/raid1/www/Hosts/bankrupt/TCREUR_Public/191226.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, December 26, 2019, Vol. 20, No. 258
Headlines
B E L A R U S
EUROTORG LLC: S&P Affirms B-/B Ratings, Outlook Pos.
F R A N C E
NOVARTEX SAS: Moody's Upgrades CFR to Caa1, Outlook Stable
G E R M A N Y
ADLER REAL ESTATE: S&P Places 'BB' LT ICR On CreditWatch Positive
CONSUS REAL ESTATE: S&P Alters Outlook to Pos. & Affirms 'B' Rating
EUROMICRON AG: Court Orders Preliminary Administration
PHILIPP HOLZMANN: Court Orders Additional Dividend on Claims
REVOCAR 2018: Moody's Affirms Ba2 Rating on EUR8.9MM Cl. D Notes
TUI AG: Moody's Downgrades CFR to Ba3, Outlook Negative
I R E L A N D
OCP EURO 2017-1: S&P Assigns B- (sf) Rating to Class F Notes
I T A L Y
BANK FOR ECONOMIC: President and CEO Arrested in Catania
BIO ON SPA: Bologna Tribunal Appoints Special Administrators
MOBY SPA: Moody's Downgrades CFR to Ca, Outlook Negative
L I T H U A N I A
SNORAS BANK: Prosecutor General's Office Hands Over Case to Court
L U X E M B O U R G
MILLICOM INTERNATIONAL: Fitch Affirms BB+ LT IDRs, Outlook Stable
N E T H E R L A N D S
SAMVARDHANA MOTHERSON: Fitch Affirms BB+ LT IDR, Outlook Stable
N O R W A Y
NANNA MIDCO: Moody's Downgrades CFR to Caa1, Outlook Negative
R U S S I A
BANK OTKRITIE: Moody's Affirms Ba2 Sr. Unsec. Debt Rating
MEGAFON: S&P Alters Outlook to Stable & Affirms 'BB+' Ratings
S P A I N
AUTONORIA SPAIN 2019: Moody's Rates EUR25MM Cl. G Notes B3(sf)
FTPYME TDA 4: Fitch Us Class C Notes Rating to BB+sf
T U R K E Y
YAPI KREDI: Fitch Affirms BB+ Rating on Class 2011-E Notes
U N I T E D K I N G D O M
BUSINESS MORTGAGE 4: Fitch Affirms B-sf Rating on Class B Debt
DONCASTERS: Mulls Sell-Offs to Stay Afloat
NEWGATE FUNDING 2007-1: Fitch Ups Class F Debt Rating to BB-sf
SPARK ENERGY: Households Face GBP13MM Bill Following Collapse
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B E L A R U S
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EUROTORG LLC: S&P Affirms B-/B Ratings, Outlook Pos.
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S&P Global Ratings affirmed its 'B-/B' ratings on Belarus-based
retailer Eurotorg LLC.
S&P siad, "The positive outlook reflects our view that Eurotorg
will continue deleveraging in 2020-2021 on anticipated earnings
recovery and growth in the same period compared with 2019. This is
despite weaker EBITDA generation expectations and a temporary debt
increase, with the company's S&P Global Ratings-adjusted debt to
EBITDA increasing to 3.7x-4.2x from 3.4x in 2018. We expect,
however, it will decline to 3.5x-4.0x in 2020 and to 2.8x-3.3x in
2021 on increasing EBITDA and debt portfolio optimization. As a
part of its optimization efforts, Eurotorg issued Russian ruble
(RUB) 13.5 million of debt (equivalent to Belarussian ruble [BYN]
430 million) for future refinancing. This will lead to an increase
in Eurotorg's financial debt in 2019 despite the $50 million (about
BYN100 million) buyback of its loan participation notes (LPNs)
(Eurobonds) and BYN debt repayments. The positive outlook also
incorporates our assumption that Eurotorg will continue generating
positive free operating cash flow (FOCF) in 2019, despite lower
expected EBITDA, and in 2020-2021.
"Intensifying competition in the food retail market in Belarus has
led Eurotorg to invest in prices to preserve its leading market
position. In our view, this will continue to affect its margins,
but robust revenue growth and an expanding EBITDA base should
offset the impact. Increased competition has been driven by local
food retailers, and we also note that Russian hard discounters have
been expanding gradually in the country. However, they have a
smaller store base compared with Eurotorg. To strengthen its
leading market position in the longer term, Eurotorg launched a new
hard discounter format in first-half 2019, opening about 150 stores
under the banner 'Hit!'. This led to a significant decline in
EBITDA margin to 6.5% versus 9.0% in the same period in 2018. As a
result, we expect Eurotorg's reported EBITDA margin (under
International Financial Reporting Standard [IFRS] 17) will decline
to 6.5%-7.1% in 2019-2021, materially lower than both our previous
base-case expectation and an 8.5% margin in 2018.
"That said, in our view, this strategy should translate into a
stronger like-for-like performance in 2020, prompting absolute
EBITDA growth from 2020. We expect Eurotorg will generate
reported EBITDA of BYN320 million–BYN330 million in 2019 ($154
million–$158 million), compared with BYN387 million in 2018. From
2020, earnings growth will resume and the company will expand its
EBITDA base to BYN350 million-BYN380 million in 2020, and by over
BYN380 million in 2021. This will also stem from the group's focus
on costs optimization, operating efficiency measures, and more
margin-friendly private-label products.
"FOCF generation should remain positive, although lower than in our
previous base case. Due to our anticipation of a lower EBITDA
margin, but also one-time working capital outflow of about BYN60
million in 2019 and continuing capital expenditure (capex), we
forecast lower FOCF in 2019-2021 versus our November 2018 base
case. We forecast S&P Global Ratings-adjusted FOCF for Eurotorg of
BYN100 million–BYN120 million in 2019 compared with BYN300
million in 2018, recovering to about BYN190 million–BYN250
million in 2020-2021. In 2020-2021, we expect structurally negative
working capital in line with the historical trend." Over 2019-2021,
Eurotorg will continue to open new stores but at a slower pace than
in the past, and mainly in the convenience formats. This will
translate into lower capex of up to BYN85 million in 2019-2021,
versus BYN92 million in 2018.
As part of its effort to mitigate volatility in earnings and cash
flows, Eurotorg will continue to optimize its debt portfolio and
reduce its exposure to U.S dollar-denominated debt, translating in
higher leverage in 2019 compared with 2018 adjusted levels, but
reduced currency risk. S&P said, "By the end of 2019, we expect
Eurotorg's debt portfolio U.S.-dollar exposure will decline from
about 47% in first-half 2019, while the share of RUB debt will
increase (its share was about 5% in first-half 2019). This shift in
the exposure is based on a buyback of LPNs (Eurobonds) of $50
million (year to date 2019) and on our expectation that Eurotorg
will repay some of its BYN debt with RUB debt proceeds." In July to
September 2019, Eurotorg issued RUB-denominated bonds of RUB10.0
billion and signed a RUB3.5 billion-syndicated bank loan.
Eurotorg's leading position in Belarus' fragmented food retail
market, its broad footprint across the country, and the
cash-generative nature of its business support its
creditworthiness. In 2019, Eurotorg's market share was about 19%
and exceeded that of the next six competitors combined. Likewise,
S&P views Eurotorg's meaningful scale in the local market, which
supports its valuable relationship and negotiating power with
suppliers, as credit positive and supportive of the company's
profitability. In reaction to an intensifying competitive landscape
and in order to protect its long-term competitive position in the
market, Eurotorg invested in prices and launched a hard discounter
'Hit!'. While affected by sales cannibalization and competition for
consumers' spending share, in particular in the past few quarters,
S&P expects Eurotorg's growth will be stimulated by the more
aggressive price positioning and these new store openings. As a
result of this new positioning, the group's reported EBITDA margin
is now in between those of Russian food retailers Magnit PJSC
(BB/Stable/--) and X5 Retail Group N.V. (BB/Stable/--), with
reported EBITDA margins of 6.3% (Magnit, first nine months of
2019), and 7.5% (X5 Retail). Supporting Eurotorg's leading
position, local trade legislation stipulates that a large share of
certain product groups must be locally produced, thereby enhancing
barriers to entry for international players. That said, this will
not completely prevent international players from entering the
market.
S&P continues to view Eurotorg's geographic concentration in
Belarus and its smaller size of the operations as limiting factors
for the rating. Eurotorg generates all of its revenue and earnings
in Belarus. Its revenue base (about $2 billion in 2018) is smaller
than that of other rated peers including Maxima Grdecember upe
(about $3.9 billion), Magnit (about $17.8 billion in 2018) or X5
Retail (about $22 billion).
The positive outlook reflects a potential one-notch upgrade in the
next 12 months if the company increases its revenue base,
stabilizes its EBITDA margin, and resumes earnings and cash flow
generation growth, resulting in continuing deleveraging and higher
cash buffers.
S&P could raise the long-term ratings by one notch if the company
reduces its leverage sustainably to 3.5x-4.0x in 2020 from expected
3.7x-4.2x in 2019, and expands its funds from operations (FFO) to
debt to 17%-18% in 2020 from expected 15%-16% in 2019. An upgrade
would also hinge on improvement of the EBITDAR coverage ratio
toward 2.2x on a sustainable basis. In addition, a rating upgrade
would require our expectation of adequate liquidity, including
covenant headroom for the group of at least 15%.
Further upside beyond one notch is unlikely, given S&P's current
rating on Belarus at 'B' and our expectation that Eurotorg will not
pass a hypothetical sovereign stress scenario in order to be rated
above the sovereign. Another factor restricting the upside is
Eurotorg's reliance on unhedged foreign-currency financing without
earnings generation in the respective currency, which will most
likely continue.
S&P said, "We could revise the outlook to stable if Eurotorg does
not improve its credit metrics as we expect in the next 12 months,
due to weaker operating performance, and continuing weak
profitability and cash flow generation. A weaker operating
performance could stem from an inability to implement the group's
strategy of profitable growth, a loss of market share due to
intensified competition and hence further declining profitability,
or weakening macroeconomic conditions. In addition, we could revise
the outlook to stable if the company's liquidity deteriorates and
covenant headroom reduces." Pressure on the sovereign ratings on
Belarus or local currency devaluation against the U.S. dollar
beyond our assumptions would also trigger a revision of the outlook
to stable.
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F R A N C E
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NOVARTEX SAS: Moody's Upgrades CFR to Caa1, Outlook Stable
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Moody's Investors Service upgraded Novartex S.A.S.' corporate
family rating to Caa1 from Ca and the probability of default rating
to Caa1-PD from Ca-PD/LD. Concurrently, Moody's has withdrawn the
outlook of Vivarte and the C rating on senior secured notes
following the full equitisation of this instrument. The outlook on
Novartex remains stable.
The upgrade reflects the closing of Novartex' balance sheet
restructuring on December 17, 2019, which included a full debt to
equity conversion.
"The upgrade reflects the absence of financial debt post
restructuring which is credit positive as Vivarte regains some
financial headroom to implement strategic initiatives and invest in
the turnaround its business operations" said Guillaume Leglise,
Assistant Vice President and Senior Analyst at Moody's.
RATINGS RATIONALE
On December 17, 2019, Novartex completed the full capitalization of
Vivarte's New Money debt.
The upgrade of the CFR to Caa1 acknowledges the company's improved
balance sheet after the full debt equitisation. Post restructuring,
the company is left with no financial debt, which Moody's views as
credit positive because this reduces materially the debt and
interest burden and gives the company financial capacity to invest
in its businesses and more attention can be directed to
implementing strategic initiatives. Novartex plans to substantially
increase capital spending towards omnichannel and logistic
infrastructures, store refurbishments notably for La Halle, its
main banner, in France, and store international expansion of the
Caroll and Minelli banners.
Novartex' pro forma adjusted leverage (defined as Moody's adjusted
gross debt to EBITDA) post-restructuring will stand at around 4.1x
in fiscal 2019 (year ended August 31, 2019), solely as a result of
Moody's adjustment for operating leases. Despite the company's
expected strategic initiatives, Moody's believes that profitability
improvement will be limited owing to the still very challenging
conditions in the French apparel and footwear market. As such,
Moody's expects leverage to trend modestly below 4.0x in the next
18 months.
Pro forma of the debt restructuring, Novartex exhibits an adequate
liquidity with around EUR134 million of cash available as at
end-October 2019. This large cash balance offsets to some extent
the absence of a committed revolving credit facility. The company
will benefit from the absence of financial debt amortization and
cash interests. This will enable Novartex to substantially reinvest
into its operations.
While Moody's expects a substantial improvement in the free cash
flow generation, Novartex' weak profitability and increased capital
spending will translate into a negative free cash flow of around
EUR5-20 million per annum in the next 24 months. Moody's
nevertheless believes that the company's current cash balance
should be sufficient to withstand seasonal fluctuations in working
capital and fund the company's capital spending plan of around
EUR50 million in fiscal 2020.
Also, Novartex' liquidity will continue to benefit from the
company's ongoing efforts to decrease stocks and reduce its cash
collateral used for letters of credit. In fiscal 2019 the company
already recovered EUR40 million of cash collateral and expects to
recover another EUR15 million in fiscal 2020.
The Caa1 CFR is nevertheless constrained by (1) the company's
continued loss of revenues and profitability over the last three
years, (2) its exposure to the highly fragmented and competitive
apparel and footwear market, (3) the uncertainty around the
company's ability to successfully turnaround its operations notably
in the context of continuously challenging trading conditions in
the French apparel market, and (4) its limited scale and high
geographic concentration in France.
ESG CONSIDERATIONS
Novartex is exposed to increasing social risks, notably changing
consumer preferences and spending patterns. The structural shift
towards e-commerce has increased pressure on incumbent retailers
like Novartex to adapt their online strategy towards more online
presence.
The company's current corporate governance is complex owing to a
fragmented shareholder structure following several debt
restructurings in the past few years. As part of the company's debt
restructuring completed on December 17, 2019, Vivarte's New Money
bondholders became shareholders. However, because New Money
bondholders are broadly the same institutions as the current
shareholders, Moody's does not expect a material change in the
corporate governance of the group, which will remain fragmented and
with potentially some diverging views on the strategy between the
various stakeholders. This creates execution risks on the company's
turnaround plan.
RATIONALE FOR THE STABLE OUTLOOK
Novartex' stable outlook reflects (1) Moody's expectations that
like-for-like (LFL) sales growth, profit margins and profitability
will gradually recover on the back of the company's strategic
initiatives, and (2) the maintenance of an adequate liquidity
despite mildly negative free cash flow generation expected in the
next 18 months.
WHAT COULD CHANGE THE RATING UP/DOWN
The ratings could come under downwards pressure if (1) there are no
signs of operational improvement, such as gross margin recovery and
positive LFL sales growth, (2) free cash flow deteriorates beyond
Moody's current expectations which would contribute to a weakening
in the company's liquidity profile.
Moody's could consider an upgrade of the ratings if the company
manages to turnaround its business operations in the next 18
months. Positive rating pressure would require signs of gradual
recovery in net sales' growth, profitability improving sustainably
with Moody's adjusted EBIT margin in the mid-single digit (in
percentage terms), positive free cash flow generation, and the
maintenance of an adequate liquidity profile.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Retail Industry
published in May 2018.
COMPANY PROFILE
Novartex is the holding company of Vivarte, a France-based footwear
and apparel retailer operating city centre boutiques and
out-of-town stores through its 3 remaining banners (La Halle,
Minelli and Caroll) and approximately 1.500 stores. In fiscal 2019
(year ended August 31, 2019), the company generated revenues of
EUR1.2 billion and statutory EBITDA of EUR40 million. The company
offers a range of apparel and footwear products, mostly women
ready-to-wear products (around 75% of revenues) and to a lesser
extend men and children apparel products (around 25% of revenues).
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G E R M A N Y
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ADLER REAL ESTATE: S&P Places 'BB' LT ICR On CreditWatch Positive
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S&P Global Ratings placed its 'BB' long-term issuer credit rating
on Adler Real Estate AG (Adler) and its issue ratings on the
company's unsecured notes on CreditWatch with positive
implications.
Adler could benefit from a stronger combined group with enhanced
portfolio size upon transaction close.
The CreditWatch placement follows the announcement of a voluntary
public tender offer by German real estate company ADO Properties SA
(ADO) on Adler's shares. The offer includes the exchange of 0.4164
ADO shares for each Adler share, implying a premium of about 18% on
the current Adler share price. S&P understands that ADO intends to
acquire 100% of Adler's share capital and that the company has also
secured about 52% of Adler's shareholding irrevocables. Adler is
currently listed at the German stock exchange with about 48% of
shares free float. The largest shareholders are Klaus Wecken
(14.7%), U.S. private-equity fund Mezzanine IX (14.4%), and
Fairwater (13.5%).
The successful closing of the merger could improve Adler's overall
credit quality.
S&P said, "We believe the management of the combined entities
intends to use Adler's platform to increasing its geographical
diversification, but continue to focus mainly on residential assets
in Germany. We would therefore view the planned strategy as aligned
with Adler's long-term strategic objectives. In our opinion, the
combined group would have enhanced scale and scope, with
residential assets worth about EUR8.6 billion spread across
Germany. This compares positively with Adler's stand-alone
portfolio size of EUR4.7 billion as of Sept. 30, 2019. We also
believe that the combined entity would benefit from a better
financial profile, with lower leverage including debt to debt plus
equity of close to 50% compared with Adler's current stand-alone
debt to debt plus equity of about 67% as of Sept. 30, 2019.
Moreover, we expect EBITDA interest coverage at the combined entity
of 2.5x-2.7x for the next 12 months, which exceeds Adler's current
stand-alone ratio of only 1.9x as of Sept. 30, 2019. This could
lead us to align the rating on Adler with that on the combined
group."
The final governance, capital structure, and recovery prospects of
the combined group are unclear at this stage.
S&P said, "We understand the company is aiming to achieve best
standards in terms of governance but the final details are yet to
be determined. Therefore, we will assess the governance structure
and alignment of strategic interests between Adler, its
shareholders, and credit holders once the transaction has closed.
We also understand that there may be changes to Adler's current
capital structure since the combined group is looking to refinance
part of the existing debt. We will therefore reassess our recovery
prospects for Adler's outstanding senior unsecured bond, totalling
about EUR2.1 billion, once the final capital structure is
determined."
CreditWatch
S&P said, "The CreditWatch reflects our view that Adler's
transaction with ADO could improve its overall creditworthiness and
rating. We will resolve the CreditWatch placement when the
transaction is finalized, expected within the next three-to-six
months.
"We could consider upgrading Adler if the transaction with ADO is
carried out in line with our views on the stronger credit quality
of the combined entity compared with that of Adler currently,
including adequate liquidity and a solid capital structure as well
as clear governance structure. We could also raise our issue rating
on Adler's unsecured bonds if our recovery expectations continue to
exceed 70% in the combined entity.
"We would likely affirm our 'BB' rating on Adler if the announced
acquisition with ADO does not take place or falls through, or if
liquidity may be short due to significant refinancing risks. We
could also affirm our issue rating on Adler's unsecured bonds if
our recovery expectations no longer exceed 70% for the combined
entity."
CONSUS REAL ESTATE: S&P Alters Outlook to Pos. & Affirms 'B' Rating
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S&P Global Ratings revised its outlook on Consus Real Estate to
positive from stable and affirmed its 'B' rating on Consus and its
'B-' on the company's secured notes.
Consus could benefit from extraordinary group support if German
real estate company ADO Properties Ltd. (ADO) executes the call
option. The outlook revision follows ADO's announcement that it was
acquiring a 22.18% strategic stake in Consus for EUR9.72 per share
including a premium of about 58% to the latest share price of
EUR6.15. S&P said, "Moreover, we understand that ADO has a call
option for an additional 51% stake in Consus, currently owned by
Consus' largest shareholder, Aggregate. If ADO exercises the call
option, it would become Consus' majority shareholder with over 70%
of the shares, and therefore take control of Consus. We understand
that ADO will pay approximately EUR294 million of cash to Consus'
minority shareholders at this stage. Consus is currently listed on
the German stock exchange with only about 34% of its shares in free
float. The largest shareholder is Mr. Gunther Walcher (51%),
through Aggregate, and Mr Christoph Gröner (6.2%). We think Consus
could benefit from extraordinary support from the combined entity
upon the execution of the call option, assuming its successful
integration with ADO."
Integration with ADO could improve Consus' overall credit quality.
S&P said, "We understand that ADO could use Consus' development
platform to fuel future growth of the combined group and develop
mainly residential assets in Germany for holding purposes in the
medium to long term. We therefore view ADO's stake in Consus as
aligned with its long-term strategic objectives. We also understand
that Consus provides ADO with the right to access certain
residential development projects. In our opinion, ADO would have
the capability to provide extraordinary support to Consus because
of its better financial strength, which could lead us to upgrade
Consus. In addition, we will observe closely the governance
structure that will be put in place and alignment of interests
between Consus, its new shareholders, and its creditors.
"The positive outlook reflects our view that Consus'
creditworthiness could improve if ADO acquires another 51% of
Consus' share capital and takes control of the company within the
next 18 months (the timeframe to exercise the call option). In our
base case for the next 12 months, we forecast Consus' stand-alone
EBITDA interest coverage of 2x and a debt-to-EBITDA ratio of close
to 5x or lower, in line with the company's strategy.
"We could revise the outlook to stable if ADO does not use its call
option and therefore not gain control of Consus. In that case, we
would continue to assess Consus on a stand-alone basis.
"We could raise the ratings on Consus if ADO executes its call
option and takes the majority ownership and therefore control of
Consus. This is because Consus would benefit from the stronger
credit quality of the combined entity. The extent of the upgrade
would depend on the degree of integration of Consus in the combined
organization and our view of the credit quality of the combined
entity at the time the option is exercise."
Company Description
Consus is one of the largest listed residential property developers
in Germany with a gross development value (GDV) of EUR10.3 billion
as of Sept. 30, 2019. The company's business model is predominantly
based on forward-sale agreements with institutional investors. Most
of its projects are located in or close to German metropolitan
areas, such as Hamburg, Cologne, Frankfurt, or Berlin.
The company has been listed at the German stock exchange since
2017. Its main shareholder is the private real estate investor
Gunther Walcher, through Aggregate, with approximately 51%
shareholding. Consus is headquartered in Berlin.
EUROMICRON AG: Court Orders Preliminary Administration
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With the court order dated December 19, 2019 (Az. 8 IN 533/19), the
Local Court of Offenbach revoked the protective shield proceedings
in accordance with Section 270b (1) InsO at the request of the
preliminary creditors' committee and ordered preliminary
administration concerning the assets of euromicron AG (WKN A1K030)
in accordance with Section 21 (2) No. 1 InsO.
The previous administrator, Dr. Jan Markus Plathner, was appointed
as the preliminary insolvency administrator. In accordance with
Sec. 21 (2) no. 2 InsO, the court imposed a general prohibition of
disposal on the company and ordered that the power of disposal over
the debtor's assets be transferred to the preliminary insolvency
administrator.
About euromicron AG
euromicron AG -- http://www.euromicron.de-- is a medium-sized
technology group that unites 16 companies from the fields of Smart
Buildings, Smart Industry, Critical Infrastructures and Smart
Services. Rooted in Germany, euromicron operates internationally
with its around 1,900 employees at 40 locations.
Backed by its expertise in sensor systems, terminal devices,
infrastructures, platforms, software and services, euromicron is
able to offer its customers end-to-end solutions from a single
source. As a result, euromicron helps small and medium-sized
enterprises, large companies and public-sector organizations
enhance their agility and efficiency, prevent security risks and
develop new business models. As a German specialist for the
Internet of Things (IoT), euromicron enables its customers to
network business and production processes and successfully achieve
digitization.
PHILIPP HOLZMANN: Court Orders Additional Dividend on Claims
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The court-appointed, former insolvency administrator for the assets
of Philipp Holzmann AG, attorney-at-law Ottmar Hermann, on Dec. 17
announced:
In the suspended insolvency proceedings concerning the assets of
Philipp Holzmann AG, file no. 810 IN 289/02 H‑11‑8 at the Local
Court of Frankfurt am Main/Germany, registered office Frankfurt am
Main, a subsequent distribution has been ordered.
An additional dividend of estimated 1.4 % to 1.5 % will be
distributed on the registered insolvency claims. In total, the
insolvency dividend is expected to increase to 18.3%. Further
distributions are not expected.
The subsequent distribution will be announced in accordance with
Sec. 188 of the German Insolvency Code (InsO) at
http://www.insolvenzbekanntmachungen.de.
Holders of securities from the convertible bond of Philipp Holzmann
AG dated 01 December 1998 WKN 350498 will be informed separately
about the dividend payment attributable to them and the procedure
to be observed by publication in the financial gazettes (electronic
edition of the Bundesanzeiger, print edition of the Bundesanzeiger,
Boersenzeitung and London Gazette).
Philipp Holzmann AG was a German construction company based in
Frankfurt am Main.
REVOCAR 2018: Moody's Affirms Ba2 Rating on EUR8.9MM Cl. D Notes
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Moody's Investors Service upgraded the ratings of five Notes and
affirmed the ratings of further three Notes in RevoCar 2017 UG and
RevoCar 2018 UG (haftungsbeschraenkt):
Issuer: RevoCar 2017 UG (haftungsbeschraenkt)
EUR387.1M Class A Notes, Affirmed Aaa (sf); previously on Jul 3,
2018 Affirmed Aaa (sf)
EUR32.2M Class B Notes, Upgraded to Aa1 (sf); previously on Jul 3,
2018 Affirmed Aa2 (sf)
EUR8.1M Class C Notes, Upgraded to A1 (sf); previously on Jul 3,
2018 Affirmed A2 (sf)
EUR9.5M Class D Notes, Upgraded to Baa2 (sf); previously on Jul 3,
2018 Affirmed Baa3 (sf)
Issuer: RevoCar 2018 UG (haftungsbeschraenkt)
EUR364M Class A Notes, Affirmed Aaa (sf); previously on Mar 19,
2019 Affirmed Aaa (sf)
EUR20.3M Class B Notes, Upgraded to Aa2 (sf); previously on Mar 19,
2019 Upgraded to Aa3 (sf)
EUR2.9M Class C Notes, Upgraded to A3 (sf); previously on Mar 19,
2019 Upgraded to Baa1 (sf)
EUR8.9M Class D Notes, Affirmed Ba2 (sf); previously on Mar 19,
2019 Affirmed Ba2 (sf)
RATINGS RATIONALE
The rating action is prompted by deal deleveraging resulting in an
increase in credit enhancement for the affected tranches and better
than expected collateral performance. Moody's affirmed the ratings
of the Notes that had sufficient credit enhancement to maintain
their current ratings.
Sequential amortization led to the increase in the credit
enhancement available in RevoCar 2018 UG. CE supporting Classes B
and C increased to 7.1% and 5.8% from 5.1% and 4.2% as of the
latest rating action in March 2019 respectively. In RevoCar 2017 UG
(haftungsbeschraenkt), the revolving period ended in March 2019.
Since then, the CE supporting Classes B, C and D increased to 9.4%,
6.9% and 4.0% respectively from 6.8%, 5.0% and 2.9% as of closing.
As part of the rating action, Moody's reassessed its default
probability for the portfolios reflecting the collateral
performance to date. The performance has been better than
anticipated in both transactions. Total delinquencies are currently
standing at 0.5% of current pool balance in both transactions.
Cumulative defaults currently stand at 0.6% and 0.4% of original
pool balance plus replenished amounts in RevoCar 2017 UG
(haftungsbeschraenkt) and RevoCar 2018 UG (haftungsbeschraenkt)
respectively.
In RevoCar 2017 UG (haftungsbeschraenkt), Moody's assumed a mean
default probability of 2.5% of the current portfolio balance,
translating into a lower default probability assumption of 1.7% of
original balance, from 2.5% at closing. Moody's left the assumption
for the fixed recovery rate and portfolio credit enhancement
unchanged at 35% and 11% respectively.
In RevoCar 2018 UG (haftungsbeschraenkt), Moody's assumed a mean
default probability of 2.3% of the current portfolio balance,
translating into a lower default probability assumption of 1.7% of
original balance, from 2.3% at closing. Moody's left the assumption
for the fixed recovery rate and portfolio credit enhancement
unchanged at 35% and 10% respectively.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
March 2019.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected; (2) deleveraging of the capital
structure; and (3) improvements in the credit quality of the
transaction counterparties.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk; (2) performance
of the underlying collateral that is worse than Moody's expected;
(3) deterioration in the notes' available credit enhancement; and
(4) deterioration in the credit quality of the transaction
counterparties.
TUI AG: Moody's Downgrades CFR to Ba3, Outlook Negative
-------------------------------------------------------
Moody's Investors Service downgraded the corporate family rating of
the German tourism company TUI AG to Ba3 from Ba2. Concurrently,
the senior unsecured rating was downgraded to Ba3 from Ba2 and the
probability of default rating was downgraded to Ba3-PD from Ba2-PD.
The rating outlook remains negative.
"Our decision to downgrade TUI's ratings reflects the deterioration
in the group's credit metrics following the weak performance in
fiscal 2019, which was affected by exceptional costs related to
Boeing 737 Max grounding" says Vitali Morgovski, a Moody's
Assistant Vice President-Analyst and lead analyst for TUI. "As a
consequence of the weakening profitability combined with ongoing
growth investments, free cash flow continued to be negative,
burdening TUI's liquidity profile", Mr. Morgovski continues.
The negative outlook reflects ongoing challenges in fiscal 2020,
including the persistent overcapacity in the German flight market,
slowing economic growth which could impact consumer sentiment, the
upcoming Brexit and potential elevated costs in case the Boeing 737
Max remains grounded. Therefore, Moody's does not expect a recovery
in the group's earnings and credit metrics in the next 12-18 months
and anticipates a further negative free cash flow after dividend in
fiscal 2020, as the company continues its growth investment
strategy, though at a lower level.
RATINGS RATIONALE
TUI's operating results for fiscal 2019 ended in September 2019
were weak -- company defined underlying EBITA was down 26%, in line
with previously announced guidance, whilst Moody's adjusted gross
leverage (prior IFRS 16) increased to 4.3x from 3.7x a year ago.
The interest coverage (Moody's adjusted EBITA/Interest) declined to
2.1x from 2.8x in fiscal 2018 (3.1x in fiscal 2017), a level that
Moody's views as weak even for a Ba3 rating. The results were
materially affected by one-off costs related to Boeing 737 Max
grounding, but also by soft performance in the Tour Operator
business while Holiday Experiences businesses (Hotels, Cruises,
Destination Experiences) remained robust.
Exceptional cash costs, growth and maintenance capex, dividend
payments depleted the group's cash position by EUR 600 million
during the prior year to EUR 1.7 billion in September 2019, which
is also one of the drives of the decision to lower TUI's credit
ratings. Moody's noted positively the proposal of TUI's management
to change the group's dividend policy, setting the future dividend
payments at 30% - 40% underlying earnings after tax after
minorities at constant currency, with a minimum payout of EUR 0.35
per share. This will in Moody's view substantially reduce cash
distribution to shareholders from fiscal 2021 (for fiscal 2020)
onwards. However, in fiscal 2020 Moody's expects that dividends
(which are still paid according to the old dividend policy) will
not be covered with cash generation and TUI's liquidity will
continue to deteriorate unless other counter-measures are
implemented.
Given that cash on balance sheet is not sufficient to cover the
working capital swing in the winter months, the credit metrics
measured on a gross debt basis at fiscal year-end are not
representative of the actual extent of financial leverage deployed
by TUI during the year. Thus, Moody's makes assumptions on the
amount of drawing under TUI's EUR 1,535 million RCF during the
seasonal low and calculates its credit metrics based on these
expectations.
Furthermore, Moody's expects to see a boost to TUI's customer
numbers from Thomas Cook's collapse, as TUI wants to take over some
Thomas Cook capacity broadly in line with its existing market
share. However, given the low profitability in the volatile and
cyclical Tour Operator segment, the impact on earnings from those
additional clients might be only limited for the overall group.
Moody's adjusted credit metrics will likely be positively impacted
by the implementation of IFRS16 in fiscal 2020, based on the data
provided by the company, which will be driven by a more favorable
debt treatment under the new accounting standard for leases
compared to Moody's previous adjustment that was based on 5x
multiple over rental expense. Given increased sector vulnerability
to downside risks evidenced by Thomas Cook's collapse and multiple
airline defaults in Europe as well as the fact that TUI now
operates with a lower level of cash Moody's has decided to tighten
the required quantitative rating triggers.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the uncertainty in regards to the
length of Boeing 737 Max grounding and related to it additional
costs, the risk of no-deal Brexit and TUI's ability to recover its
credit metrics and liquidity profile in a slowing macroeconomic
environment and structurally challenged tourism sector.
For an outlook stabilization, Moody's would require TUI to return
to sustainably positive free cash flow generation while keeping an
adequate cash position to reflect its highly seasonal business
profile, which is defined as cash/ debt (Moody's adjusted) ratio
above 25%.
WHAT COULD CHANGE THE RATINGS - UP
Moody's would consider upgrading TUI's ratings if the company were
to demonstrate resilience of its business model to external shocks
and to continue the adaption of its business model to structural
challenges. Quantitatively, positive pressure could arise if:
-- Moody's adjusted gross leverage ratio were to stay sustainably
below 3.5x; and
-- TUI starts generating sustainable positive free cash flow;
and
-- The group demonstrates an improving liquidity profile.
WHAT COULD CHANGE THE RATINGS - DOWN
The ratings could be under negative pressure should TUI not be able
to fully offset any additional external shocks that might occur or
shows a lack of ability to offset structural challenges.
Quantitatively, the ratings could be lowered if:
-- Moody's adjusted gross leverage ratio were to increase above
4.5x;
-- Moody's adjusted interest coverage stays below 2.5x;
-- Inability to turnaround its business to generate positive FCF
and as a result further deterioration of TUI's liquidity profile.
LIQUIDITY
Moody's views TUI's liquidity position as weaker than in the last
two to three years, but it is still adequate. This is underpinned
by EUR 1.7 billion of cash on the balance sheet at the end of
September 2019 (EUR 2.5 billion in September 2018), of which around
EUR 0.2 billion were subject to restrictions, as well as a EUR 1.75
billion syndicated revolving credit facility (RCF) maturing in
2022, which allows for EUR 1,535 million cash drawings. The RCF
remained undrawn at fiscal year-end 2019. However, available cash
on balance sheet is not sufficient to meet TUI's high seasonal
working capital needs during the first fiscal quarter that Moody's
estimates to be around EUR 1.8 billion - EUR 2 billion and hence
requires a sizeable drawing of credit lines.
The revolving credit facility contains a maximum leverage (net
debt/EBITDA must not exceed 3.0x) and a minimum interest coverage
(EBITDAR/net interest expense must be at least 1.5x); the financial
covenants are tested every six months. Moody's expects TUI to
remain comfortably in compliance with both covenants throughout the
next 12-18 months.
ESG CONSIDERATIONS
Environmental considerations are a material factor in this rating
action. In its Sustainability Strategy, TUI aims to reduce the
environmental impact of holidays and to pioneer sustainable tourism
across the world, using also the TUI Care Foundation to support
this work. However, there is a risk that a failure to minimize the
negative impact of tourism on destination locations could result in
a decline in stakeholder confidence, reputational damage, reduction
in demand for TUI's products and services and a loss of competitive
advantage.
TUI is dual-listed in Germany and the UK and its Supervisory Board
consists of 20 members, half of which are employee representatives.
Seven of the shareholder representatives are considered
independent, which also includes the Chairman -- Dr. Dieter
Zetsche. The group's financial policy follows a balanced approach
to creditors and shareholders. This is reflected in the company's
target leverage ratio of 2.25x - 3x gross leverage including
unfunded pension deficit and NPV of operating leases. TUI's
conservative financial management is also reflected in the recently
changed dividend policy that foresees 30-40% distribution of
underlying EAT after minorities at constant currencies to
shareholders, starting however only from fiscal 2021 onwards.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
PROFILE
TUI AG, headquartered in Hanover, Germany, is the world's largest
integrated tourism group. In the fiscal year to September 2019, the
group reported revenues and underlying EBITA of EUR 18.9 billion
and EUR 0.9 billion, respectively. TUI is listed on the Frankfurt
and London Stock Exchanges with a current market capitalisation of
around EUR 6.5 billion.
=============
I R E L A N D
=============
OCP EURO 2017-1: S&P Assigns B- (sf) Rating to Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned credit ratings to the class X to F
European cash flow CLO notes issued by OCP Euro CLO 2017-1 DAC. The
issuer also issued unrated subordinated notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
its counterparty rating framework.
-- Under the transaction documents, the rated notes pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will permanently switch to semiannual payments. The
portfolio's reinvestment period ends approximately four-and-a-half
years after closing.
S&P said, "In our view, the portfolio is granular in nature, and
well-diversified across obligors, industries, and asset
characteristics when compared to other CLO transactions we have
rated recently. Therefore, we have conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs. As such, we have not applied any additional scenario and
sensitivity analysis when assigning ratings to any classes of notes
in this transaction.
"In our cash flow analysis, we used the EUR350 million target par
amount, the covenanted weighted-average spread (3.40%), the
reference weighted-average coupon (4.00%), and the target minimum
weighted-average recovery rate as indicated by the collateral
manager. 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. Our
credit and cash flow analysis indicates that the available credit
enhancement for the class B to D and class F notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO will be in its reinvestment phase
starting from closing, during which the transaction's credit risk
profile could deteriorate, we have capped our ratings assigned to
the notes
"Under our structured finance ratings above the sovereign criteria,
we consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned rating levels."
Until the end of the reinvestment period on July 15, 2024, the
collateral manager is 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 can, through trading, deteriorate
the transaction's current risk profile, as long as the initial
ratings are maintained.
The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under S&P's current counterparty criteria.
The transaction's legal structure is bankruptcy remote, in line
with its legal criteria.
Following S&P's analysis of the credit, cash flow, counterparty,
operational, and legal risks, it believes its ratings are
commensurate with the available credit enhancement for each class
of notes.
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds, and will be managed by Onex Credit
Partners LLC.
Ratings List
Class Rating Amount Subordination(%) Interest rate
(mil. EUR)
X AAA (sf) 1.50 N/A Three/six-month EURIBOR
plus 0.50%
A AAA (sf) 218.70 37.51 Three/six-month EURIBOR
plus 1.00%
B AA (sf) 34.70 27.60 Three/six-month EURIBOR
plus 1.80%
C A (sf) 20.50 21.74 Three/six-month EURIBOR
plus 2.50%
D BBB (sf) 22.60 15.29 Three/six-month EURIBOR
plus 4.15%
E BB (sf) 19.20 9.80 Three/six-month EURIBOR
plus 6.34%
F* B- (sf) 8.00 7.51 Three/six-month EURIBOR
plus 8.85%
Sub notes NR 38.25 N/A N/A
*The class F notes include a redemption feature where an amount
equal to 20.0% of any remaining interest proceeds will be used to
redeem the class F notes on a pro rata basis. Such payments are
made under the interest waterfall, after payments of any unpaid
trustee fees, administrative expenses, and defaulted currency hedge
termination payments but prior to payments to the subordinated
notes.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
BANK FOR ECONOMIC: President and CEO Arrested in Catania
--------------------------------------------------------
Novinite.com reports that financial police officers in Italy have
arrested the president and CEO of the Bank for Economic Development
in the Sicilian city of Catania. They have been charged with
willful bankruptcy and other financial crimes, Novinite.com
discloses.
As part of the operation codenamed Fake Bank, Sicilian
investigation officers have been able to track numerous illegal
financial transactions carried out by senior credit institutions,
Novinite.com relates. In collaboration with 18 others, they
brought the bank into bankruptcy, according to Novinite.com.
RIA Novosti announces that all defendants in this case have been
notified of the completion of the preliminary investigation,
Novinite.com notes.
BIO ON SPA: Bologna Tribunal Appoints Special Administrators
------------------------------------------------------------
Tommaso Ebhardt at Bloomberg News, citing Ansa, reports that the
Bologna tribunal has appointed special administrators for Bio On
SpA.
The Company is an Intellectual Property Company (IP Company) and is
active in the research and development of bio-fermentation
technologies in the field of biodegradable and eco-friendly
materials.
MOBY SPA: Moody's Downgrades CFR to Ca, Outlook Negative
--------------------------------------------------------
Moody's Investors Service downgraded Italian ferry operator Moby
S.p.A.'s corporate family rating to Ca from Caa3 and its
probability of default rating to Ca-PD from Caa3-PD. Concurrently,
Moody's has downgraded the EUR300 million worth of senior secured
notes to Caa3 from Caa2. The outlook remains negative.
"The downgrade reflects the company's increased probability of
default and the high likelihood of a potential debt restructuring
in the near term", says Guillaume Leglise, a Moody's Assistant Vice
President and lead analyst for Moby. "Moby has very limited
liquidity cushion and a balance sheet restructuring involving
losses for financial creditors looks increasingly likely in the
short run" adds Mr Leglise.
RATINGS RATIONALE
The Ca CFR reflects Moby's unsustainable capital structure relative
to its earnings potential, high restructuring risks based on its
depressed debt valuation as well as its weak liquidity position
that resulted from weak profitability and increasing capital
spending.
Moby's liquidity profile is weak. The company's cash balance was at
EUR56 million at end-September 2019. Absent any major disposal of
vessels, Moody's expects Moby's liquidity profile to deteriorate
because of significant cash outflows in the next 12 months, notably
following the repayment of EUR50 million in February 2020 due under
the company's amortizing bank loan.
Given the limited earnings recovery prospects in 2020, sustained
maintenance capital expenditures and seasonal working capital
swings, Moody's believes that the company will face a liquidity
shortfall in the short run. As such, the rating action reflects the
increased likelihood that Moby will seek to restructure its balance
sheet in a way that leads to losses for some of the company's
senior financial creditors.
Moby has recently announced the start of discussions with senior
lenders and bondholders. Moby has also engaged financial advisors
to assist in evaluating financial alternatives. Moody's believes
this process could lead to a potential distressed debt exchange and
significant principal losses for creditors.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the high likelihood of a distressed
exchange or default in the next 12 months.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Moby's rating incorporates environmental, social and governance
(ESG) considerations, in particular the large capital spending
needed to comply with the upcoming IMO 2020 regulation, which Moby
will have to comply with from the January 1, 2020. This regulation
bans ships using fuel with a sulfur content higher than 0.5%,
compared with 3.5% currently, unless a vessel is equipped to clean
up its sulfur emissions. Moody's expects this regulation will lead
to increased operational costs, from the use of lower-sulfur fuels,
or increased capital spending to equip vessels with scrubbers to
clean up exhaust emissions.
Moody's believes that the company has aggressive corporate
governance practices, as illustrated by some cash transactions with
related parties, in particular with the chairman of the board since
in 2016, which may not be in the interest of creditors at a time
when the company's financial profile is deteriorating.
WHAT COULD CHANGE THE RATINGS DOWN/UP
An upgrade is unlikely at this stage in light of the action. Over
time, upward pressure on the rating could develop if Moby restores
its profitability and materially improves its free cash flow
generation. Also, a rating upgrade would require liquidity to
strengthen, supported, for instance, by adequate covenant headroom,
and more visibility over potential future cash outflows in relation
to the Italian antitrust fine and the EC investigation.
Conversely, Moody's could downgrade the ratings if Moby's liquidity
deteriorates as a result of a further drop in operating performance
or higher-than-expected capital expenditure, or if recovery
prospects weaken in a potential debt restructuring.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Shipping
Industry published in December 2017.
COMPANY PROFILE
Domiciled in Milan, Italy, Moby S.p.A. is a maritime transportation
operator focusing primarily on passengers and freight
transportation services in the Tyrrhenian Sea, mainly between
continental Italy and Sardinia. Through Moby and its main
subsidiary Tirrenia-CIN, the company operates a fleet of 64 ships,
of which 47 are ferries and 17 tugboats. In 2018, the company
recorded revenues of EUR584 million and EBITDA of EUR47.5 million.
=================
L I T H U A N I A
=================
SNORAS BANK: Prosecutor General's Office Hands Over Case to Court
-----------------------------------------------------------------
The Baltic Times reports that Lithuania's Prosecutor General's
Office announced on Dec. 18 it is handing the former Snoras bank's
criminal case to court.
According to The Baltic Times, charges in the case are brought
against the bank's former executives and shareholders Vladimir
Antonov and Raimondas Baranauskas, both residing in Russia now,
with Mr. Antonov sentenced to prison for fraud there.
The two are accused of appropriation and large-scale embezzlement
of Snoras' assets, criminal bankruptcy, the legalization of
illegally acquired assets, the bank's fraudulent bookkeeping, abuse
and document forgery, The Baltic Times discloses.
Snoras' activity was suspended in late 2011, The Baltic Times
recounts.
The pre-trial investigation in this case was completed in January
2019, The Baltic Times states. Prosecutors said then the damage
caused by Messrs. Baranauskas and Antonov to creditors, other bank
shareholders and indirectly to the state was estimated at around
EUR0.5 billion, The Baltic Times relates.
Based on information available to prosecutors, Mr. Baranauskas has
been granted political asylum in Russia, The Baltic Times notes.
===================
L U X E M B O U R G
===================
MILLICOM INTERNATIONAL: Fitch Affirms BB+ LT IDRs, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings affirmed Millicom International Cellular, S.A.'s
Long-Term Foreign and Local Currency Issuer Default Ratings at
'BB+'/ Stable Outlook. In addition, Fitch has affirmed MIC's senior
unsecured debt at 'BB+.'
MIC's ratings reflect geographic diversification, strong brand
recognition and network quality, all of which contributed to
leading positions in key markets, a strong subscriber base, and
solid operating cash flow generation. In addition, the rapid uptake
in subscriber data usage and MIC's ongoing expansion into the
underpenetrated fixed-line services bode well for medium to
long-term revenue growth. MIC's ratings are tempered, despite the
company's diversification benefits, by the issuer's presence in
countries in Latin America and Africa with low sovereign ratings
and low GDP per capita. The operational environment in these
regions, in terms of political and regulatory stability and
economic conditions, tends to be more volatile than in developed
markets. Millicom's ratings are currently constrained by the
operating environments and country ceilings of operations that
contribute to significant dividend flow, mainly Guatemala and
Paraguay.
KEY RATING DRIVERS
Improved Position in Central America: Millicom's acquisition of
Telefonica's mobile assets in Panama, Costa Rica, and Nicaragua
improves Millicom's service diversification and competitive
position in Central America by adding mobile services to countries
the company already has an existing fixed-line presence. Fitch
expects Millicom to benefit from leading market shares in these
countries and increased cross selling opportunities. Millicom now
has a convergent fixed-mobile business in each of the markets it
operates in throughout Latin America.
Deleveraging Expected: Millicom's debt-funded acquisitions over the
past year have added pressure on the company's financial position.
Adjusted consolidated net leverage is expected to reach 3.0x in
2019 driven by acquisitions in Central America over the last 12
months. The ratings incorporate Fitch's expectation that the
company will reduce net leverage towards 2.7x in the short to
medium term, backed by solid cash flow generation. Failure to
reduce leverage below 3.0x would add pressure to the ratings at the
current level.
Strong Market Positions: Fitch expects MIC's strong market position
to remain intact, supported by network quality and extensive
coverage, strong brand recognition and growing fixed-line home
operations (cable & broadband). The company holds a #1 or #2
position in most of the markets it operates in. These qualities,
exhibited across well-diversified operational geographies, should
enable the company to continue to support stable cash flow
generation and growth opportunities in underpenetrated data and
cable segments. As of Sept. 30, 2019, the company maintained
competitive market positions in its key mobile markets of
Guatemala, Paraguay, Colombia and Panama.
Increased Competitive and Macroeconomic Pressures: Recent
performance has been impacted by increased macroeconomic and
political disruptions in Nicaragua, Paraguay, and Bolivia. These
pressures have exacerbated the impact of increased competition and
have mainly affected the pre-paid mobile and B2B segments. Fitch
expects mobile ARPUs will continue to be pressured as the company
defends its market positions amidst an increase in competition
throughout the region. MIC's growth strategy will be increasingly
centered on mobile data and fixed line home services (cable and
broadband) as the company seeks to alleviate pressure on declining
voice and SMS revenue. Fitch expects this strategy will allow the
company to maintain stable EBITDA generation over the medium term.
Strong Upstream Dividends: Creditors of the holding company are
subject to structural subordination to the creditors of the
operating subsidiaries given that all cash flows are generated by
subsidiaries. As of Sept. 30, 2019, the group's consolidated gross
debt was USD7.42 billion, with 65% allocated to the operating
subsidiaries. Positively, Fitch believes that a stable and high
level of cash upstreams, through dividends and management fees from
its subsidiaries, is likely to remain intact over the long term and
will mitigate any risk stemming from this structural weakness. Over
the past few years, Millicom has received a majority of dividends
from operations in Guatemala and Paraguay and Fitch expects this
trend to continue during the next couple of years.
DERIVATION SUMMARY
MIC's rating is well positioned relative to regional telecom peers
in the 'BB' rating category based on a solid financial profile,
operational scale and diversification, as well as strong positions
in key markets. These strengths are offset by a high concentration
in countries with low sovereign ratings in Latin America and
Africa, which tend to have more volatile economic environments.
MIC boasts a much stronger financial profile, compared with
diversified integrated telecom operators in the region such as
Cable & Wireless Communications Limited (BB-/Stable) and Digicel
Limited (CCC), supporting a higher, multi-notch rating. MIC's
leverage is moderately higher than Empresa de Telecomunicaciones de
Bogota, S.A. E.S.P. (ETB; BB+/Stable) but benefits from a stronger
business profile that has leading market positions in multiple
markets. MIC also has a stronger capital structure and business
profile than Axtel S.A.B. de C.V. (BB-/Stable), a Mexican
fixed-line operator. When compared to Colombia Telecomunicaciones,
S.A. E.S.P. (BBB-/Stable), an integrated telecom operator,
Millicom's higher consolidated net leverage compares unfavourably.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- Low single digit annual revenue growth in the medium term
supported by acquisitions;
-- Mobile service revenue contraction to be partly offset by
increasing mobile data revenues over the medium term
-- Revenue contribution from mobile data and home service
operations to grow towards 60% of total revenues by 2021;
-- Home service segment to undergo double-digits revenue growth
in the short-to-medium term;
-- Annual capex slightly over USD1 billion over the medium term;
-- No significant increase in shareholder distributions in the
short to medium term with annual dividend payments remaining around
USD265 million;
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
-- Material and consistent dividends from Millicom's subsidiaries
in Colombia and Panama;
-- Total Adjusted Net Debt / EBITDAR of 2.5x or below over the
rating horizon;
-- Upgrades of the country ceiling of Guatemala and/or Paraguay
to 'BBB-'.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
-- Consolidated Total Adjusted Net Debt / EBITDAR at or above
3.5x;
-- Holding company debt / dividends received at or above 4.5x;
-- Downgrades of the country ceiling of Guatemala and/or Paraguay
to 'BB'.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity Profile: Millicom benefits from a good liquidity
position, given the company's large cash position which fully
covers short-term debt. As of Sept. 30, 2019, the consolidated
group's readily available cash was USD883 million, which
comfortably covers its short-term debt obligations of USD416
million. Fitch does not foresee any liquidity problem for both the
operating companies and the holding company given the operating
companies' stable cash generation and consistent cash upstreaming
to the holding company. MIC has a good track record, in terms of
access to capital markets when in need of external financing,
further supporting its liquidity management.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3, which implies that ESG issues
are credit neutral or have only a minimal credit impact on the
entity, either due to their nature or the way in which they are
being managed by the entity.
=====================
N E T H E R L A N D S
=====================
SAMVARDHANA MOTHERSON: Fitch Affirms BB+ LT IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings affirmed Netherlands-based Samvardhana Motherson
Automotive Systems Group BV's Long-Term Issuer Default Rating at
'BB+'. The Outlook is Stable. Fitch has also affirmed SMRP BV's
senior secured bonds at 'BBB-'.
The ratings reflect SMRP BV's strong linkages with its
shareholders, Motherson Sumi Systems Limited and Samvardhana
Motherson International Limited, given the aligned economic
interests. Fitch rates SMRP BV based on SMIL's consolidated
financial profile.
The Stable Outlook reflects Fitch's view that deterioration in
MSSL's profitability due to a slower-than-anticipated ramp-up at
SMRP BV's newly commissioned plants - which will increase leverage,
as measured by adjusted net debt/operating EBITDAR, above Fitch's
previous expectation of 2.8x for the the financial year ending
March 2020 (FY20) - is temporary. Fitch now forecasts MSSL's
consolidated leverage at 3.3x in FY20 - a level that exceeds the
3.0x threshold above which Fitch may consider negative rating
action. However, leverage should fall to 2.6x in FY21, as gradual
production ramp up and steps to improve efficiencies should reduce
losses at the new plants. A prudent approach to capex and recovery
of tooling-related receivables from original equipment
manufacturers (OEM) should also support free cash generation.
SMRP BV's ratings continue to factor in the company's long-standing
customer relationships with financially strong OEMs, which support
its position as a leading supplier of rear-view vision systems and
interior and exterior modules to the global automotive industry.
The ratings also take into consideration the group's disciplined
approach to expansion, which has improved business diversification
while limiting financial leverage. Fitch believes these factors
help to mitigate sector-specific risks, including the cyclical
nature of automotive sales and dependence on large OEM customers.
KEY RATING DRIVERS
Profitability to Normalise: Fitch expects MSSL's consolidated
EBITDA margin to improve to 8.7% in FY21 (FY20 estimate: 7.1%), as
steps to improve efficiencies amid volume ramp-up at OEM customers
will help the company reduce losses at new plants, including at
large plants in the US and Hungary that were commissioned in FY19.
In particular, SMRP BV has made progress in addressing issues
around skilled labour availability at the US plant, which accounted
for the majority of start-up losses in 1HFY20. The US plant has
also seen gradual ramp of volume after initial delays in volume
ramp up at the OEM customer.
Fitch expects MSSL to generate positive free cash flow in FY20, as
its prudent approach to capex in view of a muted outlook for global
auto sales will help to counterbalance lower operating cash flow.
Free cash generation will improve further in FY21 on higher
profitability, while capex should remain moderate following the
completion of new facilities in FY19 and soft industry conditions.
Fitch believes MSSL's selective approach to acquisitions, including
identifying attractively priced targets that are a suitable
strategic fit, and adherence to prudent funding practices mitigate
risks from the company's publicly stated target of nearly doubling
its FY19 revenue by 2020. Nonetheless, any large debt-funded
acquisition may pressure SMRP BV's rating.
Customer Relationships Underpin Leading Positions: MSSL's
consistent product quality and wide range of services, including
R&D, tooling, manufacturing and assembly, have helped sustain its
long relationships with top global OEMs. This has helped the group
gain market share, as global OEMs increasingly depend on external
auto-component providers and retain only high value-added parts to
optimise capital. Fitch believes the group's large scale and strong
customer relationships mitigate risks arising from competition and
weak negotiating power against large OEMs in pricing and
pass-through of raw material prices. MSSL's business in India
supplies wiring harnesses for the majority of passenger vehicles
manufactured in the country. PKC Group Plc, which MSSL acquired in
2017, has leading positions in the commercial-vehicle wiring
harness markets across North America, Europe, South America and
China. SMRP BV is one of the leading suppliers of exterior mirrors,
bumpers, dashboards and door panels in the premium segment
globally.
Improving Business Diversification: MSSL's business diversification
mitigates variations arising from the cyclical and competitive
automotive industry. The group's businesses are diversified across
product components, OEM customers and geographies. In addition, the
group serves various vehicle programmes, within an OEM and
different geographies for each programme, which enhance
diversification. The group is focused on further diversifying via
inorganic expansion, which was evident in its PKC and Reydel
Automotive Group acquisitions. SMRP BV's organic expansion in
recent years will help to reduce its dependence on its single
largest market, Germany.
Order Book Supports Earning Visibility: Continued growth in SMRP
BV's order book, which stood at EUR18.4 billion as of September 30,
2019, underscores its strong relationships with OEM customers.
Fitch believes the order book covers more than 95% of its forecast
revenue over the next two years, including more than 90% from
models already in production. SMRP BV remains exposed to industry
risks faced by OEMs, but these are mitigated by diversification in
the order book across OEMs and vehicle programmes. Association with
top OEMs also limits this risk, as new platforms require
significant upfront investment and manufacturers typically try to
improvise and relaunch rather than writing them off.
Linkages to Samvardhana Motherson Group: Fitch analyses MSSL, its
largest shareholder, SMIL, and their 51:49 joint venture, SMRP BV,
as a single economic entity because SMIL effectively controls more
than half of the economic interests in MSSL group and because of
the companies' senior management overlap. Fitch assesses the
operating, financial and strategic linkages between SMRP BV and
SMIL as strong and has based SMRP BV's IDR on SMIL's consolidated
financial profile, which has been adjusted to include 100% of MSSL
and SMRP BV, but excludes the share of dividends paid to minority
shareholders at MSSL.
Secured Notes Rated Above IDR: SMRP BV's secured notes are rated
one notch above its IDR as they are secured against assets in key
subsidiaries in the SMRP BV group. The one-notch uplift applied to
the EUR300 million secured notes due 2024 may be removed if the
amount of SMRP BV's secured debt, excluding debt with a fall-away
security structure, falls below EUR110 million and triggers the
release of security over the assets under the fall-away security
structure, as defined in the bond documentation for the EUR300
million notes due in 2024. This may occur if SMRP BV chooses to
call the USD400 million secured notes due 2021, which are callable
from June 2019, and obtains approval of the existing bank lenders
to amend the inter-creditor agreement for the release of security.
DERIVATION SUMMARY
MSSL's scale, leading market position in its product categories and
business diversification positions it well against peers, such as
Metalsa, S.A. de C.V. (BBB-/Stable) and Dana Incorporated
(BB+/Stable). MSSL has larger scale and greater business
diversification in terms of customers, geographies and products
than Metalsa. However, this is offset by Metalsa's stronger
profitability and conservative capital structure, which result in
the Mexico-based company being rated a notch higher.
SMRP BV is rated at the same level as Dana, reflecting their
similar scale and business diversification as well as broadly
similar leverage profiles after considering Dana's acquisition of
Oerlikon Group's drive systems business and normalisation of
profitability at SMRP BV's new plants from FY21.
GKN Holdings Limited (BB+/Stable) has greater diversification and
stronger technological leadership than MSSL. However, GKN's higher
leverage (including at its parent) counterbalances this and results
in a rating at the same level as that of SMRP BV.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth of 6% in FY20, supported by full-year
contribution from Reydel and ramp-up at newly commissioned plants;
low-single-digit revenue growth thereafter (FY19: 12%).
- Lower EBITDA margin of around 7% in FY20 (FY19: 8%) due to
losses at new plants. Stabilisation at new plants will drive
improvement in the EBITDA margin to 10% by FY22.
- Capex of INR20 billion in FY20. Capex intensity, measured as a
percentage of sales, to average 4.2% over FY21 and FY22 (FY19:
4.3%).
- MSSL dividend payout to remain below 40% of net income.
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- MSSL improving its consolidated adjusted net leverage, defined
as total adjusted net debt/operating EBITDAR, after Fitch's
adjustment for minorities and factoring, to below 2.0x on a
sustained basis.
- MSSL consolidated free cash flow margin improving to above 1.0%
on a sustained basis (FY19: -1.5%).
- MSSL maintaining or improving its business diversification.
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- MSSL consolidated adjusted net leverage remaining above 3.0x
for a sustained period.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: MSSL had INR22.7 billion of unrestricted cash and
INR39.6 billion of available committed bank facilities, including
INR35.1 billion in SMRP BV, at FYE19. This was more than sufficient
to meet INR34.3 billion of near-term debt maturities in FY20;
including INR28.4 billion in short-term debt that the company
expects to roll over in the normal course of business. The
liquidity profile is strengthened by Fitch's expectation of
positive free cash flow from FY20 and SMRP BV's access to banks and
international debt capital markets. MSSL's debt maturity profile is
manageable, with less than INR6.0 billion in debt maturities in
FY21 and more than INR30 billion of senior notes at SMRP BV
maturing after FY24. Fitch expects MSSL's improving free cash
generation and leverage over the next two years to support
refinancing initiatives in FY22, when more than INR30 billion of
debt will mature.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch has treated INR12.7 billion in FY19 (equivalent to 2% of
sales) as restricted cash for intra-year working capital
volatility.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
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N O R W A Y
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NANNA MIDCO: Moody's Downgrades CFR to Caa1, Outlook Negative
-------------------------------------------------------------
Moody's Investors Service downgraded Nanna Midco II AS' corporate
family rating to Caa1 from B3 and probability of default rating to
Caa1-PD from B3-PD. Moody's has also downgraded to Caa1 from B3 the
instrument rating of the $260 million senior secured term loan (the
term loan) and to B1 from Ba3 the instrument rating of the $25
million super senior revolving credit facility (RCF) maturing in
2023, both issued by Navico Inc., a subsidiary of Nanna Midco II
AS. The outlook remains negative.
RATINGS RATIONALE
The rating action reflects continued weakness in Navico's operating
performance which led to significant pressure on the company's
liquidity. Navico's revenue declined by 4.3% to $357 million for
the trailing twelve months ending September 30, 2019 from $373
million in 2018. This is in stark contrast to 14% revenue growth
recorded by the company in 2018. The revenue deterioration was
driven by a decline in the US retail sales, competitors' new
product launches and higher promotional activity, as well as a
negative foreign exchange impact. Navico's business has a high
degree of operating leverage (fixed costs) and as a result, the
drop in revenue had a disproportionate effect on earnings. Navico's
EBITDA declined by close to 30% in the twelve months ending
September 2019 from the prior year period while its EBITDA margin
contracted to 14% from 20% over the same period, as reported by the
company. Moody's notes that Navico's operations incorporate a
significant research and development (R&D) expenditure which is
vital for the company to deliver new products and maintain its
market share. However, all of the R&D costs are deducted from
Moody's adjusted EBITDA and put downward pressure on the company's
Moody's adjusted ratios.
As a result of the operational weakness, Navico's liquidity has
become significantly constrained with $6.6 million of cash at
September 30, 2019 and $2.3 million available on its $25 million
revolving credit facility. Although the company's debt does not
mature until 2023 (RCF), Navico has to pay $6.5 million annual
amortisation on the term loan. The company indicated that it is in
the process of obtaining additional financing; however, the
likelihood and the terms of such transaction are uncertain at
present. Positively, Navico is entering a seasonally stronger
period in the first half of 2020, when recreational marine vessel
owners are preparing for the new season and are likely to invest in
their boats, increasing demand for Navico's products, which will
improve Navico's sales, as well as its liquidity.
Navico's Caa1 corporate family rating (CFR) mainly reflects (1) the
rapid deterioration of Navico's EBITDA in recent quarters leading
to its adjusted gross leverage more than doubling to 13.5x as of
the last twelve months (LTM) period to September 30, 2019 from 6.3x
in 2018, (2) the uncertainty around the ability of the company to
improve earnings significantly over the short-term as a result of
tough competition, and (3) the weakening of the liquidity profile
as of the end of the third quarter of 2019.
However, these weaknesses are partly mitigated by (1) the positive
market fundamentals for recreational marine equipment, in
particular in the US and Europe where the company generates the
bulk of its revenues and (2) the actions taken by management to
partly offset the decline in earnings through the implementation of
cost savings.
Navico's PDR at Caa1-PD, at the same level as the CFR, reflects
Moody's assumption of a 50% family recovery rate, which is typical
for capital structures including bank facilities with springing
financial maintenance covenants. The senior secured term loan is
rated Caa1, at the same level as the CFR, reflecting the relatively
small size of the super senior RCF, which is rated B1, ranking
ahead in the event of enforcement.
The negative outlook reflects the uncertainty around the ability of
the company to stem earnings deterioration and the company's
relatively weaker liquidity position.
Navico has experienced a measure of senior management change this
year with Knut Frostad taking over as President and CEO from Leif
Ottosson in June 2019. Moody's notes that changes in the executive
team could be disruptive to operations; however, this concern is to
a degree mitigated by Mr. Frostad's long-term association with
Navico as a member of its Board of Directors for the previous
fourteen years.
WHAT COULD CHANGE THE RATING UP/DOWN
The rating could be stabilized if Navico improves its liquidity
such that its cash needs are reliably addressed at least for a
twelve month period including any working capital swings. The
company would also need to arrest its performance deterioration and
demonstrate, at a minimum, maintenance of existing market share.
Although unlikely at present, upward rating momentum could arise if
(1) Navico demonstrates a track record of sustained recovery in
earnings, (2) adjusted leverage decreases to below 6.5x, (3) the
company is at least free cash flow neutral, and (4) the company
maintains an adequate liquidity profile.
Negative rating pressure could be triggered if the liquidity
position deteriorates further.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Durables Industry published in April 2017.
COMPANY PROFILE
Headquartered in Norway, Navico, which generated revenues of $357
million as of the LTM period to September 2019, is a developer and
manufacturer of specialist marine electronics, including navigation
and fish finding equipment, and value-added applications. The
company splits its operations in two business segments: (1)
recreational marine (86% of LTM September 2019 group revenues) and
(2) commercial marine (14%). Navico is owned by private equity
sponsors Goldman Sachs' Merchant Banking Division and Altor Fund
IV.
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R U S S I A
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BANK OTKRITIE: Moody's Affirms Ba2 Sr. Unsec. Debt Rating
---------------------------------------------------------
Moody's Investors Service affirmed the following ratings of Bank
Otkritie Financial Corporation PJSC (BOFC): 1) the long-term
foreign and local currency deposit and local currency senior
unsecured debt ratings of Ba2; 2) its long-term counterparty risk
ratings at Ba1; and 3) short-term deposit ratings and short-term
CRRs of Not Prime. Concurrently, Moody's affirmed BOFC's long-term
and short-term counterparty risk assessment at Ba1(cr)/Not
Prime(cr).
In addition, Moody's upgraded BOFC's Baseline Credit Assessment
(BCA) as well as its Adjusted BCA to b2 from b3. The outlook on the
long-term debt and deposit ratings as well as the overall entity
outlook remains stable.
The BCA upgrade was driven by better asset quality, with good
problem loan reserve coverage, and an improvement of the bank's
profitability.
RATINGS RATIONALE
UPGRADE OF BCA
The upgrade in the BCA to b2 was principally driven by improving
asset risk. Problem loans (defined as those in Stage 3 under IFRS 9
and purchased and originated credit-impaired loans) fell to 13% of
the gross loan book at end-Q3 2019 from 21% at end-2018. Although
this improvement is due to the growth of the loan book rather than
a reduction in bad assets, the problem loans are almost 100%
covered by reserves and hence present little risk. Moody's expects
a further reduction in the problem loan ratio to below 10% in the
next 12-18 months, but asset risk is likely to remain weaker than
peers' given the bank's aim to grow its assets very rapidly.
The bank's return on average assets rose to over 2% during the
first nine months of 2019 compared to 1.6% in 2018. This reflects
asset quality improvement (resulting in recoveries) and stronger
earnings generation, with all core business segments now returned
to profit. At the same time, the quality of revenues in the banking
segment remains weak, with a return on average assets, excluding
reserve recoveries and trading income, of less than 1% during the
first nine months of 2019. This reflects continued weak efficiency
as the bank remains in recovery. Moody's expects that higher
business volumes and slower cost growth will improve BOFC's
efficiency and profitability in 2020.
The ratings continue to be underpinned by the bank's good loss
absorption capacity and strong liquidity. Capitalisation is good
with tangible common equity to risk weighted assets of almost 14%
at end-Q3 2019, although Moody's expects this to decline given
rapid asset growth. Given high capitalization and good provisioning
coverage of problem loans, the ratio of problem loans relative to
tangible common equity plus loan loss reserves fell below 30% at
end-Q3 2019.
BOFC's reliance on market funding has reduced and is now low at 7%
of the tangible banking assets at end-Q3 2019. The group's liquid
assets exceeded 30% of tangible banking assets, which is ample
protection against most plausible outflows, although some of this
will be absorbed to fund lending growth.
Moody's does not consider BOFC to have any particular issues in
terms of its corporate governance, now that its management has been
overhauled following its failure in 2017. However, Moody's applies
a one notch corporate behaviour adjustment to reflect the risks
related to the execution of the bank's new strategy. The strategy
envisages very aggressive growth plans, notably a 65% gross loan
portfolio growth during 2020. Such rapid growth may lead to higher
risk appetite leading to subsequent deterioration of solvency
indicators.
AFFIRMATION OF DEPOSIT RATINGS
BOFC's long-term deposit and senior unsecured ratings of Ba2 were
affirmed. Moody's continues to incorporate a very high likelihood
of support for BOFC's debt and deposit ratings from the Russian
government (Baa3 stable). This view is underpinned by: (1) a track
record of financial support from the CBR, both in terms of capital
and funding; (2) the CBR's almost 100% ownership of the bank; and
(3) BOFC's status as a systemically important bank with a
significant market share by assets among the 10 largest Russian
banks.
The reduction in rating uplift to three notches from four
previously reflects the upgrade in the BCA and hence the diminished
benefit of further support.
STABLE OUTLOOK
The stable outlook on the long-term debt and deposit ratings
balances the expected improvements in the financial profile against
the risks from implementation of the ambitious growth strategy.
WHAT COULD MOVE THE RATINGS UP/ DOWN
The bank's BCA could be upgraded if the bank proves the stability
and resilience of its business model accompanied by a lower
appetite for loan growth while maintaining sound profitability,
asset quality, liquidity and capital. Moody's could upgrade the
deposit ratings if it upgraded the bank's BCA, but this would also
depend on an updated assessment of potential further government
support.
The ratings could be downgraded in the unlikely event that the CBR
appeared less likely to continue its support to BOFC, or if the
Russian government's overall capacity and propensity to render
support to systemically important financial institutions should
diminish. The BCA could be downgraded if the bank fails to remain
profitable or if asset quality, capital or liquidity deteriorated
meaningfully.
LIST OF AFFECTED RATINGS
Issuer: Bank Otkritie Financial Corporation PJSC
Upgrades:
Adjusted Baseline Credit Assessment, Upgraded to b2 from b3
Baseline Credit Assessment, Upgraded to b2 from b3
Affirmations:
Long-term Counterparty Risk Assessment, Affirmed Ba1(cr)
Short-term Counterparty Risk Assessment, Affirmed NP(cr)
Long-term Counterparty Risk Ratings, Affirmed Ba1
Short-term Counterparty Risk Ratings, Affirmed NP
Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook
Remains Stable
Long-term Bank Deposit Ratings, Affirmed Ba2, Outlook Remains
Stable
Short-term Bank Deposit Ratings, Affirmed NP
Outlook Action:
Outlook Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in November 2019.
MEGAFON: S&P Alters Outlook to Stable & Affirms 'BB+' Ratings
-------------------------------------------------------------
S&P Global Ratings revised its outlook on Russian telecom operator
MegaFon to stable from negative and affirmed its 'BB+' ratings.
The recent share sale facilitates debt reduction. The outlook
revision reflects improvement in MegaFon's credit metrics following
the completion of the sale of shares to its parent company, USM
Group. MegaFon received cash proceeds of RUB55.7 billion in
November 2019 after selling 14% of its treasury shares. We
understand from that MegaFon plans to use most of cash proceeds for
debt reduction. As a result, S&P forecasts its adjusted debt to
EBITDA for MegaFon (the main adjustments relate to operating
leases) at 2.7x at end-2019, compared with its previous expectation
of slightly higher than 3x and 3.1x as of Sept. 30, 2019. S&P also
expects MegaFon's FOCF to adjusted debt to improve to around 8% at
year-end 2019, compared with our previous expectation of about 5%.
S&P said, "Management remains committed to lower leverage.
MegaFon's management's commitment to its financial policy should
support debt reduction in our view. It targets reported net debt to
OIBDA below 2x and no dividend until reported debt leverage
declines below 2x. We estimate that MegaFon's reported leverage at
year-end 2019 will be slightly higher than that, but is likely to
decline below 2x next year." Megafon paid almost no dividends in
2018-2019 and we don't expect it will do so in 2020.
FOCF is rebounding on sound operating performance and lower capital
spending. MegaFon's operating performance remained sound in the
first nine months of 2019. Its reported revenues increased by 3.5%
supported by 30.1% growth in sales of equipment and accessories and
2.3% wireline service revenue growth, including 8.6% data revenue
growth. 4G traffic usage increased by 60.9% year on year in the
third quarter, supported by a 19.8% increase in 4G-enabled devices
registered in the MegaFon network to 31.9 million. This, coupled
with lower capital expenditure (capex) in 2019-2020 compared with
2018 should result in gradually stronger FOCF generation and FOCF
to debt ratios. The high capex in 2018 was due to front-loading of
expenses related to the data storage law and completion of the 4G
network rollout.
S&P said, "The outlook is stable because we expect MegaFon will
maintain adjusted debt to EBITDA of about 2.5x and FOCF to debt of
7%-9% over the next 12 months, supported by stable revenues and an
EBITDA margin of 43%-44%.
"We could raise the rating if MegaFon's ratios sufficiently
strengthen, including S&P Global Ratings-adjusted debt to EBITDA
below 2.3x and FOCF to debt above 10%, on a sustainable basis. This
could stem from a financial policy supporting these ratios and a
further reduction in capex, with the capex to sales ratio at
16%-17%. An upgrade is contingent on operating performance staying
at least in line with our thresholds for a higher rating.
"Rating downside is unlikely over the next 12 months, given the
company's financial policy. However, we could lower the rating if
MegaFon's adjusted debt to EBITDA exceeded 3.0x or if its FOCF to
adjusted debt was below 5% on a protracted basis as a result of a
more relaxed financial policy, or if we observed a pronounced
weakening of operating performance."
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S P A I N
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AUTONORIA SPAIN 2019: Moody's Rates EUR25MM Cl. G Notes B3(sf)
--------------------------------------------------------------
Moody's Investors Service assigned the following definitive ratings
to notes issued by Autonoria Spain 2019, Fondo de Titulizacion:
EUR790M Class A Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned Aa1 (sf)
EUR30M Class B Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned Aa1 (sf)
EUR55M Class C Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned Aa3 (sf)
EUR55M Class D Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned Baa2 (sf)
EUR20M Class E Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned Ba1 (sf)
EUR25M Class F Asset Backed Floating Rate Notes due December 2035,
Definitive Rating Assigned B1 (sf)
EUR25M Class G Asset Backed Fixed Rate Notes due December 2035,
Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The transaction is a one year revolving cash securitisation of auto
loans extended to obligors in Spain by Banco Cetelem S.A.U.( NR).
Banco Cetelem, acting also as servicer in the transaction, is a
specialized lending company 100% owned by BNP Paribas Personal
Finance (Aa3/P-1). Its business focuses on retail lending (consumer
primarily) in Spain and abroad.
The portfolio of underlying assets consists of auto loans
originated in Spain. The loans are originated via intermediaries or
directly through physical or online point of sale and they are all
fixed rate, annuity style amortising loans with no balloon or
residual value risk, the market standard for Spanish auto loans.
The final portfolio will be selected at random from the portfolio
to match the final note issuance amount.
As of November 20, 2019, the pool had 155,301 loans with a weighted
average seasoning of 1.7 years, and a total outstanding balance of
approximately EUR1.5 billion. The weighted average remaining
maturity of the loans is 61.8 months. The securitised portfolio is
highly granular, with top 10 borrower concentration at 0.04% and
the high portfolio weighted average interest rate of 8.0% . The
portfolio is collateralised by 74.1% new cars and 25.9% used cars.
According to Moody's, the transaction benefits from credit
strengths such as the granularity of the portfolio, the excess
spread-trapping mechanism through a 5 months artificial write off
mechanism, the high average interest rate of 8.0% and the financial
strength of BNP Paribas Group. Banco Cetelem, the originator and
servicer, is not rated. However, it is 100% owned by BNP Paribas
Personal Finance (Aa3/P-1, Aa3(cr)/P-1(cr)).
However, Moody's notes that the transaction features some credit
weaknesses such as (i) a one year revolving structure which could
increase performance volatility of the underlying portfolio,
partially mitigated by early amortisation triggers, substitution
criteria both on individual loan and portfolio level and the
eligibility criteria for the portfolio, (ii) a complex structure
including interest deferral triggers for juniors notes, pro-rata
payments on all classes of notes after the end of the revolving
period, (iii) a fixed-floating interest rate mismatch as 100% of
the loans are linked to fixed interest rates and the classes A-F
are all floating rate indexed to one month Euribor, mitigated by
three interest rate swaps provided by Banco Cetelem (NR) and
guaranteed by BNP Paribas Personal Finance (Aa3(cr)/P-1(cr),
Aa3/P-1)).
Moody's analysis focused, amongst other factors, on (1) an
evaluation of the underlying portfolio of receivables and the
eligibility criteria; (2) the revolving structure of the
transaction; (3) historical performance on defaults and recoveries
from the Q1 2011 to Q2 2019 provided on Banco Cetelem's total book;
(4) the credit enhancement provided by the excess spread and the
subordination; (5) the liquidity support available in the
transaction by way of principal to pay interest for classes A-D and
a dedicated liquidity reserve only for classes A-D, and (6) the
overall legal and structural integrity of the transaction.
AUTO SECTOR TRANSFORMATION
The automotive sector is undergoing a technology-driven
transformation which will have credit implications for auto finance
portfolios. Technological obsolescence, shifts in demand patterns
and changes in government policy will result in some segments
experiencing greater volatility in the level of recoveries and
residual values compared to that seen historically. For example,
Diesel engines have declined in popularity and older engine types
face restrictions in certain metropolitan areas. Similarly, the
rise in popularity of Alternative Fuel Vehicles (AFVs) introduces
uncertainty in the future price trends of both legacy engine types
and AFVs themselves due to evolutions in technology, battery costs
and government incentives. Moody's has not received a breakdown of
vehicles by engine type and emission standard. However, since the
portfolio has only a limited security over the financed vehicles
the consequence of future recovery rate volatility is reduced.
MAIN MODEL ASSUMPTIONS
Moody's determined the portfolio lifetime expected defaults of
4.5%, expected recoveries of 15.0% and portfolio credit enhancement
of 16.0%. The expected defaults and recoveries capture its
expectations of performance considering the current economic
outlook, while the PCE captures the loss Moody's expects the
portfolio to suffer in the event of a severe recession scenario.
Expected defaults and PCE are parameters used by Moody's to
calibrate its lognormal portfolio loss distribution curve and to
associate a probability with each potential future loss scenario in
its ABSCORE cash flow model to rate Auto and Consumer ABS.
Portfolio expected defaults of 4.5% are in line with Spanish Auto
loan ABS average and are based on Moody's assessment of the
lifetime expectation for the pool taking into account (i) historic
performance of the book of the originator, (ii) other similar
transactions used as a benchmark, and (iii) other qualitative
considerations.
Portfolio expected recoveries of 15.0% are lower than the Spanish
Auto loan ABS average and are based on Moody's assessment of the
lifetime expectation for the pool taking into account (i) historic
performance of the book of the originator, (ii) benchmark
transactions, and (iii) other qualitative considerations.
PCE of 16.0% is in line with Spanish Auto loan ABS average and is
based on Moody's assessment of the pool taking into account (i) the
unsecured nature of the loans, and (ii) the relative ranking to the
originators peers in the French and EMEA consumer ABS market. The
PCE level of 16.0% results in an implied coefficient of variation
of approximately 48.6%.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
March 2019.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors or circumstances that could lead to an upgrade of the
ratings of the notes would be (1) better than expected performance
of the underlying collateral; (2) significant improvement in the
credit quality of Banco Cetelem; or (3) a lowering of Spain's
sovereign risk leading to the removal of the local currency ceiling
cap.
Factors or circumstances that could lead to a downgrade of the
ratings would be (1) worse than expected performance of the
underlying collateral; (2) deterioration in the credit quality of
Banco Cetelem; or (3) an increase in Spain's sovereign risk.
FTPYME TDA 4: Fitch Us Class C Notes Rating to BB+sf
----------------------------------------------------
Fitch Ratings upgraded FTPYME TDA CAM 4 FTA's class C notes, while
affirming the rest. All Outlooks are Stable.
RATING ACTIONS
FTPYME TDA CAM 4, FTA
Class B ES0339759039; LT A+sf Affirmed; previously at A+sf
Class C ES0339759047; LT BB+sf Upgrade; previously at Bsf
Class D ES0339759054; LT Csf Affirmed; previously at Csf
TRANSACTION SUMMARY
CAM 4 is a securitisation of SME loans originated by Banco de
Sabadell (BBB/Stable/F3)
KEY RATING DRIVERS
Payment Interruption Risk Caps Rating
The highest achievable note rating for CAM4 is capped at 'A+sf' due
to exposure to payment interruption risk. CAM 4's reserve fund
remains materially below target, leaving the structure without
liquidity should the servicer default.
Positive Credit Enhancement (CE) Trend
Fitch expects structural CE to continue increasing for CAM 4 as the
transaction amortises sequentially with a replenishing reserve fund
(RF) still deeply under-funded. CE increased to 59% and 13.2% for
the class B and C notes, respectively, from 44.1% and 6.2% in the
last review in January 2019. Fitch views these CE levels as
sufficient to withstand the rating stresses, leading to the
affirmation and upgrade.
Stable Portfolio Performance
New defaults remain low for CAM4, while recoveries have been
continuously increasing during the past two to three years.
Cumulative defaults have remained stable at around 7.9% of the
initial portfolio balance, with reported recoveries of
approximately 65%.
Favorable Domestic Economy
Spain is currently enjoying benign economic momentum, with domestic
demand supported by employment growth (2.7% in 2018) and favourable
credit conditions. Fitch forecasts a moderation in GDP growth to
2.3% in 2019 and 1.7% in 2020 from 2.6% in 2018, due to an expected
decrease in private consumption and investment growth.
Low Obligor and Geographic Concentration
Due to its high seasoning, the portfolio is experiencing a slightly
increase in concentration; however, concentration by obligor and
region remains low. Currently, the 10-largest obligors account for
5% of the current portfolio balance while the largest obligor
represents 1.3%, compared with 4.6% and 1.1%, respectively, in the
last review. The securitised portfolio is also concentrated in the
Region of Alicante that currently represents 34.6% of the
portfolio.
RATING SENSITIVITIES
A 50% decrease in the recovery rate would lead to a three-notch
downgrade in the class C notes rating.
===========
T U R K E Y
===========
YAPI KREDI: Fitch Affirms BB+ Rating on Class 2011-E Notes
----------------------------------------------------------
Fitch Ratings affirmed Yapi Kredi Diversified Payment Rights
Finance Company's outstanding notes at 'BB+'. This follows the
recent rating action on the originating bank, Yapi ve Kredi Bankasi
A.S. following the announcement by UniCredit S.p.A (BBB/Negative),
YKB's joint controlling shareholder, of its plan to materially
reduce its stake in YKB as part of the group's capital-optimisation
strategy.
The Outlook on the DPR rating is Stable. This reflects that on the
originating bank, YKB's Long-Term Local-Currency Issuer Default
Rating (LC IDR) and on Turkey's sovereign rating, as well as the
relatively stable offshore DPR flows over the past two years.
RATING ACTIONS
Yapi Kredi Diversified Payment Rights Finance Company Ltd
Class 2011-E XS0678316240; LT BB+ Affirmed; previously at BB+
Class 2013-D XS0950411834; LT BB+ Affirmed; previously at BB+
Class 2014-A XS1118209375; LT BB+ Affirmed; previously at BB+
Class 2015-A XS1199021426; LT BB+ Affirmed; previously at BB+
Class 2015-B XS1199023638; LT BB+ Affirmed; previously at BB+
Class 2015-C XS1199023125; LT BB+ Affirmed; previously at BB+
Class 2015-D XS1260557142; LT BB+ Affirmed; previously at BB+
Class 2015-E XS1261187675; LT BB+ Affirmed; previously at BB+
Class 2015-F XS1261205915; LT BB+ Affirmed; previously at BB+
Class 2015-G XS1261206301; LT BB+ Affirmed; previously at BB+
Class 2017-A XS1726113381; LT BB+ Affirmed; previously at BB+
Class 2017-B XS1741479494; LT BB+ Affirmed; previously at BB+
Class 2017-C; LT BB+ Affirmed; previously at BB+
Class 2017-D XS1741479650; LT BB+ Affirmed; previously at BB+
Class 2017-E XS1741480070; LT BB+ Affirmed; previously at BB+
Class 2017-F XS1741479908; LT BB+ Affirmed; previously at BB+
Class 2017-G XS1739387642; LT BB+ Affirmed; previously at BB+
Class 2018-A XS1760837275; LT BB+ Affirmed; previously at BB+
Class 2018-B XS1777290278; LT BB+ Affirmed; previously at BB+
Class 2018-C XS1924942060; LT BB+ Affirmed; previously at BB+
Class 2019-A XS1957348367; LT BB+ Affirmed; previously at BB+
Class 2019-B XS1957348441; LT BB+ Affirmed; previously at BB+
Class 2019-C XS1957348797; LT BB+ Affirmed; previously at BB+
TRANSACTION SUMMARY
Yapi Kredi DPR is a future flow transaction of current and future
DPRs originated by YKB and denominated in US dollars, euros, and
sterling. DPRs are essentially payment orders processed by banks,
which can arise for a variety of reasons including payments due on
the export of goods and services, capital flows and personal
remittances.
KEY RATING DRIVERS
Originator Credit Quality
YKB's LC IDR of 'B+' is driven by potential state support, and is
at the same level as its Viability Rating of 'b+'. Prior to the
rating action on the bank on December 13, 2019, YKB's LC IDR was
'BB-', one notch higher than its VR, which reflected support from
UniCredit.
GCA Score Unchanged
Fitch has maintained the Going Concern Assessment (GCA) score
assigned to YKB at GC1. This reflects YKB's market position and its
relative importance to the Turkish financial system as a
systemically important bank.
Notching Uplift Revised
Fitch has revised the notching uplift to three notches from two
notches for Yapi Kredi DPR and affirmed the DPR rating at 'BB+'.
Fitch views the overall risks of Yapi Kredi's DPR programme to be
on par with its GC1 peers in the Turkish market. Although
short-term risks have reduced alongside Turkey's progress in
rebalancing and stabilising the economy, visibility of the outcome
of any potential default or bankruptcy scenario for each Turkish
bank relevant to the DPR programme is still limited as the market
conditions remain challenging.
Sufficient Coverage
Fitch calculates monthly debt service coverage ratio (DSCR) for the
programme at 55x, based on the average monthly offshore flows
processed through designated depositary banks of the past 12
months, after incorporating interest rate stresses. Fitch also
tested the sufficiency and sustainability of the DSCRs under
various scenarios, including FX stresses, a reduction in payment
orders based on the top 20 beneficiary concentrations and a
reduction in remittances based on the steepest quarterly decline in
the last few years. Fitch considers that the DSCRs for the
programme are sufficient to support the ratings.
RATING SENSITIVITIES
The most significant variables affecting the transaction's rating
are the originator's credit quality, the GCA score, the DPR flows
and debt coverage ratios. Fitch would analyse a change in any of
these variables for their impact on the transaction's rating.
Another important consideration that could lead to rating action is
the level of future flow debt as a percentage of the bank's overall
liability profile, the bank's non-deposit funding and long-term
funding. This is factored into Fitch's analysis to determine the
maximum achievable notching differential, given the GCA score.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
===========================
U N I T E D K I N G D O M
===========================
BUSINESS MORTGAGE 4: Fitch Affirms B-sf Rating on Class B Debt
--------------------------------------------------------------
Fitch Ratings upgraded four tranches of the Business Mortgage
Finance series and affirmed 18 tranches.
RATING ACTIONS
Business Mortgage Finance 4 Plc
Class B XS0249508754; LT B-sf Affirmed; previously at B-sf
Class C XS0249509133; LT CCCsf Affirmed; previously at CCCsf
Class M XS0249508242; LT AAsf Affirmed; previously at AAsf
Business Mortgage Finance 6 PLC
Class A1 DAC XS0299535384; LT AA+sf Affirmed; previously at AA+sf
Class A1 XS0299445808; LT AA+sf Affirmed; previously at AA+sf
Class A2 DAC XS0299536515; LT AA+sf Affirmed; previously at AA+sf
Class A2 XS0299446103; LT AA+sf Affirmed; previously at AA+sf
Class B2 XS0299447507; LT Csf Affirmed; previously at Csf
Class C XS0299447846; LT Csf Affirmed; previously at Csf
Class M1 XS0299446442; LT CCCsf Affirmed; previously at CCCsf
Class M2 XS0299446798; LT CCCsf Affirmed; previously at CCCsf
Business Mortgage Finance 7 Plc
Class A1 XS0330212597; LT A+sf Upgrade; previously at Asf
Class A1 XS0330211359; LT A+sf Upgrade; previously at Asf
Class B1 XS0330228320; LT Csf Affirmed; previously at Csf
Class C XS0330229138; LT Csf Affirmed; previously at Csf
Class M1 XS0330220855; LT CCCsf Affirmed; previously at CCCsf
Class M2 XS0330222638; LT CCCsf Affirmed; previously at CCCsf
Business Mortgage Finance 5 PLC
Class B1 XS0271325291; LT CCsf Affirmed; previously at CCsf
Class B2 XS0271325614; LT CCsf Affirmed; previously at CCsf
Class C XS0271326000; LT Csf Affirmed; previously at Csf
Class M1 XS0271324724; LT BBBsf Upgrade; previously at B+sf
Class M2 XS0271324997; LT BBBsf Upgrade; previously at B+sf
TRANSACTION SUMMARY
The BMF transactions are securitisations of mortgages to small and
medium-sized enterprises and to the owner-managed business
community, originated by Commercial First Mortgages Limited (CFML).
Fitch has analysed the performance of the transactions using its
SME Balance Sheet Securitisation Rating Criteria.
KEY RATING DRIVERS
Robust Credit Enhancement (CE)
The deals have deleveraged substantially and their current note
balances are between 15.7% (BMF 4) and 39.4% (BMF 7) of the
original issuance. The resulting increase in CE is the main driver
of the upgrades and affirmations of the most senior notes of the
series. The buildup in CE is partially offset by the increasing
pool concentration, which is a rating constraint, especially for
BMF 4.
Secondary Quality Collateral
The pools comprise owner-occupied commercial real estate, which is
more likely to be affected by a deterioration in economic
sentiment, especially due to the secondary quality of the
collateral properties, which leaves the pool exposed to tail risks
in case of an economic downturn.
Junior Notes Mostly Under-Collateralised
The combination of cumulative large period losses and insufficient
excess spread has led to the depletion of reserve funds and
increasing principal deficiency ledgers (PDL). Specifically, the
outstanding PDLs in BMF 5, 6 and 7 accounts for 14.1%, 23.8% and
20.4% of the current note balances, respectively. The debited PDLs,
together with the presence of other loans in litigation but still
not provisioned for, leave the junior notes in serious distress.
These distressed notes are rated from 'CCC' to 'C' depending on
each class level of subordination and each transaction's recovery
prospects.
RATING SENSITIVITIES
Further losses and increases in PDLs beyond Fitch's stresses could
lead to negative rating action, particularly on the mezzanine and
junior notes.
An adverse Brexit scenario could limit the recoveries coming from
the outstanding loans in litigation. Moreover, given the secondary
nature of the collateral, a downturn of the economic cycle is
likely to affect the series performance more than other UK SF
transactions. Therefore an adverse Brexit scenario could put
negative pressure on the ratings of the notes, particularly those
of the non-senior notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DONCASTERS: Mulls Sell-Offs to Stay Afloat
------------------------------------------
Alan Tovey at The Telegraph reports that debt-laden Doncasters is
close to agreeing a wave of fresh sell-offs to appease lenders,
slash its debt and stay afloat -- saving thousands of jobs.
According to The Telegraph, the Staffordshire-based business -- one
of Britain's oldest manufacturers with a history stretching back to
1778 -- is seeking to sell two UK-based operations and evaluating
the future of two others in Germany and the US.
Doncasters is burdened with a GBP1.1 billion debt pile that
requires huge interest payments and has already been cutting back,
The Telegraph discloses. It raised almost GBP140 million after the
sale of a precision forging arm last month and the disposal of its
Belgium-based Settas unit in September, The Telegraph relates.
NEWGATE FUNDING 2007-1: Fitch Ups Class F Debt Rating to BB-sf
--------------------------------------------------------------
Fitch Ratings upgraded the tranches of Newgate Funding Plc Series
2007-1, 2007-2, and 2007-3 series.
RATING ACTIONS
Newgate Funding Plc Series 2007-1
Class A2 XS0287752611; LT AAAsf Upgrade; previously at AAsf
Class A3 XS0287753775; LT AAAsf Upgrade; previously at AAsf
Class Ba XS0287757255; LT AAsf Upgrade; previously at BBB+sf
Class Bb XS0287757412; LT AAsf Upgrade; previously at BBB+sf
Class Cb XS0287759624; LT BBB+sf Upgrade; previously at BBsf
Class Db XS0287767304; LT BB+sf Upgrade; previously at B+sf
Class E XS0287776636; LT BBsf Upgrade; previously at CCCsf
Class F XS0287778095; LT BB-sf Upgrade; previously at CCCsf
Class Ma XS0287755713; LT AAAsf Upgrade; previously at A+sf
Class Mb XS0287756877; LT AAAsf Upgrade; previously at A+sf
Newgate Funding Plc Series 2007-3
Class A2b 651357AF2; LT AAAsf Affirmed; previously at AAAsf
Class A3 651357AG0; LT AA+sf Affirmed; previously at AA+sf
Class Ba 651357AH8; LT AA-sf Upgrade; previously at BBB+sf
Class Bb 651357AJ4; LT AA-sf Upgrade; previously at BBB+sf
Class Cb 651357AK1; LT Asf Upgrade; previously at BBB-sf
Class D XS0329654312; LT A-sf Upgrade; previously at BB+sf
Class E XS0329655129; LT BBB+sf Upgrade; previously at BBsf
Newgate Funding Plc Series 2007-2
Class A2 XS0304279630; LT AAAsf Upgrade; previously at A+sf
Class A3 XS0304280059; LT AAAsf Upgrade; previously at A+sf
Class Bb XS0304284630; LT Asf Upgrade; previously at BBBsf
Class Cb XS0304285959; LT BBB-sf Upgrade; previously at BBsf
Class Db XS0304286254; LT BB-sf Upgrade; previously at Bsf
Class E XS0304280489; LT B+sf Upgrade; previously at CCCsf
Class F XS0304281024; LT Bsf Upgrade; previously at CCCsf
Class M XS0304280133; LT AA+sf Upgrade; previously at A+sf
TRANSACTION SUMMARY
All three transactions are seasoned true-sale securitisations of
mixed pools containing mainly residential non-conforming
owner-occupied (OO) mortgage loans with few residential buy-to-let
(BTL) mortgage loans.
KEY RATING DRIVERS
New UK RMBS Rating Criteria
The rating actions take into account its new UK RMBS Rating
Criteria dated October 4, 2019. The notes' ratings have been
removed from Under Criteria Observation. Fitch analysed all
transactions' sub-pools under the new criteria using Fitch's
non-conforming and BTL assumptions. The rating actions mainly
result from the reduction of the non-conforming sub-pool's
weighted-average foreclosure frequency (WAFF) after applying the
performance adjustment factor and switching to BTL assumptions for
the BTL sub-pool.
Strong Asset Performance
Arrears for Newgate 2007-1 and 2007-2 have been steadily decreasing
from elevated levels over the past 10 years. The total current
balance of borrowers with more than three monthly arrears has
decreased over the past 12 months to 12% (2007-1) and 11.8%
(2007-2) of the then outstanding balance of mortgage loans, from
13.9% and 12.8% respectively. For 2007-3, this arrears bucket has
slightly increased to 8% from 7.6%.
Back-loaded Default Risks
All pools contain a high share of interest-only loans and a
significant share of borrowers with self-certified income resulting
in elevated refinancing risks later in the life of the
transactions. This combination led Fitch to apply a performance
adjustment factor floor at 1, in line with its new UK RMBS Rating
Criteria.
Credit Enhancement Increasing Slowly
All three transactions have been repaying notes on a pro rata
basis, which results in the non-amortising reserve fund being the
sole driver of increases in credit enhancement. High excess spread
has allowed the reserve fund to be fully replenished.
RATING SENSITIVITIES
Non-conforming borrowers are more vulnerable to an adverse economic
environment. Moreover, borrowers are exposed to increases in the
Bank of England Base Rate, to which the vast majority of the
mortgage loans in the pool are linked.
SPARK ENERGY: Households Face GBP13MM Bill Following Collapse
-------------------------------------------------------------
Rachel Millard at The Telegraph reports that households are in line
to foot a bill of more than GBP13 million for the collapse of power
supplier Spark Energy -- fuelling growing anger about alleged
unfairness in the market.
According to The Telegraph, Ovo Energy -- which took on Spark's
customers after it failed -- has asked watchdog Ofgem for GBP13.1
million to help with the costs involved.
It means bill payers will have been forced to cough up GBP45
million for bust suppliers since 2016, amid huge upheaval as the
traditional big players lose market share to small, cheap and more
financially precarious rivals, The Telegraph states.
When a small firm goes bust, a competitor steps in to take on its
customers and can then ask Ofgem to recoup the costs of doing so
from the rest of the industry, The Telegraph notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2019. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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