CE) Slightly Increasing
The revision of the Outlook on the class C notes reflects the
transaction's stable performance supported by seasoning of the
underlying assets, portfolio deleveraging as well as a slight
increase in CE for the class (2.4% versus 2.1% as of November
2018). Three-month plus arrears (excluding defaults) as a
percentage of the current pool balance stood at 0.4% as of the last
reporting period and gross cumulative defaults (defined as arrears
over 12 months) were at 3.5% of the initial portfolio balance.
Account Bank Triggers
The account bank documented counterparty provisions of 'F2' do not
support note ratings in the 'AAsf' rating category. The issuer
account bank is Deutsche Bank AG, London Branch (BBB/Evolving/F2,
Deposit Ratings: BBB+/F2). However, the current CE for the class A
and B notes does not support a 'A+sf' rating.
RATING SENSITIVITIES
All else being equal, a continued increase in CE could have
positive implications for the class C notes' rating. Increased CE
for the class A and B notes could also lead to an upgrade of these
classes. However, this is less likely in the short to medium term
than for the class C notes.
An abrupt shift of interest rates could jeopardise the underlying
borrowers' affordability and, ultimately, lead to a deterioration
in asset performances beyond Fitch's assumptions. This could have
negative implications for the notes' ratings.
===========
L A T V I A
===========
DZINTARS: Declared Insolvent by Riga District Court
---------------------------------------------------
Xinhua News, citing local media, reports that a district court in
the Latvian capital on Nov. 12 declared the country's oldest and
largest cosmetics company Dzintars insolvent.
An aide to the judge at Riga City Pardaugava District Court who
ruled on the financially ailing company's insolvency said that
Dzintars had failed to provide proof that it had met its
obligations to creditors, Xinhua relates.
According to Xinhua, the court said the State Revenue Service,
which was the largest creditor claiming outstanding tax payments
from Dzintars, rejected the company's latest rescue plan proposed
as part of its legal protection procedure.
The tax authority said the cosmetics company's current tax debt
stood at EUR2.59 million (US$2.85 million) and its total
liabilities to the state amounted to EUR6.8 million, Xinhua
relays.
The district court's ruling cannot be further appealed, Xinhua
notes.
Dzintars, established in 1849, is one of the oldest producers of
perfumery and cosmetics in the Baltics.
===================
L U X E M B O U R G
===================
CORESTATE CAPITAL: S&P Affirms BB+ Issuer Credit Rating
-------------------------------------------------------
S&P Global Ratings said that it affirmed its 'BB+' long-term issuer
credit rating on CORESTATE Capital Holding S.A. (Corestate) and
revised the outlook to positive from stable.
S&P also affirmed its 'BB+' rating on the senior unsecured debt.
The recovery rating of '4' is on the lower end of the 30%-50%
range.
The outlook revision acknowledges the successful integration of the
company's large acquisitions in the past two years and the upgrade
of its governance and operational infrastructure. Corestate now
stands out as one of the leading players in Europe's fragmented
real estate asset management market. S&P said, "Given its full
range of real-estate-related services and products and increasing
track record and expertise, we expect Corestate to continue
steadily strengthening its market position and cash flow generation
capacities. We also expect the company to decrease leverage, after
publicly committing to do so. Therefore, we consider the company
well on track toward an investment-grade rating of 'BBB-'."
Corestate concentrates on the residential real-estate niche in
Germany and some neighboring countries in Western Europe, which
will likely remain a relatively low-risk area due to persistent
structural supply shortages. S&P expects that Corestate will
benefit from the supportive environment, with strong undersupply in
the residential market and low interest rates, which should drive
construction in the medium term. This is particularly relevant for
Germany, Corestate's main market, which represents over 75% of
invested assets under management (AUM).
S&P said, "We expect Corestate's profitability metrics will remain
above what we typically observe as average in the asset management
industry, with adjusted EBITDA margin remaining at 50%-60% in the
medium term. We also view Corestate's earnings volatility as
relatively low, reflecting its high share of recurring fee income,
which we expect will remain above 85% of total revenue, largely due
to the closed-end nature of most funds.
"A central trigger for the positive outlook is the financial policy
commitment to gradually reduce leverage. We think that the company
may report some short-term spikes in leverage, depending on its
warehousing level and acquisitions. However, in our view, there
will be a clear and sustained leverage decrease over the medium
term. We forecast the company's net debt to adjusted EBITDA will
remain broadly stable in 2019 at about 3.0x and trend down from
2020 thanks to EBITDA improvements and strong cash flow generation,
dropping to 2.4x by year-end 2021. We believe Corestate's financial
policies are credible and clear and management's planned leverage
reduction is feasible. The company is targeting medium-term
leverage of 2.0x-3.0x, with a long-term target of below 2.0x.
"We regard Corestate's governance standards as solid. This is why
we do not think share-price volatility in October, linked to
short-seller activists, should affect the company's business
prospects or strategy. However, we will monitor if these actions
and the volatility continue, and whether they could mean
reputational issues, with a potential negative business or
financial effect on the company. If this were to happen, it would
make the likelihood of an upgrade more distant.
"We assess Corestate's liquidity as adequate because we expect
liquidity sources will cover uses by at least 1.2x over the 12
months from July 1, 2019. The closed-end nature of the vast
majority of the funds limits the risk of outflows.
"The outlook is positive because we expect that, over the next
12-18 months, Corestate will continue to strengthen its market
position, generate steady cash flows due its predominantly low-risk
German real-estate segment investments, and gradually decrease its
leverage. We also expect Corestate will continue to increase its
AUM and revenue, broaden its customer base, and maintain its high
share of recurring fees and strong EBITDA margins. In our central
scenario, we assume no, or marginal, contagion risks to the
business from recent stock price volatility linked to the
activities of some short sellers."
An upgrade would hinge on an increasing track record of leverage
sustainably decreasing toward the lower end of the 2x-3x range over
the medium term, supported by continued growth of AUM and strong
cash flow generation.
Any setback in leverage reduction, either because of material
debt-funded acquisitions, increasing appetite for warehousing, or a
weaker, more volatile, cash-flow profile than anticipated, would
lead us to revise the outlook back to stable. This could happen if
debt (net of surplus cash) to adjusted EBITDA remained in the upper
end of the 2.5x-3.0x range. This would be below S&P's forecast
leverage improvement and incompatible with a higher rating.
=====================
N E T H E R L A N D S
=====================
JUBILEE CLO 2019-XXIII: S&P Assigns Prelim B(sf) Rating on F Notes
------------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Jubilee
CLO 2019-XXIII B.V.'s class A, B, C, D, E, and F notes. At closing,
the issuer will also issue EUR41.10 million of unrated subordinated
notes.
On the closing date, the issuer will own approximately 75% of the
target effective date portfolio. S&P said, "We consider that the
target portfolio will be well-diversified, primarily comprising
broadly syndicated speculative-grade senior secured term loans.
Therefore, we have conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow collateralized debt
obligations."
Portfolio Benchmarks
S&P weighted-average rating factor 2,778
Default rate dispersion 502
Weighted-average life (years) 5.71
Obligor diversity measure 91
Industry diversity measure 20
Regional diversity measure 1.2
Weighted-average rating 'B'
'CCC' category rated assets (%) 0
'AAA' weighted-average recovery rate 37.18
Floating-rate assets (%) 0
Weighted-average spread (net of floors; %) 3.82
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the covenanted weighted-average spread (3.75%),
the reference weighted-average coupon (4.25%), and the minimum
weighted-average recovery rates as indicated by the collateral
manager. The transaction benefits from a EUR35 million interest cap
with a strike rate of 2.5% until January 2026, reducing the
interest rate mismatch between assets and liabilities in a scenario
where interest rates exceed the strike rate. We applied various
cash flow stress scenarios, using four different default patterns,
in conjunction with different interest rate stress scenarios for
each liability rating category."
Until the expected end of the reinvestment period in July 2024, the
collateral manager will be allowed to substitute assets in the
portfolio for so long as our CDO Monitor test is maintained or
improved in relation to the initial ratings on the notes. This test
looks at the total amount of losses that the transaction can
sustain as established by the initial cash flows for each rating,
and compares that with the default potential of the current
portfolio plus par losses to date. As a result, until the end of
the reinvestment period, the collateral manager may, through
trading, deteriorate the transaction's current risk profile, as
long as the initial ratings are maintained.
The Bank of New York Mellon will be the bank account provider and
custodian. We expect that its documented replacement provisions
will be in line with our counterparty criteria for liabilities
rated up to 'AAA'.
The issuer can purchase up to 30% of non-euro assets, subject to
entering into asset-specific swaps. S&P expects the downgrade
provisions of the swap counterparty or counterparties to be in line
with its counterparty criteria for liabilities rated up to 'AAA'.
S&P expects that the issuer will be bankruptcy remote, in
accordance with our legal criteria.
The CLO is managed by Alcentra Ltd. S&P currently rates six CLOs
from the manager in Europe. Under S&P's "Global Framework For
Assessing Operational Risk In Structured Finance Transactions,"
published on Oct. 9, 2014, the maximum potential rating on the
liabilities is 'AAA'.
Following S&P's analysis of the credit, cash flow, counterparty,
operational, and legal risks, S&P believes its preliminary ratings
are commensurate with the available credit enhancement for each
class of notes.
Ratings List
Class Prelim. Rating Prelim. amount
(mil. EUR)
A AAA (sf) 248.00
B AA (sf) 41.80
C A (sf) 27.50
D BBB (sf) 22.90
E BB (sf) 19.90
F B (sf) 8.00
Sub notes NR 41.10
NR--Not rated.
=============
R O M A N I A
=============
RADET: Bucharest Court Opts to Launch Liquidation Procedures
------------------------------------------------------------
Romania Insider, citing Hotnews.ro, reports that the Bucharest
Court of Appeal announced on Nov. 11 its final decision on the
bankruptcy of the municipal heating distribution company RADET, a
decision initially issued in April but appealed by the City Hall.
According to Romania Insider, under the law, pursuant to the
bankruptcy, liquidation procedures should begin.
However, RADET's assets are insignificant compared to the RON3.9
billion (EUR820 million) debt owed by the municipal company,
Romania Insider notes.
The main creditor is Elcen heating and energy producer, controlled
by the Ministry of Economy, which is itself in insolvency due to
its huge unpaid natural gas bills, Romania Insider discloses.
Elcen claims RON3.8 billion from RADET, Romania Insider states.
Minister of economy Virgil Popescu assured that Elcen would keep
delivering heat to the distribution network controlled by Bucharest
municipality, but a formal solution should be sketched, Romania
Insider relates.
=========
S P A I N
=========
GESTAMP AUTOMOCION: Moody's Alters Outlook on Ba2 CFR to Negative
-----------------------------------------------------------------
Moody's Investors Service changed the outlook on the ratings of
Gestamp Automocion, S.A. and Gestamp Funding Luxembourg S.A. to
negative from stable. Concurrently, Moody's affirmed Gestamp's
corporate family rating at Ba2, the probability of default rating
at Ba2-PD and the Ba3 instrument ratings of the backed senior
secured notes issued by Gestamp and Gestamp Funding Luxembourg
S.A.
"The outlook change reflects increased challenges for Gestamp to
sustain profitability and improve leverage to levels required for
the Ba2 rating.", said Matthias Heck, a Moody's Vice President --
Senior Credit Officer and Lead Analyst for Gestamp. "Over the more
prosperous previous years for the automotive industry, Gestamp's
high amounts of growth investments have increased leverage, which
is more difficult to reduce within the current challenging sector
environment.", added Mr. Heck.
RATINGS RATIONALE
The negative outlook reflects the expectation that Gestamp's EBITA
margins (Moody's adjusted) will be slightly below 6% in 2019, while
financial leverage (Moody's adjusted debt / EBITDA) will remain at
elevated levels of around 4x. Despite some expected improvements in
profitability, a commitment to lower capex and focus on Free Cash
Flow generation, all of which leading to a reduction in leverage in
2020, it might be challenging for Gestamp to improve metrics to
levels expected for the Ba2 rating within the next 12-18 months.
Moody's has a negative outlook on Europe's automotive parts
suppliers' sector, anticipating a 3.8% decline in global light
vehicle sales in 2019 and another 0.9% decline in 2020. The
negative sector outlook also incorporates the expectation that
margins in the sector will decline by 100-150 basis points in 2019,
with no significant recovery in 2020.
In the first nine months of 2019, Gestamp recorded a 7% growth in
revenues (at constant FX), which implies a 12% outperformance
versus declining global light vehicle sales. Without a recovery in
global light vehicle sales in the fourth quarter, however, Gestamp
reduced its expectations for revenues for 2019 to mid-single digit
growth, from previously high single-digit, with EBITDA no longer
growing more than revenues but still exceeding 2018 levels (even
without the positive impact from IFRS 16 in 2019). Despite a slight
reduction of capex to around 9% of revenues, from previously 9.5%,
the company now expects its reported net debt / EBITDA (excluding
IFRS 16) at around 2.4x, compared to previously less than 2.2x and
September 2019 actuals of 2.75x (guidance at constant FX levels and
excluding IFRS 16).
On a Moody's adjusted basis, Gestamp's EBITA margins declined to
5.5% in the last twelve months to September 2019, from 6.1% in
2018. With this, margins have dropped below the level of 6%, which
Moody's expects on a sustainable basis for the Ba2 rating.
Gestamp's debt / EBITDA increased further to 4.4x at September
2019, compared to 4.1x in 2018. Both is above the maximum of 3.5x,
which Moody's expects for the Ba2.
RATIONALE FOR THE RATING AFFIRMATION
The rating affirmation considers the company's continued
implementation of efficiency measures in Q4 2019 and 2020, and a
moderation of capital expenditures after previous years of high
growth investments. Moody's therefore expects increasing profits
(with EBITA margins exceeding 6% again) and declining debt levels
to around 3.5x in 2020, which is more commensurate for the Ba2
rating.
More generally, the rating affirmation reflects as positives, the
company's: (a) size and scale as a Tier 1 automotive supplier
predominantly for body-in-white components, with market leading
position in cold stamping and hot forming steel technologies; (b)
track record of growth in revenues, exceeding volume growth in
global light vehicle sales and a strong pipeline for new business,
mirrored by consistently high capex; (c) long term agreements with
a relatively diversified OEM customer base that provide a degree of
protection from certain risks; and (d) positive exposure to the
current industry drivers of vehicle light-weighting and higher
safety standards.
The rating reflects, as negatives, Gestamp's: (a) dependency on
global light vehicle production levels, which are highly cyclical
and which have declined since the third quarter of 2018; (b)
sustained negative Free Cash Flow (FCF) generation which results
from its high ongoing capital expenditure program (including high
amounts of growth capex in the last years); (c) higher exposure to
Europe than comparatively sized peers; and (d) weak credit metrics
driven by high capex in greenfield operations which Moody's expects
to improve to more moderate levels in 2020.
Gestamp's manufacturing operations are subject to overall low
environmental risks, while its hot stamping technology is even
positively exposed to the trend of emission reduction, because it
enables weight reduction and thus energy and emission savings of
vehicles. Gestamp's social risk exposure is relatively low, given
the majority of production in developed countries in Europe and
North America, where the retention of skilled manufacturing
workforce is typically easier than in developing countries. As a
listed company, Gestamp complies with the overall high level of
disclosure requirements and has established a governance structure
which fulfils the stock market requirements. Main governance risks
relate to the company's financial policy. While the liquidity is
adequate, continued growth investments due to its capex intensive
business model have resulted in somewhat elevated financial
leverage.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's would consider a downgrade should Gestamp's EBITA margin
fall below 6% or if leverage would exceed 3.5x debt/EBITDA
sustainably. Likewise, a deterioration of its liquidity profile
through more significant negative Free Cash Flow could result in a
downgrade.
Moody's would consider a positive rating action should Gestamp
manage to achieve an adjusted EBITA-margin of at least 7% on a
sustainable basis and reduce debt/EBITDA towards 2.5x. Moreover, an
upgrade would require Free Cash Flow to turn positive and improve
FCF/debt toward low single digit sustainably despite of the planned
capital expenditures to support further growth.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Automotive Supplier Industry published in June 2016.
COMPANY PROFILE
Gestamp Automocion, S.A., headquartered in Madrid/Spain, designs,
develops, and manufactures metal components for the automotive
industry. The company, which generated EUR8.5 billion revenues
during 2018, employs over 43,000 employees and operates 109 plants
and 13 R&D centers in 22 countries. Its main products are
body-in-white (including hoods, roofs, doors, pillars, floors,
crash boxes, and battery boxes for electric vehicles) and cassis
products, which together account for 80% of revenues in 2018.
Gestamp is listed at the Madrid stock exchange, and had a free
float of 30.21% at December 31, 2018. 69.79% of the share capital
was controlled directly and indirectly by Acek Desarrollo y Gestion
Industrial S.L.
=====================
S W I T Z E R L A N D
=====================
SCHMOLZ + BICKENBACH: Has Few Weeks to Agree on Cash injection
--------------------------------------------------------------
Fabian Graber at Bloomberg News reports that the owners of Swiss
steelmaker Schmolz + Bickenbach AG have less than four weeks to
agree on a cash injection to fend off the threat of a potential
restructuring involving almost half its total debt.
According to Bloomberg, a squabble among its biggest shareholders
over board members has cast doubt on whether the company can raise
a proposed CHF614 million (US$617 million) to shore up finances
amid flagging performance.
Failure to secure the new money in a vote on Dec. 2 may lead to a
debt restructuring, Bloomberg relays, citing S&P Global Ratings.
"We are talking about a relatively short period of time," Bloomberg
quotes Andrey Nikolaev, an analyst at S&P, as saying.
A company spokesman said in response to questions about the S&P
report Schmolz anticipates that a capital increase will go through,
and it's taking into consideration the change of control clause in
its financing package, Bloomberg relates.
Schmolz said in a statement last month falling demand for steel in
its core European markets will contribute to an expected 70% drop
in earnings this year, Bloomberg recounts.
The firm said in October banks handed it some relief by agreeing to
suspend covenants on terms governing loans for the second half of
the year, Bloomberg notes.
However, its path to recovery is being hindered by disagreements
between its two biggest shareholders, Martin Haefner and a holding
company linked to Russian billionaire Viktor Vekselberg, Bloomberg
discloses.
Mr. Haefner unveiled a plan last month to increase his stake to
37.5% from 17% by injecting as much as CHF325 million, Bloomberg
relates.
But Liwet Holding, which holds 27% of the firm, has hampered that
offer by calling for an extraordinary general meeting to shake up
the company's board, according to Bloomberg.
If Mr. Haefner succeeds in raising his stake, a so-called change of
control clause in the bonds would be triggered, according to S&P,
allowing bondholders to redeem their principal from the company,
Bloomberg notes.
According to Bloomberg, S&P said, Schmolz's banks would probably
need to provide additional funding to repay the bonds, but there's
also a risk that the company calls for a voluntary distressed
exchange offer and buys back the bonds at discount.
The company's EUR350 million of bonds maturing in 2022 are
currently quoted at about 85 cents on the euro, according to data
compiled by Bloomberg.
A year ago they were trading higher than their face value,
Bloomberg notes.
===========
T U R K E Y
===========
ARCELIK AS: S&P Affirms 'BB+' Issuer Credit Rating, Outlook Neg.
----------------------------------------------------------------
S&P Global Ratings affirmed its 'BB+' ratings on Arcelik A.S. and
on the company's senior unsecured debt, based on S&P's view that
the company can withstand a sovereign stress scenario, allowing us
to rate it four notches above Turkey.
Arcelik's debt service metrics should benefit from lower borrowing
cost, enabling EBITDA interest coverage to gradually go back to 3x
in 2020.
Turkey has undergone three straight interest rate reductions since
July 2019, when the one-week repo rate was 24% -- it reached this
level because of double-digit inflation and to ease a tumble in the
Turkish lira (TRY) following financial turmoil within the country
in 2018. The central bank is now significantly pulling interest
rates down again. On Oct. 23, it cut its benchmark interest rate by
250 bps, bringing it down to 14%. This should meaningfully reduce
Arcelik's interest expenses over the next 12 months. Indeed, 40% of
the company's debt is denominated in Turkey lira (as of Sept. 30,
2019) and serves mostly to fund the large working capital needs in
the country. S&P said, "We therefore believe the mechanical
decrease in local borrowings costs will be the main factor in
supporting EBITDA interest coverage of about 3x in 2020. We also
think this will support the currently negative free cash flow base,
which is important because the company will have a EUR350 million
senior bond to refinance by September 2021."
Operational headwinds are not only linked to weak consumer demand
in Turkey.
Arcelik generates about 35% of its revenues in Turkey and will most
likely continue to be negatively affected by the weak market
conditions in white goods and consumer electronics. Foreign
exchange (FX) volatility of the lira versus the euro and U.S.
dollar remains a high risk over 2020 due to macroeconomic
uncertainty. S&P expects a market slowdown in most of Western
Europe with flat growth; and mid-to-high single digit for Eastern
Europe. Emerging markets should also positively affect the group's
profitability despite bringing some FX volatility that could impair
the group's margins. The larger exposure to Eastern Europe and Asia
enables the group to enjoy volume growth over the medium term
despite some volatility. The large presence in Western Europe (30%
of revenues) enables Arcelik to generate earnings in hard
currencies to service the bonds and a stable geographical
diversification.
Arcelik's main competitive advantage is its low operating cost base
and increasingly its brands.
The operating cost base benefits from having group production
facilities located in countries that have low labor costs (Turkey,
Romania, South Africa, Bangladesh, and Pakistan) and are close to
consumer end markets. Arcelik has some pricing power thanks to its
well-known local (Arcelik, Singer, Arctic, Defy, and Dawlance) and
global (Beko) brands covering various segments within the consumer
durable space. S&P is more cautious on the group's competitive
advantage in consumer electronics. Also, raw materials costs
(plastics and steel) seem to be declining, which should support
more stable operating margins in the next 12 months.
Arcelik can withstand a sovereign stress scenario, allowing us to
rate it four notches above Turkey.
The company enjoys a large share of earnings in hard currency
thanks to its large presence in Western Europe. The group also
maintains at all times very large cash balances (TRY5.5 billion at
September 2019) mostly held in U.S. dollars and euros. S&P said,
"This enables the group to pass both the sovereign and transfer and
convertibility stress tests, hence why we can rate it four notches
above Turkey. In our hypothetical sovereign default stress test, we
assume, among other factors, a 50% devaluation of the lira against
hard currencies and a 15%-20% decline in Arcelik's organic EBITDA.
We believe the company can withstand a hypothetical sovereign
default because, in the event of further depreciation of the lira,
the appreciation of deposits abroad would offset the increase in
Arcelik's short-term foreign currency debt-service. Failure to pass
this test would lead us to equalize our rating on Arcelik with the
foreign currency sovereign ratings on Turkey (unsolicited;
B+/Stable/B), which would imply a three-notch downgrade."
S&P said, "The negative outlook reflects downside risks to our
base-case projections given weak consumer demand in Turkey and
currency exchange volatility. Our base case assumes 20%-25% revenue
growth (mostly due to high price inflation in Turkey) and about 10%
EBITDA margin thanks to pricing power and flexible operations
costs. We therefore forecast EBITDA interest coverage of about 2.5x
in 2019 and about 3.0x in 2020.
"We could lower our rating on Arcelik over the next 12 months if
the group could not lower its interest burden on its Turkish
lira-denominated debt due to inability to refinance the bulk of its
short-term debt at a rate below 20% on average, leading to EBITDA
interest coverage of close to 2x. We would also view negatively
weak operating performance in Western Europe, which helps generate
hard currency earnings.
"We could revise the outlook to stable if Arcelik is able to
sustainably lower its interest expenses while posting solid
operating performance in Western Europe and stabilize cash flows in
Turkey. We would therefore need to see sustained interest coverage
close to about 3x and positive free cash flow. This would
materialize if Arcelik refinances its short-term debt at a cost
close to 16%, and if the group's EBITDA margin increases by almost
150 bps in in the next 12 months."
===========================
U N I T E D K I N G D O M
===========================
ALBA PLC 2007-1: Fitch Affirms CCCsf Rating on Class F Debt
-----------------------------------------------------------
Fitch Ratings upgraded five tranches of Alba 2006-1, Alba 2006-2
and Alba 2007-1 and affirmed 14 tranches. The Outlooks are Stable.
All three transactions have been removed from Under Criteria
Observation.
RATING ACTIONS
ALBA 2007-1 plc
Class A3 XS0301721832; LT A+sf Affirmed; previously at A+sf
Class B XS0301706288; LT A+sf Affirmed; previously at A+sf
Class C XS0301707096; LT A+sf Upgrade; previously at Asf
Class D XS0301708060; LT A+sf Upgrade; previously at BBBsf
Class E XS0301708573; LT BBB+sf Upgrade; previously at BBsf
Class F XS0301708813; LT CCCsf Affirmed; previously at CCCsf
ALBA 2006-2 plc
Class A3a XS0271529967; LT A+sf Affirmed; previously at A+sf
Class A3b XS0272876623; LT A+sf Affirmed; previously at A+sf
Class B XS0271530114; LT A+sf Affirmed; previously at A+sf
Class C XS0271530544; LT A+sf Affirmed; previously at A+sf
Class D XS0271530973; LT A+sf Upgrade; previously at BBB+sf
Class E XS0271531435; LT BBB+sf Upgrade; previously at BBsf
Class F XS0272877514; LT CCCsf Affirmed; previously at CCCsf
ALBA 2006-1 plc
Class A3a XS0254830499; LT A+sf Affirmed; previously at A+sf
Class A3b XS0254831893; LT A+sf Affirmed; previously at A+sf
Class B XS0254833089; LT A+sf Affirmed; previously at A+sf
Class C XS0254833758; LT A+sf Affirmed; previously at A+sf
Class D XS0254834053; LT BBBsf Affirmed; previously at BBBsf
Class E XS0254834301; LT Bsf Affirmed; previously at Bsf
TRANSACTION SUMMARY
The transactions are backed by non-conforming and buy-to-let (BTL)
residential mortgages originated by Money Partners Holding Limited,
Kensington Group plc and Paratus AMC Limited (GMAC).
KEY RATING DRIVERS
Insufficient Data Caps Ratings
Fitch has capped the notes' ratings at 'A+sf' as it did not
consider the collateral information it received to be sufficiently
detailed to support high investment-grade ratings ('AAsf' and
'AAAsf' category) as outlined in its Global Structured Finance
Rating Criteria and UK RMBS Rating Criteria. Fitch generally
applies assumptions in cases of missing collateral information.
However, in this instance a large volume of material information
was not available and therefore Fitch did not consider the analysis
significantly robust to support ratings in the high
investment-grade category.
Missing Collateral Information
Fitch has not received complete loan level data for loans
substituted into the pool post-closing or current information
regarding certain key parameters of all the mortgages in the pool.
For loans submitted to the pool post-closing, key static data items
were missing including, but not limited to, original loan balance,
adverse credit history and borrower employment status. For all
loans in the pool Fitch did not receive information for key data
items including, but not limited to, annual rental income for BTL
loans, the number of months loans are in arrears and the current
interest rate type of loans. Fitch used information available at
closing for certain fields. Fitch assumed rental income to be zero
for all BTL loans.
UK RMBS Rating Criteria
The rating actions take into account the new UK RMBS Rating
Criteria dated October 4, 2019. The note ratings are no longer
Under Criteria Observation.
Increased CE
Due to the notes paying pro-rata for all three transactions, credit
enhancement (CE) for the junior notes has increased. Increased CE,
along with reduction in sustainable loan to value, has led to the
upgrades of Alba 2006-2's class D and E notes and Alba 2007-1's
class C, D and E notes.
IO maturity exposure
Fitch has not upgraded the junior-most notes of the transactions,
as the interest only (IO) loans maturity schedule shows maturity
dates near the legal final maturity. Therefore there is potential
exposure to an extension of the maturity dates of these IO loans.
Alba 2006-1 Class D note
Alba 2006-1 is expected to pay pro-rata in the medium term, as
delinquencies are at 3.4% (versus a sequential trigger event set at
22.5%) and no sequential trigger event is set based on a minimum
outstanding portfolio balance. For these reasons, Alba 2006-1's
class D notes are exposed to higher tail-end risk generated by IO
loans. Consequently Fitch has not upgraded these notes, contrary to
what was suggested by the model implied rating output.
Alba 2007-1 Class F note
The current portfolio balance for Alba 2007-1 is lower than the
note balance as of the September 2019 investor report. As no
information has been received on what constitutes this difference,
Fitch has assumed that the unbalance is due to defaulted loans, for
which no recovery benefit was given. The class F notes' rating is
also constrained by IO maturity exposure. Fitch does not expect to
take positive rating actions from receipt of updated information.
RATING SENSITIVITIES
Receipt of Additional Collateral Information
Fitch considers that the receipt of full loan level collateral
information could facilitate the removal of the rating cap. If
Fitch receives sufficient loan level data, it will review the
ratings in line with its published methodology. This may not lead
to the ratings being restored to the level prior to the imposition
of the cap.
The discontinuation of LIBOR by December 2021 could introduce basis
risk as the whole pool will revert to a LIBOR linked product and
the replacement for LIBOR in the respect of the loans remains
uncertain, creating asset and liability index mismatching.
Additionally, borrowers are also exposed to increases in market
interest rates, which would put pressure on affordability and
potentially cause deterioration of asset performance. A material
increase in defaults and losses levels in excess of Fitch's
expectations may have a negative impact on the notes.
In Fitch's view, a sudden rise in interest rates would put a strain
on borrower affordability, particularly given the weaker profile of
non-conforming borrowers. An increase in defaults and associated
losses beyond the agency's stressed assumptions would result in
negative rating action, particularly at the lower end of the
structures.
CORPORATE ROAD: Enters Administration, 70 Jobs Affected
-------------------------------------------------------
Scott Reid at The Scotsman reports that Corporate Road Solutions
24:7, a West Lothian haulage business, has gone bust with the loss
of almost 70 jobs.
Administrators have been appointed to the Bathgate-based company,
based in the town's Redmill Industrial Estate, The Scotsman
relates.
Following the appointment of administrators, 66 staff have been
made redundant while four workers have been retained to assist with
the winding down process, The Scotsman discloses.
According to The Scotsman, the company is said to have been
operating against a backdrop of "increasingly challenging market
conditions and cost pressures".
Over the course of 2019, the resulting financial difficulties were
compounded by the departure of "key freight forwarding staff to a
competitor" together with the loss of an unnamed major customer,
The Scotsman states.
Management sought to address financial issues by cutting costs and
securing additional working capital, while talks were also held
with third parties with a view to attracting investment or a sale
of the business, The Scotsman recounts.
Blair Nimmo, joint administrator and KPMG's UK head of
restructuring, as cited by The Scotsman, said: "Haulage remains a
challenging sector and, despite the tireless efforts of the
director, unfortunately, Corporate Road Solutions 24:7 has now
entered into administration.
"It has not proved possible to continue trading in light of
significant liabilities and cashflow difficulties. This has, in
turn, resulted in the redundancies which have been announced and
the closure of operations."
Founded in 2005, the business had been operating as a road haulage
contractor and freight forwarder. It specialized in the transport
of goods for large supermarket chains together with smaller
Scottish businesses.
LUDGATE FUNDING 2006-FF1: S&P Affirms B+(sf) Rating on Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings affirmed its ratings on the class A2a, A2b, Ba,
Bb, C, D, and E notes issued by Ludgate Funding PLC series
2006-FF1.
In this transaction, S&P's ratings address timely receipt of
interest and ultimate repayment of principal for all classes of
notes. The notes are currently amortizing pro rata.
S&P said, "The affirmations follow the application of our revised
criteria and our full analysis of the most recent transaction
information that we have received, and they reflect the
transaction's current structural features.
"Upon revising our criteria for assessing pools of residential
loans, we placed our ratings on all of the transaction's classes of
notes under criteria observation. Following our review of the
transaction's performance and the application of these criteria,
our ratings on the notes are no longer under criteria observation.
"In our opinion, the performance of the loans in the collateral
pool has improved since our previous full review. Since then, total
delinquencies have decreased to 2.0% from 4.6%.
"The use of an effective loan-to-value (LTV) ratio instead of the
original LTV ratio, the withdrawal of the interest-only loan for
buy-to-let loans, and the greater proportion of the pool attracting
the maximum seasoning credit benefitted our weighted-average
foreclosure frequency (WAFF) calculations. Our weighted-average
loss severity (WALS) assumptions have decreased at all rating
levels as a result of higher U.K. property prices, which triggered
a lower weighted-average current loan-to-value ratio."
WAFF And WALS Levels
Rating level WAFF (%) WALS (%)
AAA 15.95 35.71
AA 11.20 27.75
A 8.76 14.74
BBB 6.31 8.13
BB 3.87 4.71
B 3.26 2.35
Credit enhancement levels have increased for all rated classes of
notes since our previous full review.
Credit Enhancement Levels
Class CE (%) CE as of previous review (%)
A2a 19.0 18.8
A2b 19.0 18.8
Ba 11.0 10.8
Bb 11.0 10.8
C 6.0 5.8
D 2.8 2.6
E 1.3 1.1
CE--Credit enhancement.
The notes benefit from a liquidity facility and a reserve fund,
both of which are at their target levels, and non-amortizing as the
respective cumulative loss triggers have been breached.
S&P said, "Our operational, legal, and counterparty risk analysis
remains unchanged since our previous full review. The bank account
provider (Barclays Bank PLC; A/Stable/A-1) breached the 'A-1+'
downgrade trigger specified in the transaction documents, following
our lowering of its long- and short-term ratings in November 2011.
Because no remedial actions were taken following our November 2011
downgrade, our current counterparty criteria cap the maximum
potential rating on the notes in this transaction at our 'A'
long-term issuer credit rating (ICR) on Barclays Bank.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class A2a, A2b, Bb, and Bb notes is
commensurate with higher ratings than those currently assigned.
However, given the ratings on all the notes are capped at the
long-term ICR on Barclays Bank, we have affirmed our 'A (sf)'
ratings on these classes of notes.
"Our analysis also indicates that the available credit enhancement
for the class C, D, and E notes is commensurate with higher ratings
than those currently assigned. However, given the nonconforming
nature of the pool, the high percentage of interest-only loans
(90.5%) triggering tail risk due to the low pool factor, and the
junior position of these notes in the capital structure, we have
affirmed the ratings on these classes of notes."
Ludgate Funding 2006-FF1 is a U.K. RMBS transaction, which closed
in November 2006 and securitizes a pool of nonconforming loans
secured on first-ranking U.K. mortgages.
Ratings List
Class Rating to Rating from
A2a A (sf) A (sf)
A2b A (sf) A (sf)
Ba A (sf) A (sf)
Bb A (sf) A (sf)
C BBB+ (sf) BBB+ (sf)
D BB+ (sf) BB+ (sf)
E B+ (sf) B+ (sf)
LUDGATE FUNDING 2007-FF1: S&P Affirms B(sf) Rating on Cl. E Notes
-----------------------------------------------------------------
S&P Global Ratings raised its credit ratings on the class Bb, Cb,
Da, and Db notes and affirmed its ratings on the class A2a, A2b,
Ma, Mb, and E notes issued by Ludgate Funding PLC series 2007-FF1.
S&P said, "In this transaction, our ratings address timely receipt
of interest and ultimate repayment of principal for all classes of
notes. The notes are currently amortizing pro rata.
"The rating actions follow the application of our revised criteria
and our full analysis of the most recent transaction information
that we have received, and they reflect the transaction's current
structural features.
"Upon revising our criteria for assessing pools of residential
loans, we placed our ratings on all of the transaction's classes of
notes under criteria observation. Following our review of the
transaction's performance and the application of these criteria,
our ratings on the notes are no longer under criteria observation.
"In our opinion, the performance of the loans in the collateral
pool has slightly improved since our previous full review. Since
then, total delinquencies have decreased to 3.9% from 4.4%.
"The use of an effective loan-to-value (LTV) ratio instead of the
original LTV ratio, the withdrawal of the interest-only loan for
buy-to-let loans and the greater proportion of the pool attracting
the maximum seasoning credit benefitted our weighted-average
foreclosure frequency (WAFF) calculations. Our weighted-average
loss severity (WALS) assumptions have decreased at all rating
levels as a result of higher U.K. property prices, which triggered
a lower weighted-average current loan-to-value ratio."
WAFF And WALS Levels
Rating level WAFF (%) WALS (%)
AAA 19.41 42.43
AA 13.81 34.79
A 10.78 21.76
BBB 7.71 14.21
BB 4.64 9.60
B 3.87 6.05
Credit enhancement levels have increased for all rated classes of
notes since our previous full review.
Credit Enhancement Levels
Class CE (%) CE as of previous review (%)
A2a 31.2 31.1
A2b 31.2 31.1
Ma 16.1 16.0
Mb 16.1 16.0
Bb 10.0 9.9
Cb 6.4 6.3
Da 2.9 2.8
Db 2.9 2.8
E 0.9 0.8
CE--Credit enhancement.
The notes benefit from a liquidity facility and a reserve fund,
both of which are at their target levels, and non-amortizing as the
respective cumulative loss triggers have been breached.
S&P said, "Our operational, legal, and counterparty risk analysis
remains unchanged since our previous full review. The bank account
provider (Barclays Bank PLC; A/Stable/A-1) breached the 'A-1+'
downgrade trigger specified in the transaction documents, following
our lowering of its long- and short-term ratings in November 2011.
Because no remedial actions were taken following our November 2011
downgrade, our current counterparty criteria cap the maximum
potential rating on the notes in this transaction at our 'A'
long-term issuer credit rating (ICR) on Barclays Bank.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class A2a, A2b, Ma, Mb, and Bb notes is
commensurate with higher ratings than those currently assigned.
However, given the ratings on all the notes are capped at the
long-term ICR on Barclays Bank, we have affirmed our 'A (sf)'
ratings on the class A2a, A2b, Ma, and Mb notes, and raised to 'A
(sf)' from 'A- (sf)' our rating on the class Bb notes.
"Our analysis also indicates that the available credit enhancement
for the class Cb, Da, Db and E notes is commensurate with higher
ratings than those currently assigned. However, given the
nonconforming nature of the pool, the high percentage of
interest-only loans (95.7%), and the junior position of these
classes of notes in the capital structure, we have limited the
upgrades of the class Cb, Da, and Db notes to one notch, to 'BBB+
(sf)' from 'BBB (sf)', and to 'BB+ (sf)' from 'BB (sf)',
respectively, and affirmed our 'B (sf)' rating on the class E
notes."
Ludgate Funding 2007-FF1 is a U.K. RMBS transaction, which closed
in June 2007 and securitizes a pool of nonconforming loans secured
on first-ranking U.K. mortgages.
Ratings List
Class Rating to Rating from
A2a A (sf) A (sf)
A2b A (sf) A (sf)
Ma A (sf) A (sf)
Mb A (sf) A (sf)
Bb A (sf) A- (sf)
Cb BBB+ (sf) BBB (sf)
Da BB+ (sf) BB (sf)
Db BB+ (sf) BB (sf)
E B (sf) B (sf)
PIZZAEXPRESS: S&P Lowers ICR to 'CCC-' on Potential Restructuring
-----------------------------------------------------------------
S&P Global Ratings lowered the issuer credit rating on PizzaExpress
to 'CCC-'. In line with the downgrade, S&P lowered its issue
ratings on the group's revolving credit facility (RCF) to 'B-', the
GBP465 million senior secured bonds due in August 2021 to 'CCC-',
and the GBP200 million senior unsecured bonds due in August 2022 to
'C'.
The downgrade follows U.K.-based PizzaExpress Financing 1 PLC's
announcement on Nov. 6, 2019, that an affiliate of its
Beijing-based financial sponsor, Hony Capital, has launched a
tender offer for GBP80 million of the GBP200 million senior
unsecured notes due in August 2022. PizzaExpress has also appointed
financial and legal advisers for a potential restructuring of the
group's capital structure.
S&P said, "We understand the resolution of the tender offer will be
announced on Dec. 5, 2019, with a final settlement expected on or
about Dec. 12, 2019. The group has also stated that, following the
closing of the tender offer, the affiliate of Hony Capital may hold
some or all of the tendered senior notes to maturity; contribute
some or all of the tendered senior notes to the group; and/or Hony
Capital or its affiliates may seek to engage in other refinancing
or debt transactions with the group or other parties.
"The 'CCC-' issuer credit rating reflects our view that regardless
of the outcome of the proposed tender offer, a distressed exchange
or a debt restructuring appears to be inevitable within six
months."
In terms of its liquidity position, the group maintains full
availability under its existing GBP20 million RCF, although that is
set to mature in August 2020. The group also closed the third
quarter of 2019 with GBP20 million of cash on balance sheet, down
from GBP37 million at the end of June and after a GBP24 million
interest payment in August. PizzaExpress has a springing net
leverage covenant, which is tested quarterly when the super senior
RCF is 25% drawn.
The group continues to report weak trading with negative
like-for-like sales growth in the U.K. and a 160-basis-point drop
in group-reported EBITDA margins during the third quarter of 2019.
In S&P's view, this contributes to the refinancing risks the group
is facing on its capital structure, driven by unsustainable
leverage levels and negligible cash flow generation. The group has
senior secured bond maturities of GBP465 million in August 2021 and
senior unsecured bond maturities of GBP200 million in August 2022.
S&P said, "Our base-case expectations for 2019 and 2020 are
unchanged, including broadly neutral free operating cash flow
(FOCF) generation and S&P Global Ratings-adjusted debt to EBITDA of
over 11.0x (7.5x excluding the shareholder loan notes, which we
treat as debt-like).
"The CreditWatch negative placement reflects the possibility that
bondholders could receive less value than the promise of the
original securities, if they were to participate in Hony Capital's
offer. This, in our view, would constitute a distressed exchange
offer, tantamount to default on the senior unsecured notes upon
settlement of the transaction.
"If that were to happen, and upon completion of the exchange offer
-- which we would view to be distressed -- the issue ratings on the
group's senior unsecured notes would be downgraded to 'D'
(default), and the issuer credit rating on PizzaExpress Financing 1
PLC would likely go to 'SD' (selective default), assuming the group
continues to honor its other obligations.
"We will revisit the CreditWatch placement when we have more
details regarding the final terms, completion, and further
settlement of the tender offer, which is scheduled for Dec. 12,
2019.
"We are lowering our issue ratings on PizzaExpress' GBP20 million
RCF due August 2020 to 'B-' from 'B+'. The recovery rating is '1+',
reflecting our expectation of full recovery in the event of default
owing to the RCF's priority status and its small amount in the
capital structure.
"We are also lowering our issue rating on the GBP465 million 6.625%
senior secured notes due August 2021 to 'CCC-' from 'CCC+'. The
recovery rating on the bonds remains at '3', reflecting our
expectation of meaningful recovery (50%-70%; rounded estimate: 60%)
in the event of default. PizzaExpress' well-established brand and
extensive restaurant network support the rating, but the
significant amount of notes outstanding constrain it.
"We are revising our issue rating on the GBP200 million 8.625%
senior unsecured notes due August 2022 to 'C' from 'CCC-'. The
recovery rating remains at '6', reflecting our expectation of
negligible recovery prospects (0%-10%; rounded estimate: 0%) in the
event of default. Given substantial secured debt claims, we believe
there would be no residual value available for the unsecured
bondholders.
"Our hypothetical default scenario assumes severe competition in
the U.K. casual dining segment, an economic downturn, disruption to
PizzaExpress' reputation and operations, and expansion plans. We
value the group as a going concern, given PizzaExpress'
well-established brand in the U.K. and growing presence in China."
-- Simulated year of default: 2020
-- Implied enterprise value multiple: 5.0x (supported by
PizzaExpress' well-established brand and extensive restaurant
network in the U.K., albeit constrained by fierce competition in
pizza offerings)
-- EBITDA at emergence: GBP68 million (minimum capex at 3% of
annual revenues, based on the group's historic trends and future
expectations; the standard cyclical adjustment is 5%, with no
operational adjustment)
-- Jurisdiction: U.K.
-- Gross enterprise value at default: GBP342 million
-- Net enterprise value after administrative costs (5%): GBP325
million
-- Value available for super senior RCF: GBP325 million
-- Estimated super senior RCF claims: GBP18 million [1]
--Recovery rating: 1+ (full recovery)
-- Value available for senior secured notes: GBP307 million
-- Estimated senior secured notes claims: GBP480 million [2]
--Recovery rating: 3 (50%-70%; rounded estimate: 60%)
-- Value available for senior unsecured notes: Nil
-- Estimated senior unsecured notes claims: GBP209 million [2]
--Recovery rating: 6 (0%-10%; rounded estimate: 0%)
[1] Assumes super senior RCF to be 85% drawn at default.
[2] All debt amounts include six months of prepetition interest.
TOYS R US UK: Seeks Creditor Approval for CVA Plan
--------------------------------------------------
Stock Daily Dish reports that Toys R Us U.K. is to seek creditor
approval for a restructuring plan involving closing at least 26 of
its 105 stores in Britain in 2018, it said on Nov. 11.
The British arm of Toys R Us Inc. of the United States, which in
September, said it had submitted a Company Voluntary Arrangement
(CVA) plan to its creditors and would seek their approval in the
next 17 days, Stock Daily Dish discloses.
According to Stock Daily Dish, Toys R Us U.K. said that if approved
by the creditors the CVA plan would substantially reduce its rental
obligations and allow the business to move to a new, viable
business model.
The firm said it anticipated redundancies among its workforce of
3,200 but did not give a specific number, Stock Daily Dish relates.
*********
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.
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