/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/210709.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, July 9, 2021, Vol. 22, No. 131 Headlines F I N L A N D MULTITUDE SE: Fitch Gives Final 'B-' on EUR50MM Hybrid Notes F R A N C E CAB: Moody's Affirms B2 Rating on Secured Term Loan B PARTS EUROPE: Moody's Rates New EUR350MM Senior Secured Notes 'B3' PARTS HOLDING: S&P Alters Outlook to Positive & Affirms 'B-' LT ICR PROMONTORIA MMB: S&P Rates New Tier 2 Subordinated Notes 'B+' VIVALTO SANTE: Moody's Affirms B2 CFR Over Contemplated Financing VIVALTO SANTE: S&P Affirms 'B' LongTerm ICR, Outlook Stable G E R M A N Y GRUNENTHAL PHARMA: Fitch Affirms 'BB' LT IDR, Outlook Stable I R E L A N D CONTEGO CLO IX: Moody's Assigns (P)B3 Rating to EUR13.5MM F Notes TORO EUROPEAN 3: Moody's Gives (P)B3 Rating to EUR9MM Cl. F Notes XTRA-VISION VENDING: Placed in Voluntary Liquidation I T A L Y WEBUILD SPA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable L U X E M B O U R G NETS TOPCO 3: S&P Raises LongTerm ICR to 'BB-', On Watch Positive R U S S I A ETALON LSS: S&P Alters Outlook to Positive & Affirms 'B-' ICR LEADER INVEST: S&P Alters Outlook to Positive & Affirms 'B-' ICR U N I T E D K I N G D O M ATOTECH UK: Moody's Puts B1 CFR Under Review for Upgrade CANTERBURY FINANCE 4: Fitch Assigns Final BB+ Rating on 3 Tranches CONCEPT BATHROOMS: Enters Liquidation Due to Pandemic Impact LENDY: LAG Optimistic About Ruling on Distribution Payments PIZZAEXPRESS GROUP: S&P Assigns 'B' LongTerm ICR, Outlook Stable PIZZAEXPRESS: Fitch Assigns FirstTime 'B(EXP)' IDR, Outlook Stable PIZZAEXPRESS: Moody's Gives 'B2' CFR & Rates New Secured Notes 'B2' PIZZAEXPRESS: Plans to Raise Sterling Bonds After Restructuring RAIL CAPITAL: Fitch Gives 'B(EXP)' on New Loan Participation Notes VINCENT SHOPFITTERS: Enters Liquidation, 16 Jobs Affected WAHACA: Expects Swift Recovery Once Restaurants Fully Reopen X X X X X X X X [*] BOOK REVIEW: Hospitals, Health and People - - - - - ============= F I N L A N D ============= MULTITUDE SE: Fitch Gives Final 'B-' on EUR50MM Hybrid Notes ------------------------------------------------------------- Fitch Ratings has assigned Multitude SE's (formerly known as Ferratum Oyj) EUR50 million, three-month Euribor plus 8.9% floating rate issuance of subordinated hybrid perpetual capital notes (ISIN:NO0011037327) a final rating of 'B-'/RR6. The final rating is in line with the expected rating Fitch assigned to Multitude's subordinated hybrid perpetual capital notes on 10 June 2021 (see "Fitch Rates Ferratum's Subordinated Hybrid Notes 'B-(EXP)'. KEY RATING DRIVERS The subordinated perpetual hybrid callable notes are notched down twice from Multitude's Long-Term 'B+' IDR as the notes represent subordinated obligations of the company, which rank junior to any present or future claims in respect of all unsubordinated obligations and subordinated indebtedness of the company. The notching also recognises Fitch's expectation of zero recovery prospects for the subordinated notes, which corresponds to a Recovery Rating of 'RR6'. Multitude is an online-focused consumer and SME finance company operating in the high-cost credit sector with an international footprint in 19 countries, including a strong presence in its domestic market, Finland. The company is listed on the prime standard segment of the Frankfurt Stock Exchange and also incorporates a Malta-domiciled bank (Ferratum Bank p.l.c., not rated) under its wider franchise. Multitude's Long-Term IDR reflects its concentrated business model and evolving franchise as a predominantly pan-European online-focused, specialised consumer lender in a niche market segment, which remains exposed to an evolving regulatory landscape in most of its key target markets. The rating also takes into account Multitude's elevated leverage profile, generally sound (albeit recently weakened) profitability and inherent asset quality risk arising from its focus on high-cost consumer lending. The Negative Outlook on Multitude's Long-Term IDR reflects Fitch's view that while near-term rating pressures arising from the Covid-19 pandemic in 2020 have somewhat abated, downside risk prevails over the short to medium term, particularly with respect to franchise resilience and asset quality strength. The proceeds of the subordinated hybrid notes are being used for general corporate purposes and to refinance a tender offer of EUR35.6 million in senior unsecured floating rate notes (maturing in 2022 and 2023) issued by Ferratum Capital Germany. Fitch has assigned no equity credit to the issue due to a significant coupon step-up within five years (indicatively 450bp), which notably exceeds Fitch's stipulated aggregate coupon step-up threshold of 100bp. In Fitch's view, this implies a strong incentive for the issuer to exercise its right to call, which in turn limits the permanence and loss absorption capacity of the issuance on a sustained basis. Proforma for the issue (and recognising that more than 70% of issue proceeds or EUR35.6 million) are being used for the refinancing of Ferratum Capital Germany's notes, Fitch expects balance sheet leverage (gross debt to tangible equity) to increase only incrementally on a post-transaction basis, remaining within Fitch's stated negative rating trigger of 8x on a sustained basis. For 1Q21, the company reported a small EUR0.6 million pre-tax profit (1Q20: EUR8.3 million pre-tax loss), supported by the tightening of its underwriting criteria during the Covid-19 pandemic as well as dedicated cost containment efforts. While the planned issue may result in increased finance charges, the net impact on profitability (and also debt servicing) is expected to be reasonably well contained given the limited size of the issue. Multitude has an ESG Relevance Score of '4' for Exposure to Social Impacts and Customer Welfare stemming from a business model focused on high-cost consumer lending and hence exposure to shifts of consumer or social preferences and to increasing regulatory scrutiny. This has a moderately negative influence on the rating in terms of impact on the pricing strategy, product mix, and targeted customer base and is relevant to the ratings in conjunction with other factors. RATING SENSITIVITIES Subordinated Notes The subordinated notes' rating is primarily sensitive to changes in Multitude's Long-Term IDR. Changes to Fitch's assessment of going concern loss absorption or recovery prospects for subordinated debt in a default scenario (e.g. the introduction of features resulting in easily activated going concern loss absorption or a permanent write-down of the principal in wind-down) could also result in a widening of the notching for the subordinated notes' rating to more than two notches below Multitude's Long-Term IDR. IDR Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A significant increase in leverage measured as gross debt to tangible equity above 8x; -- A weaker franchise, arising from a sustained loss in revenue/operational losses, an adverse reputational event, or a significant tightening of regulatory requirements in key markets resulting in a significant loss of business or notable margin pressure could result in a downgrade; -- Increased risk appetite leading to higher credit losses as the product mix evolves toward larger and longer-term origination (such as SME loans), notably if combined with looser provisioning standards, pressuring profitability and ultimately eroding Multitude's capital base; -- Signs of funding weakness in the form of a loss of retail deposits at Ferratum Bank or a loss of wholesale funding market access leading to higher refinancing risk; -- Increased structural subordination risk for wholesale creditors outside the bank or a marked increase in group liabilities outside Ferratum Bank if it leads to materially lower debt serviceability at parent company level. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Materially lower leverage approaching 5x on a sustained basis; -- A demonstrated franchise resilience through improved scale and pricing power without a marked increase in risk appetite; -- A stabilisation in the operating environment, in turn translating into business model stability, better franchise entrenchment and asset quality improvements. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Multitude SE: Exposure to Social Impacts: '4', Customer Welfare - Fair Messaging, Privacy & Data Security: 4 Multitude has an ESG Relevance Score of '4' for Exposure to Social Impacts as a result of its exposure to the high-cost consumer lending sector. As the regulatory environment evolves (including a tightening of rate caps), this has a moderately negative influence on the rating in terms of Fitch's assessment of Multitude's business model. Multitude has an ESG Relevance Score of '4' for Customer Welfare, which arises in particular in the context of fair lending practices, pricing transparency and the potential involvement of foreclosure procedures as part of its focus on the high-cost consumer credit segment. This has a moderately negative influence on the rating in terms of Fitch's assessment of risk appetite and asset quality. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =========== F R A N C E =========== CAB: Moody's Affirms B2 Rating on Secured Term Loan B ----------------------------------------------------- Moody's Investors Service has affirmed the B2 rating of the senior secured term loan B, including the proposed EUR300 million add-on issued by CAB, a subsidiary of Laboratoire Eimer (Biogroup), the company at the top of Biogroup's restricted group. The contemplated EUR300 million incremental debt alongside EUR200 million of drawing under the existing senior secured revolving credit facility and EUR238 million of cash will be used to fund acquisitions. Moody's has affirmed all other ratings of CAB and Laboratoire Eimer. The rating agency also changed the outlook of CAB and Laboratoire Eimer to stable from negative. RATINGS RATIONALE The outlook change is driven by the following factors: - Broadly neutral impact on leverage following the proposed transaction with a Moody's adjusted debt/EBITDA of 4.2x (including COVID-19 testing) or 6.4x (excluding COVID-19 testing) based on proforma 2020 EBITDA - Biogroup's track record of high Moody's adjusted EBITDA margin since 2017 and positive Moody's adjusted free cash flow generation since 2019, which indicates a good ability in integrating the significant amount of acquisitions closed over the period - Strong tailwind from COVID-19 testing activity since mid-2020 - Increased scale and geographic diversification Biogroup's M&A strategy has been more aggressive than peers notably in terms of size and pace. Since 2017, the company spent a total of around EUR3.7 billion on acquisitions, of which around 70% was funded by debt, 20% by equity and 10% by cash. As a result, group revenue has increased from EUR215 million in 2017 to around EUR1.5 billion pro forma (excluding COVID-19 testing). Moody's believes that the high pace of acquisitions limits its ability to track the company's organic performance and the integration of past acquisitions. However, the company's EBITDA margin has increased over the 2017 to March 2021 period and its Moody's adjusted free cash flow has been positive since 2019. Even if current credit metrics are to some extent boosted by the COVID-19 testing activity, the sustainability of which is uncertain, Moody's recognizes that the company has established a track record of sound operating performance, despite its aggressive M&A strategy, a key element driving today's outlook change to stable. Biogroup's M&A strategy will continue to be a key driver of the ratings with a specific attention to be given to the assessment of business rationale, acquisition multiples, funding mix and pro forma leverage impact. The stable outlook also assumes that the company's M&A strategy will not result in a Moody's adjusted debt / EBITDA higher than 6.5x. The rating action also takes into account the current strong tailwind from COVID-19 testing activities, which drove strong top line growth and margin expansion since mid-2020. Moody's thinks that the European laboratory sector's revenue from COVID-19 testing activities in 2021 is likely to exceed last year's level even though the rating agency forecasts that demand for PCR tests will gradually decline as vaccines become more widely available in Europe. It is difficult to predict how testing revenue will evolve beyond 2021. However, Moody's believes that testing for COVID-19, its potential variants and other infectious diseases will likely remain a central tool in governments' ongoing surveillance, track and trace strategies, especially during the winter months. Beyond 2021, Moody's anticipates that the need for testing COVID-19 or other infectious diseases will likely remain but at levels -- in terms of volume and price -- which will probably be significantly lower than what the sector currently experiences. In France, tariff on COVID-19 PCR testing has decreased since the beginning of the year. The rating agency recognizes the short-term benefit of the strong COVID-19 testing activity expected for 2021 because it will support free cash flow generation which, once reinvested within the company e.g. through M&A, will translate into sustainable EBITDA improvement. The pandemic has highlighted the vital importance of testing for public health, certainly a positive for the sector in the medium-term. RATING OUTLOOK The stable outlook reflects Moody's expectation that the operating environment will remain favorable for the next quarters as the additional volume from COVID-19 tests will more than offset potential disruptions on core volumes as long as the pandemic persists. The stable outlook also assumes that the company's M&A strategy will not result in a Moody's adjusted debt / EBITDA higher than 6.5x. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressure could arise over time if: - The Moody's-adjusted debt/EBITDA falls below 5.25x on a sustained basis; - The Moody's-adjusted free cash flow (FCF)/debt improves to around 10% on a sustained basis. Negative pressure could arise if: - Leverage, as measured by Moody's-adjusted debt/EBITDA, exceeds 6.5x on a sustained basis; - The Moody's-adjusted FCF/debt does not remain around 5% on a sustained basis; - The company's liquidity deteriorates. LIQUIDITY Biogroup's liquidity is good supported by (1) around EUR420 million of cash on balance sheet end of March 2021, (2) positive free cash flow expected for the next quarters and (3) long dated debt maturities. In order to fund the contemplated acquisitions, Biogroup will use EUR238 million of cash, will draw EUR200 million on its EUR270 million senior secured revolving credit facility and intends to raise a new EUR300 million add-on to its existing senior secured term loan B. ESG CONSIDERATIONS Moody's considers that Biogroup has an inherent exposure to social risks given the highly regulated nature of the healthcare industry and the sensitivity to social pressure related to affordability of and access to health services. Biogroup is exposed to regulation and reimbursement schemes which are important drivers of its credit profile. The ageing population supports long-term demand for diagnostic testing services, supporting Biogroup's credit profile. At the same time, rising demand for healthcare services puts pressure on public sector budgets, which could result in cuts to reimbursement levels for Biogroup's services. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Moody's considers that governance risks for Biogroup would be any potential failure in internal control which would result in a loss of accreditation, failure to comply with applicable laws and regulations or reputational damage and as a result could harm its credit profile, although there is no evidence of weak internal control to date. Biogroup has an aggressive financial strategy characterized by high financial leverage and the pursuit of debt-financed acquisitions. The pace of the M&A strategy has been higher for Biogroup than for the rest of the peer group. Moreover, Moody's believes that the strong growth of Biogroup has been led mainly by Stéphane Eimer, the company's founder and CEO, which exposes the company to a key man risk. STRUCTURAL CONSIDERATIONS The B2-PD probability of default, in line with the B2 corporate family rating (CFR), reflects Moody's assumption of a 50% family recovery rate, typical for capital structures with a mix of bonds and loans. The senior secured debt and the senior secured revolving credit facility are ranking pari passu and benefit from upstream guarantees from material subsidiaries of the group representing at least 80% of the group's EBITDA and 80% of the group's assets. The security package includes shares, intercompany loans and bank accounts. The senior secured debt ranks ahead of the senior unsecured notes in the waterfall analysis but they do not benefit from a notch uplift from the CFR reflecting the limited cushion provided by the relative limited size of the senior unsecured notes. LIST OF AFFECTED RATINGS: Issuer: CAB Affirmations: Senior Secured Bank Credit Facility, Affirmed B2 Senior Secured Regular Bond/Debenture, Affirmed B2 Outlook Actions: Outlook, Changed To Stable From Negative Issuer: Laboratoire Eimer Affirmations: LT Corporate Family Rating, Affirmed B2 Probability of Default Rating, Affirmed B2-PD Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 Outlook Actions: Outlook, Changed To Stable From Negative PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. PARTS EUROPE: Moody's Rates New EUR350MM Senior Secured Notes 'B3' ------------------------------------------------------------------ Moody's Investors Service has assigned a B3 rating to the new EUR350 million guaranteed senior secured floating rate notes issued by Parts Europe S.A., the direct subsidiary of car parts distributor Parts Holding Europe S.A.S (PHE or the company). The corporate family rating of B3 and the probability of default rating of B3-PD of PHE remain unchanged. The B3 ratings on the existing guaranteed senior secured notes at Parts Europe S.A. are also unchanged. The outlook on both entities remains stable. Net proceeds from the new notes will be used to refinance the existing outstanding EUR304 million floating rate notes due 2022 and the French State guaranteed loans of EUR25 million and provide some additional cash on the balance sheet. RATINGS RATIONALE The B3 CFR with a stable outlook reflects Moody's expectations that continuing improvements in revenues and earnings over the next 12-18 months will lead to credit metrics more commensurate with a B3 CFR, notably Moody's-adjusted debt/EBITDA of around 6.5x or below and continued positive Moody's-adjusted free cash flow. This level of leverage will be towards the higher end of the parameters set for a B3 CFR, and will weakly position the company at this rating level. Debt-funded acquisitions could also hinder the pace of deleveraging but the rating agency expects the company to focus on small bolt-on acquisitions which will not materially increase leverage. Moody's continues to view PHE's liquidity as adequate and expects the company to generate positive free cash flow over the next 12-18 months although at lower levels than in 2020 due to the unwinding of deferred social charges and tax payments. The CFR also incorporates the resilient nature of the company's operating performance through economic cycles. This is because the light vehicle aftermarket sector in the countries where the company operates has historically been more resilient to economic downturns than sales of new vehicles. The current market environment, characterized by a broadly stable car parc size of vehicles older than four years provides greater stability to the independent aftermarket (IAM) channel than the original equipment suppliers (OES) channel, which is closely linked to new vehicle registrations. LIQUIDITY Moody's views PHE's liquidity as adequate. As of March 31, 2021, the company had cash balances of EUR157 million. The EUR100 million RCF remains undrawn, of which EUR78 million can be used for cash drawings. The company also has access to factoring facilities of EUR248 million in aggregate as of March 31, 2021 (on- and off-balance sheet). Around EUR115 million of the factoring facilities was utilized at year-end 2020, and of this amount EUR92 million was utilized on a non-recourse basis. Moody's expects the company to maintain sufficient headroom under the springing financial maintenance covenant, which applies to the RCF, and which is set at 0.7x super senior net leverage when the RCF is drawn by 35%. A breach of this maintenance covenant triggers a draw-stop, but not an event of default. Following the refinancing transaction, the nearest debt maturities of the non-recourse factoring programme with Factofrance (EUR109 million outstanding as of March 2021) and the EUR100 million super senior revolving credit facility (RCF), have been extended to January 2024 and September 2024, respectively. The EUR580 million existing guaranteed senior secured notes mature in July 2025. STRUCTURAL CONSIDERATIONS The B3 rating on the guaranteed senior secured notes is at the same level as the CFR reflecting the relatively small quantum of super senior debt ranking ahead, namely the RCF. While the RCF benefits from the same security package as the notes (i.e. shares, bank accounts and intercompany receivables), it will rank ahead of the notes in an enforcement scenario under the provisions of the intercreditor agreement. Also, the obligations of the notes' subsidiary guarantor are capped at EUR330 million. RATING OUTLOOK The stable outlook assumes that PHE's earnings will continue improving over the next 12 to 18 months, leading to deleveraging to around 6.5x in 2022 and continued positive free cash flow before the unwinding of deferred social charges and tax payments. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Moody's will consider upgrading the ratings if a continued improvement in operating performance leads to Moody's-adjusted debt/EBITDA reducing to below 6.0x, Moody's-adjusted EBITA/interest increasing above 1.5x, and the company maintains a solid liquidity profile including positive Moody's-adjusted free cash flow / debt of around 5%. Negative rating action could materialize if the company fails to sustain the recent improvements in operating performance and cash flow generation, or liquidity materially weakens. This would be evidenced by Moody's-adjusted debt/EBITDA remaining sustainably above 7.0x, weak Moody's-adjusted EBITA/ interest cover of around 1.0x, or sustained negative free cash flow. PRINCIPAL METHODOLOGY The principal methodology used in this rating was Distribution & Supply Chain Services Industry published in June 2018. COMPANY PROFILE Headquartered in France, Parts Holding Europe S.A.S is a leading aftermarket light vehicle (LV) spare parts distributor and truck spare parts distributor and repairer in France, Benelux, Italy, and Spain. It also owns Oscaro, the leading online car parts retailer in France, since November 2018. The company generated revenue of around EUR1.8 billion in 2020. PARTS HOLDING: S&P Alters Outlook to Positive & Affirms 'B-' LT ICR ------------------------------------------------------------------- S&P Global Ratings revised its outlook on French-based Parts Holding Europe SAS (PHE) to positive from negative and affirmed its 'B-' long-term issuer credit rating on the company. S&P also assigned our 'B-' issue rating to the proposed EUR350 million senior secured floating-rate notes, and affirmed its 'B-' issue rating on PHE's EUR580 million senior secured notes due 2025 and 'B+' rating on its super senior revolving credit facility (RCF). The positive outlook reflects S&P's view that the company's adjusted debt to EBITDA could fall below 6.5x in the next 12 months, with FOCF to debt remaining above 2%. PHE's planned refinancing would allay the key rating constraint and strengthen its liquidity position. S&P said, "We understand that the contemplated EUR350 million issuance will repay the EUR304 million senior secured floating-rate notes due May 1, 2022, and EUR25 million of French state-guaranteed loan (PGE), addressing most of the company's near-term debt maturities. It would also trigger an automatic maturity extension of its EUR100 million RCF to 2024." This prospective improvement in the company's debt maturity profile, along with its sizable cash balance of about EUR150 million as of June 30, 2021, support the revision of our liquidity assessment to adequate. PHE's operating performance could provide rating upside. After a resilient 2020, the company delivered strong first-quarter results, with revenue of EUR489 million sustained by organic revenue growth of about 4% and contribution from previously acquired businesses outside of France. PHE also further improved its profitability with S&P Global Ratings-adjusted EBITDA margin up to 11.0% from 10.5% in 2020, mainly backed by favorable pricing and procurement as well as better fixed-cost absorption. S&P said, "While business recovery catch-up effects could abate in the second half of the year, along with higher one-off costs linked to the company's cancelled IPO and acquisitions, we now anticipate a slightly better adjusted EBITDA margin of 10.5%-11.0% in 2021. Our revised base-case scenario incorporates higher adjusted EBITDA of EUR205 million-EUR215 million this year and EUR230 million-EUR240 million in 2022, because of higher revenue growth and improved profitability. In our view, this earnings momentum would pave the way for progressive deleveraging, with adjusted debt to EBITDA decreasing in the 6.5x-7.0x range in 2021 and below our 6.5x upside trigger in 2022." PHE's financial policy will remain a key rating factor. S&P said, "We anticipate the company's earnings trajectory to translate into sizable FOCF of EUR70 million-EUR80 million in 2021 despite working capital requirements of about EUR10 million and higher capital expenditure (capex) of about EUR40 million. Using FOCF to repay debt could further help deleveraging, although PHE might also use FOCF to fund its growth strategy in other European countries via tuck-in acquisitions or to fund a dividend to its financial sponsor. The existing cash balance of over EUR150 million could also provide additional credit-metric flexibility in its capital allocation because we do not net cash in our adjusted debt calculation given the company's financial sponsor ownership." Conversely, any deviation in financial policy favoring material debt-funded acquisitions or shareholder returns would likely delay PHE's deleveraging path and rating upside. S&P said, "The positive outlook reflects our view that PHE's debt to EBITDA could fall below 6.5x in the next 12 months with FOCF to debt remaining above 2%, supported by continued top-line growth and improving margins. We also anticipate sustained FOCF will provide the company with some leverage headroom in pursuing its growth strategy. "We could raise our ratings over the next twelve months if we believe PHE can sustain leverage below 6.5x with FOCF to debt above 2%. A balanced financial policy with no material debt-funded acquisitions or shareholder returns would also support an upgrade. "We could revise our outlook to stable if we do not believe the company can sustain debt to EBITDA below 6.5x and FOCF to debt above 2%. This scenario could stem from unforeseen deteriorating operating performance that leads to weaker EBITDA and FOCF, or a shift toward a more aggressive financial policy." PROMONTORIA MMB: S&P Rates New Tier 2 Subordinated Notes 'B+' ------------------------------------------------------------- S&P Global Ratings assigned its 'B+' issue rating to the proposed Tier 2 subordinated notes to be issued by France-based nonoperating holding company (NOHC), Promontoria MMB. At the same time, S&P placed the rating on CreditWatch with developing implications. The rating is subject to its review of the notes' final documentation. In S&P's view, the proposed issuance will strengthen and diversify the group's capital base. High solvency is one of the main rating strengths for the group's credit profile, but it could lower the rating if it deems capital quality to be inconsistent with the forecast risk-adjusted capital level and current assessment. Promontoria MMB is the NOHC of My Money Bank (BBB-/Watch Dev/A-3). In accordance with our criteria for hybrid capital instruments, the 'B+' issue rating reflects our analysis of the proposed instrument. The rating on these notes is four notches below the group's stand-alone credit profile (SACP) of 'bbb-', reflecting: -- One notch because the notes are contractually subordinated to other senior debt; -- One notch because the notes contain a contractual write-down clause; -- One notch because the instrument contains a high capital-based trigger linked to a regulatory common equity Tier 1 (CET1) ratio of 7.0% of the consolidated group and we expect the distance to this trigger to converge toward 700 basis points in the next 12-24 months; and -- One notch because the notes are issued by the NOHC Promontoria MMB. S&P said, "We continue to see contingent capital instruments issued by banks that classify as Tier 2 regulatory capital (whether deferrable or nondeferrable) as potentially eligible for intermediate equity content, if they meet the features in paragraph 37 of "General Criteria: Hybrid Capital: Methodology And Assumptions." "We expect to assign intermediate equity content to these notes based on proposed terms and conditions and the public statement of intent attached to them. This reflects our understanding that the notes can absorb losses on a going-concern basis through the higher trigger for 50% permanent write-down feature of the prevailing principal amount, and the proposed replacement language is consistent with our criteria for those Tier 2 notes to be eligible for intermediate equity content. Based on public statement of intent, we would expect they will be fully replaced." CreditWatch S&P said, "On June 18, 2021, after Promontoria MMB signed a memorandum of understanding to acquire the French retail and wealth management activities of HSBC Continental Europe, S&P Global Ratings placed on CreditWatch with developing implications our 'BBB-/A-3' long- and short-term issuer credit ratings on My Money Bank and our 'BB+/B' long- and short-term issuer credit ratings on NOHC Promontoria MMB. The CreditWatch with developing implications indicates the uncertainty about My Money Group's future results (pro forma the acquisition), and the potential impact on My Money Bank's SACP, if any. We expect to resolve the CreditWatch in the next 90 days, once we can analyze the implications of the acquisition, or in the event of the transaction being called off." VIVALTO SANTE: Moody's Affirms B2 CFR Over Contemplated Financing ----------------------------------------------------------------- Moody's Investors Service has affirmed the B2 corporate family rating and B2-PD probability of default rating of Vivalto Sante Investissement, one of the leading private hospital operators in France. The rating agency has concurrently assigned a B2 rating to the new EUR890 million senior secured term loan B and EUR200 million senior secured revolving credit facility, maturing in 2028 respectively. The outlook remains stable. Vivalto will use the proceeds from the new TLB and around EUR90 million of cash on balance sheet to refinance the existing indebtedness of EUR449 million, and finance the contemplated acquisition of six companies for a total consideration of EUR509 million. The B2 ratings on the existing senior secured credit facilities remain unchanged, and will be withdrawn upon completion of the refinancing transaction. RATINGS RATIONALE The B2 CFR of Vivalto Sante Investissement ("Vivalto") is weakly positioned because the contemplated acquisitions will increase Moody's-adjusted debt/EBITDA to 6.7x (excluding run-rate adjustments and future synergies) from 4.7x at year-end 2020. Under Moody's forecasts, continued organic EBITDA growth will support deleveraging towards 5.5x by end of 2022. This level of leverage will be more commensurate with the B2 CFR, although at the weaker end. Organic EBITDA growth over the next 12-18 months will be driven by natural market volume growth, recruitment of practitioners, local medical projects, and the integration of the latest acquisitions. Moody's also assumes that Vivalto will not pursue further large debt-funded acquisitions or other expansion projects over the next 12-18 months, until leverage reduces towards the 5.5x level. The high leverage of the company, and recently greater appetite for acquisitions, which in Moody's view could be evidence of a financial policy favoring shareholders over creditors, are tempered by the company's decision to retain a large chunk of owned properties compared to peers (around 50% of bed capacity) and to maintain a selective approach in the of acquisition targets. Financial policy is a governance consideration under Moody's ESG framework. The contemplated acquisitions will strengthen the company's overall business profile and consolidate its market position as the third largest private clinics operator in France. The new hospitals will allow the company to create new regional clusters in favourable regions in France such as the Haut de France region. In addition, the new laboratories will reinforce its anatomo-cytopathology offerings in the Paris area. Moody's forecasts that Moody's-adjusted free cash flow will be materially negative in fiscal 2021 due to the one-time reversal of the cash advances received from French government as part of the support measure plan. From 2022 onward, Moody's expects free cash flow generation to return to positive territory supported by the growth in EBITDA, but it will likely remain slightly pressured by the development capex that Vivalto is undertaking to support the development of its local medical projects. The rating continues to incorporate Vivalto's overall high degree of visibility regarding its future operating performance, supported by favourable demographics and the role of Social Security (the French national health system) as the payer, which has kept risks related to the coronavirus pandemic low. Vivalto's operating performance has remained resilient throughout the pandemic thanks to the French government measures to support the liquidity and revenue of French private hospitals. LIQUIDITY Moody's views liquidity as adequate. At closing of the envisaged transaction, liquidity will be supported by cash balances of EUR86 million and a new undrawn revolving credit facility (RCF) of EUR200 million. Vivalto's liquidity is also supported by the rating agency's expectation that the company will generate positive free cash flow of around EUR15 million and EUR20 million in the next 12 to 18 months. The company's real estate assets, which the company estimates at around EUR1 billion, could also be monetized through sale-and-leaseback transactions to support liquidity or fund future acquisitions or expansion projects. The RCF lenders benefit from a net leverage covenant set at 9.0x, which is tested only if the RCF is drawn by or more than 40% (springing covenant). Moody's expect the company to have good capacity under the covenant, if tested. Following the refinancing, the nearest debt maturity will be the RCF in 2028. STRUCTURAL CONSIDERATIONS The B2 ratings assigned to the TLB and RCF reflects their pari passu ranking in the capital structure and upstream guarantees from material subsidiaries of the group representing 80% of EBITDA. The B2-PD probability of default rating, in line with the CFR, reflects Moody's assumption of a 50% family recovery rate typical for bank debt structures with a loose set of financial covenants. RATING OUTLOOK The stable outlook reflects Moody's expectation that continued organic EBITDA growth will lead to credit metrics more commensurate with the B2 CFR over the next 12-18 months, notably Moody's-adjusted debt / EBITDA reducing towards 5.5x and positive free cash flow generation. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressure could arise if: (1) the company's Moody's-adjusted (gross) debt/EBITDA falls sustainably towards 4.5x as the company further grows its earnings and margins, supported by the successful execution of its strategy, including the smooth integration of bolt-on acquisitions; (2) the company maintains solid liquidity, including positive FCF. Negative pressure could arise if: (1) the company's Moody's-adjusted (gross) debt/EBITDA does not reduce towards 5.5x over the next 12-18 months, (2) its FCF and liquidity were to weaken, (3) its profitability were to deteriorate because of competitive, regulatory or pricing pressure, or (4) there were large debt-financed acquisitions or significant distributions to shareholders. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. COMPANY PROFILE Vivalto is the third largest private hospital group in France. It generated revenue of around EUR950 million in 2020 pro forma the contemplated acquisitions. VIVALTO SANTE: S&P Affirms 'B' LongTerm ICR, Outlook Stable ----------------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term issuer credit rating on France-based private hospital operator Vivalto Sante Investissement (Vivalto) and assigned its 'B' issue rating and '3' recovery rating to the proposed new term loan B (TLB). The stable outlook reflects S&P's view that Vivalto's increased scale and operating model should enable it to improve EBITDA margin to 17%-18% in the next 12-18 months and deleverage, while maintaining adjusted fixed-charge coverage of about 2.5x and generating modest free operating cash flow (FOCF). Vivalto's business additions significantly enhance the group's geographical footprint while temporarily stretching its financial metrics.Vivalto is in the process of acquiring six bolt-on hospital groups in France at relatively conservative multiples averaging 8x-9x pre-synergies (calculated excluding real estate). This includes two larger-sized groups, the HPL Group and the Dracy Sante Group, enabling it to create two new medical clusters in the Hauts de France and Bourgogne Franche-Comte regions, where its presence was limited previously. S&P said, "We view the M&A as positive, since clusters enable cost and revenue synergies mainly from mutualization of resources and close cooperation with local health care authorities to structure services to meet their targets and gain untapped authorizations. To support the transaction, Vivalto is issuing a senior secured EUR890 billion TLB, and a EUR200 million RCF expected to be undrawn at closing. This represents an increase of about EUR500 million compared with our adjusted debt figure for year-end 2020. We project our adjusted EBITDA metric (pre-lease expense) will increase to EUR160 million-EUR170 million over the next 12 months from EUR131 million in 2020, reflecting pro rata the contribution from margin-accretive secured M&A, with expected closing about mid-year 2021. In 2022, we assume our adjusted EBITDA metric will improve to at least EUR200 million (after integration-related costs), further supported by related synergies, organic growth, and tight cost control. As a result, we estimate Vivalto's financial leverage at about 7.5x by year-end 2021, followed by gradual deleveraging toward 6.5x in 2022. Our estimate of debt includes EUR890 million of proposed TLB, EUR118 million of other debt (including mainly financial leases and local bank debt), EUR28 million of pension liabilities, and about EUR250 million under operating leases. We also net close to EUR60 million of cash from our debt calculation, which we assume will be available in 2021. Thereafter, we have assumed limited cash on balance sheet as we assume most of it will be used to fund future bolt-on acquisitions. We continue to exclude the preferred shares and shareholder loan at the Vivalto Sante SA level from our credit metrics." Vivalto increased its scale, continuing its consolidation strategy despite the COVID-19 pandemic, while benefitting from France's supportive reimbursement framework. S&P said, "The rating captures Vivalto's enhanced scale, which we reflect in our fair business risk profile assessment. Vivalto increased its scale and gained market share in France by densifying its hospital network, which fosters operating efficiency. Operating in France has been a positive factor during the pandemic, due to state support for the health care sector, including pay rises and reimbursement for cancelled nonessential medical activity, unlike in some other European countries, such as Spain. Although the pandemic has shaken revenue predictability, we assume the disruption should be temporary, and the reduced activity will remain subsidized at 2019 levels until June 2021. In first-quarter 2021, Vivalto's volumes were still affected by partial postponement of elective surgeries, but we assume the trend will revert in the second half of the year, supported by the roll-out of vaccination campaigns. As volumes normalize to prepandemic levels, pricing will revert to the stated framework, guaranteeing a minimum price increase of 0.2% per year, which represents an improvement from continuous reimbursement tariff cuts over 2010-2018. Although we recognize the progress in terms of scale and the stable reimbursement framework, we view the company's focus on medicine, surgery, and obstetrics (MSO) and exposure to a single payer as a weakness relative to more diversified groups such as com.spglobal.ratings.services.article.services.news.xsd.MarkedData@162883e3 (B+/Stable/--) and com.spglobal.ratings.services.article.services.news.xsd.MarkedData@75b488dc (Ramsay; BB-/Stable/--). Although we see payer risk as very low, the MSO focus increases sensitivity to price cuts and constrains organic growth." S&P said, "We assume that profitability will improve substantially over the next 12-18 months, despite staff salary inflation inherent to the market. Vivalto's EBITDA margin, as adjusted by S&P Global Ratings, was 15.5% in 2020, which is lower than that of peers we rate in the French private hospital sector. In our view, this is due to the group's still-limited scale, focus on only MSO (while Ramsay also has a presence in higher-margin psychiatry), and numerous acquisitions of low-performing assets to build scale while larger peers have more stable networks. However, the proposed M&A will be largely margin accretive, reflecting their positive mix with exposure to surgery--the most profitable segment within MSO. This includes a large share of orthopedic procedures, which display the highest margins, with medical purchases representing a much lower part of total revenue, compared with Vivalto stand-alone. In fact, HPL has a high share of revenue from surgery, including 17% from orthopedics, and benefits from high pricing for its rooms supported by recent investments, while almost 63% of Dracy Group's revenue comes from orthopedics. As a result, we anticipate that EBITDA margins will improve to a sustainable 17%-18% over the next 12-18 months. We also assume the group will benefit from synergies from proposed M&A, ongoing cost-saving initiatives such as mutualization of support functions, optimization of medical purchases, and ongoing investment in equipment, which will mitigate restructuring and integration costs as well as staff salary inflation. Notably, we see the shortage of nurses as a structural weakness weighing on the French market and causing inflation risk." However, Vivalto has a good track record in retaining doctors, due to its unique ownership model built around co-shareholding (21 practitioners added in the first quarter) as well as its large share of ambulatory services at about 40% of revenue compared to 33% for the private market and 12% in the public sector. These factors represent its main competitive advantages and earnings drivers. Successful deleveraging is conditional upon disciplined financial policy, with control on multiples paid and delivery of promised synergies. S&P said, "We assume M&A will remain an integral part of the group's strategy over the forecast horizon. We understand that about one-third of the French private market is still unconsolidated, which represents an important opportunity for Vivalto, owing to price constraints and slowly rising volumes in this segment. As a result, we believe that Vivalto's ability to maintain leverage comfortably at about 6.5x by 2022 will depend on it consistently generating FOCF in line with our base case to self-fund bolt-on M&A, smooth M&A integration for cost synergies, and a prudent approach toward multiples paid. We view as positive management's track record in integrating assets into its network while simultaneously achieving S&P Global Ratings-adjusted margin improvement." Most of Vivalto's assets are freehold, which is a supportive rating factor, but it entails high development capital expenditure (capex) that constrains FOCF. S&P said, "We assume Vivalto's property portfolio will remain mostly freehold in line with its stated real-estate strategy to maintain ownership of about 50% of the clinics it operates. This compares favorably to closest peers Ramsay and ELSAN that operate mostly under the leasehold model, adding to their already-high fixed cost base. However, it also leads to relatively high real estate capex, which we assume will be about EUR40 million in 2021 and EUR50 million-EUR55 million in 2022, constraining FOCF over the next two years. Development capex toward renovation and extension projects, as well medical projects, increases capacity extension and investment in equipment." Maintenance capex is limited to close to 2.0%-2.5% of sales alongside investments in information technology (IT) transformation and other projects, leading to about EUR70 million-EUR75 million of total capex in 2021 and peaking at EUR90 million in 2022. S&P said, "We assume working capital volatility in 2021, reflecting the termination of the cash advance system but controlled outflows starting 2022.We forecast largely negative FOCF (after rent payments) of about EUR125 million-EUR135 million in 2021, reflecting higher EBITDA offset by large unfavorable working capital outflows of about EUR130 million, most of which relate to the reversal of the cash advance system put in place by the government. This mechanism led to temporary improvement in the group's cash collection days, with 85% of invoices being collected within three-to-four days, compared to about 30 days previously. The excess cash advances received in 2020 will be gradually repaid in 2021, absorbed by the medical revenue invoiced by the state, which will lead to negative FOCF in the opening months of 2021. Excluding those movements, we assume FOCF would be broadly positive. In 2021, we assume FOCF after rent payments of EUR10 million-EUR20 million, hampered by large capex but supported by limited working capital outflows. Underlying working capital changes are limited in the industry due to broadly stable inventories, receivables being paid relatively quickly by health insurance, and stable payables. "The stable outlook reflects our view that Vivalto's increased scale and operating model should enable it to realize operating efficiencies, with S&P Global Ratings-adjusted margins gradually improving to 17%-18%, despite funding pressures in France. "In our base case, we assume sound profitable growth should translate to a fixed charge coverage ratio of about 2.5x, supported by the mainly freehold property model and FOCF of at least EUR10 million-EUR20 million per year. This should enable it to gradually deleverage toward 6.5x, supported by a prudent external growth strategy." S&P could lower the rating if the group does not deliver on its business plan, including one or more of the following factors: -- A more aggressive financial policy, delaying the deleveraging trajectory and/or causing adjusted debt to EBITDA to remain persistently above 7x. -- Failure to achieve forecast growth, operating efficiencies, and productivity gains, resulting in pressure on profitability. -- Substantial working capital outflows or higher than forecast capex that causes FOCF to turn negative on a sustainable basis -- Material deterioration of fixed charge coverage due, for instance, to any material sale-and-leaseback transactions. S&P Said, "We view an upgrade as remote in the next 12 months in the context of the current capital structure. However, ratings upside could happen if the group ensures profitability and FOCF above our base case and uses internally generated cash to reduce adjusted debt to EBITDA sustainably below 5x, with a commitment to maintain this level. We believe this is unlikely, given that the industry is consolidating." ============= G E R M A N Y ============= GRUNENTHAL PHARMA: Fitch Affirms 'BB' LT IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has affirmed Grunenthal Pharma GmbH & Co KG's (Grunenthal) Long-Term Issuer Default Rating (IDR) at 'BB' with Stable Outlook. Fitch has also affirmed subsidiary Grunenthal GmbH's EUR400 million due 2026 and EUR250 million due 2028 senior secured notes (SSN) at 'BB+' with a Recovery Rating of 'RR2'. The rating action is in relation to Grunenthal's EUR300 million announcement of a tap issue to its existing SSN. On completion of the proposed tap Fitch expects to affirm the senior secured debt rating at 'BB+'/'RR2' for the enlarged debt issue in line with the existing SSNs due 2026 and 2028. The 'BB' IDR of Grunenthal reflects its niche position and concentrated product portfolio, making it heavily reliant on the commercial success of individual drugs. Rating strengths are cash-generative operations, and management of its organic portfolio decline with mid-to-larger scale acquisitions of established cash-generative drugs with low integration risk, in Fitch's view. The Stable Outlook reflects Fitch's expectation of a disciplined approach to acquisitions and adherence to a conservative internal financial policy leading to funds from operations (FFO) gross leverage remaining below 4.5x, which is consistent with the rating. KEY RATING DRIVERS SSN Upsize Rating-Neutral: The refinancing is rating-neutral as the EUR300 million tap will be used to repay the company's outstanding EUR300 million loan facility B due 2024. Post-refinancing Grunenthal will benefit from the absence of sizeable contractual debt maturities until 2026, which would allow it to shift its operational focus towards M&A, where Fitch believes the company will concentrate its value- expansion strategy. Commitment to Conservative Financial Policy: The rating is predicated on Grunenthal's adherence to stated financial policies, covenanted leverage levels and deleveraging, particularly after large debt-funded M&A. Unlike other sponsor-backed leveraged buyouts with an opportunistic financial approach, Fitch takes the commitment of Grunenthal's founding-family shareholders into account, as reflected in an internal target net debt/EBITDA of below 2.5x (corresponding to Fitch's FFO gross leverage of 4.0x-4.5x). Departure from the stated target leverage would signal an increased risk appetite and put the ratings under pressure. Adherence to Disciplined M&A: Fitch stresses the importance of Grunenthal's disciplined selection of M&A targets, including acquisition economics and asset integration, especially in light of competition from risk capital for off-patent branded pharmaceuticals. Given Grunenthal's M&A pattern, operating needs and financial policy, Fitch projects opportunistic M&A of up to EUR400 million in 2023, funded by RCF and free cash flow (FCF). Fitch assumes new products will complement Grunenthal's therapeutic competences and be compatible with the company's manufacturing and commercial franchises with low integration risks. Fitch deems its acquisition economics with enterprise value/EBITDA of up to 6.0x and EBITDA margin of 50% as reasonable. Integrated Business Model: Grunenthal benefits from an integrated business model with international manufacturing and distribution capabilities. It has a good mix between mature and growth drugs, as well as between patented and generic drugs, leading to adequate EBITDA margins estimated at over 20% in the medium term. Grunenthal is repositioning away from R&D or capex-intensive projects with uncertain prospects for commercial success, toward a more efficient capital-deployment strategy by adding cash generative low-risk drug rights and leveraging them on own manufacturing and distribution networks. It is a strategy that has so far been well-executed and will help mitigate operating pressures. Cash-Generative Operations: The ratings are supported by intrinsically cash-generative operations given Grunenthal's focus on established branded products. The combination of gradually declining but predictable sales and targeted product acquisitions supports annual EBITDA of EUR270 million-EUR300 million, leading to high and broadly stable FFO margins of around 15%. The company further benefits from low intrinsic capex needs of 2%-3% of sales, in turn supporting high FCF margins of 5%-10%, which are adequate for the rating. Concentrated Product Portfolio: Operating risks have a dominant rating influence, particularly given the uneven revenue pattern of Grunenthal's existing portfolio that is supported by product acquisitions to mitigate generic market pressures. Despite its multi-regional presence, its smaller scale than peers' and concentrated product portfolio make it heavily reliant on the commercial success of individual drugs that can lead to volatile underlying revenue and operating profitability. Acquisitions Key to Growth: Management's efforts on cost and product lifecycle management have materially contributed to stabilising Grunenthal's operating performance in the past three years. The addition of cash-generative and margin-accretive new drugs has provided a medium-term boost to Grunenthal's operations. Consequently, Fitch views M&A as critical to sustaining Grunenthal's operations to ensure steady revenues, earnings and cash flows. Contained Execution and Operational Risks: Grunenthal's business development strategy around organic portfolio management supplemented with selected drug-rights additions carries lower execution risk and requires fewer resources than the acquisition of businesses with manufacturing assets and commercial networks. Given material market risks around the possible entry of substitute products for Grunenthal's main product, Palexia, Fitch's rating case conservatively assumes sales attrition from 2022, while also excluding any R&D-enabled operating contribution. This, together with assumed continuous organic revenue, limits the extent of further material operating risks, including cash flow risk. Exposure to Social Impacts: Pressure on reimbursement policies related to healthcare spending is a key credit risk as countries cut healthcare spending to address budgetary pressures. In the pharmaceuticals sector, Fitch differentiates between those involved in patented drugs (such as Grunenthal) and those involved solely in generics. The social impact is more relevant for the former, due to higher prices and weaker competition for patented drugs, further adding pressure to reimbursement regimes globally. This results in an ESG Relevance Score of '4'. DERIVATION SUMMARY Fitch rates Grunenthal using its Ratings Navigator for Pharmaceutical Companies. The 'BB' IDR is supported by its integrated cash-generative business model with a portfolio of patented and generic drugs with strong rating credit metrics, reflecting a commitment to conservative financial policies. Such stance offsets the operating risks arising from Grunenthal's concentrated product portfolio exposed to generic market pressures. Grunenthal is rated above other asset-light scalable specialist pharmaceutical companies focused on off-patent branded and generic drugs such as Cheplapharm Arzneimittel GmbH (Cheplapharm, B+/Stable), Pharmanovia Bidco Limited (Atnahs, B+/Negative) and Cidron Aida Bidco Ltd. (B/Stable). Its rating is also above asset-intensive pharmaceutical companies such as Roar Bidco AB (B/Positive), European Medico Development 3 Sarl (B/Stable) and Financiere Top Mendel SAS (B/Stable), due mainly to its much stronger leverage metrics with FFO gross leverage below 4.5x, versus Cheplapharm's and Atnahs' 5.5x, and other peers' 6.0-8.0x. Its stronger leverage profile is embedded in Grunenthal's considerably more conservative financial policy and a less aggressive M&A strategy. Grunenthal is larger than most of these peers, but product concentration remains a risk for the majority of non-investment grade pharmaceutical credits given their niche. Grunenthal has limited comparability with a much larger fallen angel Teva Pharmaceutical Industries Limited (BB-/Negative), whose rating remains under pressure due to substantial indebtedness, modest financial flexibility and uncertainties tied to litigation risks. KEY ASSUMPTIONS -- Volatile revenue profile reflecting a declining organic portfolio due to generic and payor pressure. Organic revenue declines are however offset by revenue from opportunistic newly acquired medium-sized targets; -- EBITDA margin maintained at around 21% - 23% to 2024; -- Trade working capital fluctuating with revenues and following addition of new drugs; -- Sustained maintenance capex at around 2%-3% of sales, in addition to milestone payments related to previous acquisitions over the next four years; -- Dividend payment of EUR25 million over the next four years; -- Opportunistic acquisitions of around EUR350 million in 2021 and EUR400 million in 2023 funded through RCF utilisation and FCF (Fitch's own assumption); -- Flexible use of RCF to support organic and inorganic growth; and -- Full prepayment of facility B due 2024 using tap proceeds of EUR300 million. Recovery Ratings Assumptions: Given the senior secured nature of Grunenthal's entire debt (single debt class) Fitch classifies it as 'category 2 first lien' under the generic approach for rating instruments of companies in the 'BB' rating category based on Fitch's Corporates Recovery Ratings and Instrument Ratings Criteria. Therefore, Fitch rates Grunenthal's senior secured debt one notch above the IDR, leading to a 'BB+' senior secured notes rating with a Recovery Rating of 'RR2'. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade to 'BB+' would require an improved business risk profile through increased visibility of revenue combined with a more conservative financial policy. The latter would be manifested in stable EBITDA, FFO and FCF margins and conservative FFO gross leverage trending towards 2.5x (2.0x net of readily available cash). Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Volatile revenue, EBITDA, FFO and FCF margins, signalling challenges to addressing market pressures or poorly executed M&A with increased execution risks; -- Departure from conservative financial policies or from commitment to deleveraging, leading to FFO gross leverage greater than 4.5x (4.0x net of readily available cash). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Fitch projects satisfactory liquidity levels being maintained in excess of EUR100 million through to 2024. This is supported by sustained positive FCF generation, albeit subject to fluctuations in trade working capital, restructuring costs, plus performance-related and milestones payments, which Fitch treats as regular capital commitments as they relate to the existing product portfolio. Fitch expects the company will make flexible use of its RCF to top up liquidity or fund M&A, but also to make voluntary debt prepayments, based on its record and financial policies. Grunenthal's medium-term liquidity profile benefits from recently extended debt maturities, with its SSN due in 2026 and 2028. At the same time, its sources of funding will become more concentrated given the repayment of all term loan facilities and a strongly reduced Schuldschein exposure. In addition, maturities will be less even, with major debt repayments concentrating in 2026 and 2028. ISSUER PROFILE Grunenthal is a Germany-based but globally operating pharmaceutical company focused on pain therapies and management of established patented and off-patent branded products. In 2020, the company generated sales of EUR1.3 billion and Fitch-defined EBITDA of EUR305 million (Fitch-defined EBITDA margin of 24%). ESG CONSIDERATIONS Grunenthal has an ESG Relevance Score of '4' for exposure to social impact, due to the company's reliance on reimbursement policies in its countries of operations, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ============= I R E L A N D ============= CONTEGO CLO IX: Moody's Assigns (P)B3 Rating to EUR13.5MM F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to notes to be issued by Contego CLO IX Designated Activity Company (the "Issuer"): EUR274,500,000 Class A Senior Secured Floating Rate Notes due 2034, Assigned (P)Aaa (sf) EUR31,500,000 Class B-1 Senior Secured Fixed Rate Notes due 2034, Assigned (P)Aa2 (sf) EUR13,500,000 Class B-2 Senior Secured Floating Rate Notes due 2034, Assigned (P)Aa2 (sf) EUR31,162,000 Class C Senior Secured Deferrable Floating Rate Notes due 2034, Assigned (P)A2 (sf) EUR31,275,000 Class D Senior Secured Deferrable Floating Rate Notes due 2034, Assigned (P)Baa3 (sf) EUR24,210,000 Class E Senior Secured Deferrable Floating Rate Notes due 2034, Assigned (P)Ba3 (sf) EUR13,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2034, Assigned (P)B3 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be approximately 90% ramped up as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the five month ramp-up period in compliance with the portfolio guidelines. Five Arrows Managers LLP will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's approx. 4.5 year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the seven classes of notes rated by Moody's, the Issuer will issue EUR37,650,000 Subordinated Notes due 2034 which will not be rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2020. Moody's used the following base-case modeling assumptions: Par Amount: EUR450,000,000 Diversity Score: 55 Weighted Average Rating Factor (WARF): 3090 Weighted Average Spread (WAS): 3.65% Weighted Average Coupon (WAC): 4.00% Weighted Average Recovery Rate (WARR): 43.0% Weighted Average Life (WAL): 8.5 years TORO EUROPEAN 3: Moody's Gives (P)B3 Rating to EUR9MM Cl. F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to the Notes to be issued by Toro European CLO 3 Designated Activity Company (the "Issuer"): EUR1,500,000 Class X Secured Floating Rate Notes due 2034, Assigned (P)Aaa (sf) EUR213,500,000 Class A Secured Floating Rate Notes due 2034, Assigned (P)Aaa (sf) EUR28,000,000 Class B-1 Secured Floating Rate Notes due 2034, Assigned (P)Aa2 (sf) EUR10,000,000 Class B-2 Secured Fixed Rate Notes due 2034, Assigned (P)Aa2 (sf) EUR23,500,000 Class C Secured Deferrable Floating Rate Notes due 2034, Assigned (P)A2 (sf) EUR22,500,000 Class D Secured Deferrable Floating Rate Notes due 2034, Assigned (P)Baa3 (sf) EUR19,000,000 Class E Secured Deferrable Floating Rate Notes due 2034, Assigned (P)Ba3 (sf) EUR9,000,000 Class F Secured Deferrable Floating Rate Notes due 2034, Assigned (P)B3 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. The Issuer is a managed cash flow CLO. At least 92.5% of the portfolio must consist of secured senior loans or senior secured bonds and up to 7.5% of the portfolio may consist of unsecured senior loans, second-lien loans, high yield bonds and mezzanine loans. The portfolio is expected to be over 95% ramped as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired shortly after issue date in compliance with the portfolio guidelines. Chenavari Credit Partners LLP will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 4.5-year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. On April 12, 2017 (the "Original Issue Date"), the Issuer issued EUR20,500,000 of unrated M-1 Subordinated Notes due 2034 and EUR20,100,000 of unrated M-2 Subordinated Notes due 2034, which will remain outstanding. In addition, the Issuer will issue EUR5,400,000 of M-2 Subordinated Note due 2034 which are not rated. Interest and principal amortisation amounts due to the Class X Notes are paid pro rata with payments to the Class A Notes. The Class X Notes amortises by 25.0% or EUR375,000.00 over four payment dates starting on the second payment date. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the Notes in order of seniority. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Factors that would lead to an upgrade or downgrade of the ratings: The rated debt's performance is subject to uncertainty. The debt's performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the debt's performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2020. Moody's used the following base-case modeling assumptions: Par Amount: EUR350,000,000.00 Diversity Score: 48 Weighted Average Rating Factor (WARF): 2950 Weighted Average Spread (WAS): 3.75% Weighted Average Coupon (WAC): 3.40% Weighted Average Recovery Rate (WARR): 44.0% Weighted Average Life (WAL): 8.5 years XTRA-VISION VENDING: Placed in Voluntary Liquidation ---------------------------------------------------- John Mulligan at Independent.ie reports that the final death knell appears to have sounded for the Xtra-vision brand on Ireland's shopping streets, with its movie-vending arm having been put into liquidation. Controlled by UK investment firm Hilco, Xtra-vision's bricks-and-mortar stores closed five years ago, unable to survive the onslaught of online streaming, Independent.ie recounts. The vending machines had been located in as many as 100 SuperValu outlets across the country, Independent.ie discloses. The Xtra-vision company behind the vending business has just been placed in voluntary liquidation, with a creditors meeting having been held towards the end of last month, Independent.ie relates. According to Independent.ie, Nicholas O'Dwyer of Grant Thornton was appointed liquidator of the firm. The last set of publicly-available accounts for Xtra-vision Vending show that it had a more than EUR1.5 million shareholder deficit at the end of 2019, Independent.ie states. It paid almost EUR180,000 in loan interest that year, Independent.ie notes. A liquidator was appointed to the main Xtra-vision business in early 2016, Independent.ie relays. It operated about 80 stores around the country and employed nearly 600 people at the time it closed, according to Independent.ie. ========= I T A L Y ========= WEBUILD SPA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has affirmed Milan-based engineering and construction (E&C) company Webuild S.p.A.'s (formerly Salini Impregilo S.p.A.) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BB'. The Outlook on the IDR is Stable. The affirmation and Stable Outlook reflect improvements in the financial profile driven by a recent reduction in Fitch-defined net debt, expected significant free cash flow (FCF) generation in 2021-2022 and solid growth prospects for the medium term, supported by a rapidly growing order book. Fitch expects better operating performance to help improve the leverage profile to a level that is commensurate with the current rating. Its currently high leverage is only partly offset by its solid business profile, which Fitch views as being in line with an investment-grade rating. Execution risk related to its recent Astaldi acquisition is mitigated by the progress of its integration to date, potential synergies and Webuild's knowledge of the target due to a large share of common projects in the order backlog prior to the acquisition. KEY RATING DRIVERS Improving Leverage Profile: Fitch expects an improving leverage profile, driven by strong FCF generation in 2021-2022 and solid growth prospects. Fitch forecasts funds from operations (FFO) gross leverage of around 6.5x (net: around 3.2x) in 2021 and around 4x in 2022-2024 (net: 2.5x-2.8x). A stronger net leverage profile is mainly supported by improving working-capital requirements driven by strong new order intake and the impact of the Italian "Relaunch Decree" measures, which may increase advance payments on public works for Italian contractors to up to 30%. Webuild targets around EUR300 million-EUR500 million company-defined net debt in 2021 and EUR100 million-EUR130 million debt reduction p.a. in 2022-2023, following EUR442 million at end-2020. Stabilised Working-Capital Requirement: Fitch expects working-capital inflows in 2021-2022, with stabilisation of working-capital requirements from 2023. In 2021, working-capital inflows will strongly be supported by higher advance payments related to Italian "Relaunch Decree" measures. In the following years Fitch expects higher working-capital consumption to support its increasing backlog and strong pipeline of opportunities, in turn providing improved revenue visibility for the medium term. Pandemic Impact on Profitability: Webuild's Fitch-defined EBITDA margin was significantly hit in 2020 (3.3%), pushing leverage metrics above Fitch's negative rating sensitivities. This deterioration was driven by pandemic-related disruptions leading to delays in revenue recognition and cash collection. Some projects had to be extended, reducing earnings that can be booked and resulting in lower margin expectations for the short term. Fitch views this deterioration as temporary, and expects Webuild's EBITDA margins to recover to around 7%-8% in its four-year forecast period. Solid Business Profile: The business profile is mainly underpinned by leading market positions in niche markets, a solid order backlog and sound geographical diversification. Webuild is the global leader in the water infrastructure sub-segment and has leading positions in civil buildings and transportation. These strengths are offset by significant project concentration and structural working-capital requirements. Fitch expects the Astaldi acquisition to have a mixed impact on Webuild's business profile. A significant increase in scale and a stronger market position in the domestic market are offset by higher working-capital requirements. Fitch assumes a broadly similar diversification of the order book. Resilient Construction Backlog: Fitch expects significant recovery in new orders following a muted order intake in 2020. Fitch projects a book-to-bill of above 1x over the medium term, driven by a healthy pipeline of opportunities and expected recovery in the construction market. Fitch's rating case excludes backlog contribution from a high-speed rail line construction project in Texas, which is pending financing approval. Growing Exposure to Developed Markets: Fitch views Webuild's increasing share of new projects in lower-risk countries, especially in the US and Australia, as positive for the credit profile. Fitch expects Webuild to generate the vast majority of its revenue from the US, Australia and Europe in 2021-2022. The commercial pipeline is strongly focused on North America, Europe, the Middle East and Australia and Fitch expects declining exposure to higher-risk markets, including Ethiopia. DERIVATION SUMMARY In contrast to other Fitch-rated engineering and construction entities, Webuild has a limited presence in concessions. Its strategy focuses on large, complex, value-added infrastructure projects with high engineering content. The acquisition of Lane, completed in January 2016, enhanced Webuild's presence in the US, which is now a key country for the company and mitigates Webuild's presence in higher-risk developing countries, especially Ethiopia. While its business profile is solid, its net leverage exceeds that of higher-rated peers such as Ferrovial, S.A. (BBB/Stable), which generates stable dividend streams from its concession business. Webuild's business profile is stronger than that of Obrascon Huarte Lain, S.A. (OHL; RD), due mainly to Webuild's larger scale of operations, stronger market position and greater project diversification. KEY ASSUMPTIONS -- Revenue to grow in the low teens in 2021 and mid-single digits in 2022-2024, excluding contribution from Astaldi; -- Revenue contribution from Astaldi of around EUR1.8 billion in 2021, EUR2 billion in 2022 and EUR2.2 billion annually in 2023-2024; -- Fitch-defined EBITDA margin of 7% in 2021 and 8% in 2022-2024; -- Working-capital inflow of about EUR350 million in 2021 and EUR50 million in 2022, followed by working- capital consumption of around 2% of revenue in 2023-2024; -- Capex at 3.5% of sales annually in 2021-2024; -- Annual dividend of EUR50 million in 2021-2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- FFO gross leverage below 3.0x on a sustained basis; -- FFO net leverage below 2.0x on a sustained basis; -- Reduced concentration of 10 largest contracts to below 40%. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- FFO gross leverage above 4.0x on a sustained basis; -- FFO net leverage above 3.0x on a sustained basis; -- Inability to generate at least neutral FCF on a sustained basis; -- Weak performance on major contracts with a material impact on profitability; -- Problems in receivables collection; -- Increasing share of high-risk countries. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Sufficient Liquidity: At end-2020 Webuild's liquidity was supported by about EUR2,091 million of readily available cash (excluding EUR364 million that Fitch deemed not readily available), including EUR550 million drawn committed banking facilities. In January 2021 the company issued an additional EUR200 million tap to its EUR550 million senior unsecured bond maturing in December 2025. This provides sufficient headroom to cover around EUR1.3 billion debt maturities in 2021 (including its revolving credit facility (RCF)). Fitch expects positive FCF in 2021. Fitch views the company's good relationships with local banks and access to capital markets as positive for the credit profile. Senior Unsecured Debt: At end-2020 Webuild's debt structure consisted mainly of four euro-denominated senior unsecured bonds with a total nominal amount of about EUR1.5 billion and corporate loans with a total nominal amount of about EUR1.2 billion. Webuild also raises fairly modest short- and medium-term construction debt at local subsidiaries as well as modest long-term concession debt. ISSUER PROFILE Webuild (formerly Salini Impregilo S.p.A) is a medium-sized Italian engineering and construction group focused on complex infrastructure civil projects with strong leadership in the water segment. It has a diversified geographic footprint with around 37% of its EUR33 billion backlog at end-2020 in Italy, 19% in Americas, 17% in Africa, 10% in Australia and the remaining 8% in Asia and the Middle East. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =================== L U X E M B O U R G =================== NETS TOPCO 3: S&P Raises LongTerm ICR to 'BB-', On Watch Positive ----------------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit and issue ratings on Nordic payment firm Nets Topco 3 S.a.r.l. and its debt to 'BB-' from 'B-'. On July 1, 2021, Nexi SpA completed its merger with Nets Topco 2 S.a.r.l., the parent company of Nets Topco 3 S.a.r.l. (Nets). Post merger, S&P views Nets as a core group entity to Nexi that is unlikely to be sold, and S&P thinks it will receive group support under all foreseeable scenarios. The CreditWatch positive mirrors that on Nexi, pending finalization of the merger with SIA, another payment company. The upgrade follows the completion of the acquisition of Nets by Nexi. S&P said, "Our view of Nets' strategic importance mainly indicates that we see it as highly unlikely to be sold. Indeed, the merger has a strong industrial rationale, since it will significantly increase Nexi's scale and should strengthen its capacity to face competition from larger, global players. Nets will contribute about 50% of the combined entity's revenue and continue existing as a legal entity at this stage. As a result, we think Nexi will likely support Nets if needed under all reasonable scenarios, and we align the rating on Nets with our 'BB-' rating on Nexi." As part of the transaction, Nexi repaid all Nets' debt, except the EUR220 million senior notes issued by Nassa Topco AS, which S&P will continue to rate. =========== R U S S I A =========== ETALON LSS: S&P Alters Outlook to Positive & Affirms 'B-' ICR ------------------------------------------------------------- S&P Global Ratings revised its outlook on Russian developer Etalon LSS, Etalon Group's 100% subsidiary, to positive from stable and affirmed its 'B-' rating. S&P said, "We could raise the ratings in the next 12 months if Etalon Group demonstrates profitable growth while maintaining an adjusted ratio of debt to EBITDA sustainably below 7.0x and if EBITDA interest coverage increases above 2.0x. "Our positive outlook on Etalon LSS reflects our improved forecast for Etalon Group. Our outlook change for Etalon LSS follows the upward revision of our forecast for Etalon Group, its 100% parent. Our group credit profile (GCP) assessment for Etalon Group (currently 'b-') caps the rating on Etalon LSS at 'B-', even though we continue to view the stand-alone credit profile on Etalon LSS at 'b'. An upward revision of the GCP could therefore lead to an upgrade of Etalon LSS. In our updated forecast for Etalon Group, the adjusted EBITDA margin is close to 16% in 2021-2022 (compared with about 12% we assumed previously) and its adjusted debt to EBITDA is close to or below 7.0x in 2021-2022. This compares with our previous forecast of 8x-10x adjusted debt to EBITDA for the same period. In addition, we believe the group's EBITDA interest coverage could reach 2x or more within the next 12 months, our upside threshold. Our updated forecast follows the solid operating performance of Etalon Group in 2020 with an EBITDA margin of 14.5%, debt to EBITDA of 4.6x, and EBITDA interest coverage, although remaining low, increasing to 1.7x. Etalon Group is benefiting from a supportive price environment and improved mortgage conditions. Etalon Group's performance has been largely supported by positive price momentum on the back of favorable mortgage conditions in Russia. In 2020 and early 2021, the Russian mortgage rate was at a historic low, mirroring the Russian key rate and reflecting the conditions of the state-subsidized mortgage program. Combined with some supply contraction, this led to a housing price surge. The subsidized mortgage program has been recently extended until mid-2022, although on more restricted terms. Although S&P expects price growth will soften when the subsidized mortgage program is terminated, it still expects some moderate price increase driven by cost inflation and continuing strong demand, at least in Moscow and St. Petersburg where Etalon group's operations are concentrated. S&P said, "Etalon Group's land bank expansion supports our growth forecast. Etalon Group is expanding its land bank, with roughly 3.5 million square meters (sqm) under negotiation, out of which about 1 million sqm will be acquired in 2021, according to management. We understand that most of the projects within the pipeline under negotiation are located in St. Petersburg, where Etalon Group's land bank has somewhat contracted in the past few years. We also factor in that Etalon group consolidated 100% of its ZIL South project in 2020, with a net selling area of about 1.3 million sqm, favorably located in the south of Moscow." Etalon Group's growth is to be financed with new debt and equity raised in the recent secondary public offering (SPO). In the May SPO, Etalon group raised about Russian ruble (RUB)11 billion ($150 million) that it will use to finance land acquisition. Also, Etalon Group has signed project finance loans with Russian banks to fund the new project development. To finance the development of its ZIL South project and to pay part of its purchase consideration, in March 2021, Leader Invest subsidiary signed a new long-term RUB26.4 billion loan with Sberbank. S&P sais, "We expect Etalon Group's debt will increase to about RUB115 billion-RUB120 billion in 2022, from RUB52.4 billion in 2020, but improved EBITDA generation should offset this increase, containing leverage below 7.0x. Importantly, we factor in that most of new debt is project finance debt that is balanced by cash accumulated in escrow accounts, lowering the risk of such loans. As of end-April 2021, cash in escrow accounts (RUB30.9 billion) was 68% higher than the drawings on project finance lines." S&P said, "We believe that cost inflation could be one of the main risks to Etalon's margins and credit metrics. We now expect Russian inflation to accelerate to about 4% annually in 2021-2022 from 3.4% in 2020, eating into developers' margins. We anticipate pronounced labor cost inflation, since COVID-19-related travel restrictions are limiting the inflow of labor migrants and Russian developers are experiencing a labor shortage. Although in our base case for Etalon Group we do not assume any construction delays driven by restricted workforce availability, we are mindful of potential pressure on Etalon's margins resulting from a higher cost base. That said, we believe that in the near term Etalon should be able to pass on a large share of such costs to homebuyers, benefiting from the positive price momentum. We also understand that a significant share of Etalon Group's projects are at a more advanced stage, supporting the average selling price for Etalon's portfolio. Last but not least, Etalon Group is streamlining its organizational structure and optimizing costs, and we believe that its cost-efficiency measures will support margins, offsetting inflationary pressure. "Our positive outlook on Etalon LSS reflects the one-in-three probability that we could raise our rating by one notch in the next 12 months as a result of an upward revision of our GCP on Etalon." For an upgrade, Etalon would need to maintain its adjusted debt-to-EBITDA ratio sustainably below 7.0x--with the share of project finance debt trending upward--along with an interest coverage ratio above 2.0x and sustained adequate liquidity. S&P said, "We would revise the outlook to stable if Etalon's adjusted debt to EBITDA were to exceed 7.0x without potential for a quick recovery or if its EBITDA interest coverage remained below 2.0x. This could happen because of weaker operating performance, for example due to COVID-19-related measures or macroeconomic headwinds resulting in unfavorable industry trends, margin pressure on the back of increased cost inflation including labor cost, or adverse working capital movements. Pressure on the rating could intensify if the ZIL South project construction is delayed, its pre-sales slow, or if its margins do not support the current base case. We could take a negative rating action if the group's external financial flexibility deteriorated and its overall liquidity management became more aggressive." LEADER INVEST: S&P Alters Outlook to Positive & Affirms 'B-' ICR ---------------------------------------------------------------- S&P Global Ratings revised its outlook on Russian developer Leader Invest, Etalon Group's 100% subsidiary, to positive from stable and affirmed its 'B-' rating. S&P said, "We could raise the ratings in the next 12 months if Etalon Group demonstrates profitable growth while maintaining an adjusted ratio of debt to EBITDA sustainably below 7.0x and if EBITDA interest coverage increases above 2.0x. "Our positive outlook on Leader reflects our improved forecast for Etalon Group. Our outlook change for Leader follows the upward revision of our forecast for Etalon Group, its 100% parent. Our group credit profile (GCP) assessment for Etalon Group (currently 'b-') caps the rating on Leader at 'B-', even though we continue to view the stand-alone credit profile on Leader at 'b'. An upward revision of the GCP could therefore lead to an upgrade of Leader. In our updated forecast for Etalon Group, the adjusted EBITDA margin is close to 16% in 2021-2022 (compared with about 12% we assumed previously) and its adjusted debt to EBITDA is close to or below 7.0x in 2021-2022. This compares with our previous forecast of 8x-10x adjusted debt to EBITDA for the same period. In addition, we believe the group's EBITDA interest coverage could reach 2x or more within the next 12 months, our upside threshold. Our updated forecast follows the solid operating performance of Etalon Group in 2020 with an EBITDA margin of 14.5%, debt to EBITDA of 4.6x, and EBITDA interest coverage, although remaining low, increasing to 1.7x." Etalon Group is benefiting from a supportive price environment and improved mortgage conditions. Etalon Group's performance has been largely supported by positive price momentum on the back of favorable mortgage conditions in Russia. In 2020 and early 2021, the Russian mortgage rate was at a historic low, mirroring the Russian key rate and reflecting the conditions of the state-subsidized mortgage program. Combined with some supply contraction, this led to a housing price surge. The subsidized mortgage program has been recently extended until mid-2022, although on more restricted terms. Although we expect price growth will soften when the subsidized mortgage program is terminated, we still expect some moderate price increase driven by cost inflation and continuing strong demand, at least in Moscow and St. Petersburg where Etalon Group's operations are concentrated. Etalon Group's land bank expansion supports our growth forecast. Etalon Group is expanding its land bank, with roughly 3.5 million square meters (sqm) under negotiation, out of which about 1 million sqm will be acquired in 2021, according to management. S&P said, "We understand that most of the projects within the pipeline under negotiation are located in St. Petersburg, where Etalon Group's land bank has somewhat contracted in the past few years. We also factor in that Etalon group consolidated 100% of its ZIL South project in 2020, with a net selling area of about 1.3 million sqm, favorably located in the south of Moscow." Etalon Group's growth is to be financed with new debt and with equity, raised in the recent secondary public offering (SPO) In the May SPO, Etalon group raised about Russian ruble (RUB)11 billion ($150 million) that it will use to finance land acquisition. Also, Etalon Group has signed project finance loans with Russian banks to fund the new project development. To finance the development of its ZIL South project and to pay part of its purchase consideration, in March 2021 Leader Invest subsidiary signed a new long-term RUB26.4 billion loan with Sberbank. S&P said, "We expect Etalon Group's debt will increase to about RUB115 billion-RUB120 billion in 2022, from RUB52.4 billion in 2020, but improved EBITDA generation should offset this increase, containing leverage close to or below 7.0x. Importantly, we factor in that most of new debt is project finance debt that is balanced by cash accumulated in escrow accounts, lowering the risk of such loans." As of end-April 2021, cash in escrow accounts (RUB30.9 billion) was 68% higher than the drawings on project finance lines. S&P said, "We believe that cost inflation could be one of the main risks to Etalon's margins and credit metrics. We now expect Russian inflation to accelerate to about 4% annually in 2021-2022 from 3.4% in 2020, eating into developers' margins. We anticipate pronounced labor cost inflation, since COVID-19-related travel restrictions are limiting the inflow of labor migrants and Russian developers are experiencing a labor shortage. Although in our base case for Etalon Group we do not assume any construction delays driven by restricted workforce availability, we are mindful of potential pressure on Etalon's margins resulting from a higher cost base. That said, we believe that in the near term, Etalon should be able to pass on a large share of such costs to homebuyers, benefiting from the positive price momentum. We also understand that a significant share of Etalon Group's projects are at a more advanced stage, supporting the average selling price for Etalon's portfolio. Last but not least, Etalon Group is streamlining its organizational structure and optimizing costs, and we believe that its cost-efficiency measures will support margins, offsetting inflationary pressure. "Our positive outlook on Leader reflects the one-in-three probability that we could raise our rating by one notch in the next 12 months as a result of an upward revision of our GCP on Etalon." For an upgrade, Etalon would need to maintain its adjusted debt-to-EBITDA ratio sustainably below 7.0x -- with the share of project finance debt trending upward -- along with an interest coverage ratio above 2.0x and sustained adequate liquidity. S&P said, "We would revise the outlook to stable if Etalon's adjusted debt to EBITDA were to exceed 7.0x without a potential for a quick recovery or if its EBITDA interest coverage remained below 2.0x. This could happen because of weaker operating performance, for example due to COVID-19-related measures or macroeconomic headwinds resulting in unfavorable industry trends, margin pressure on the back of increased cost inflation including labor cost, or adverse working capital movements. Pressure on the rating could intensify if the ZIL South project construction is delayed, its pre-sales slow, or if its margins do not support the current base case. We could take a negative rating action if the group's external financial flexibility deteriorated and its overall liquidity management became more aggressive." =========================== U N I T E D K I N G D O M =========================== ATOTECH UK: Moody's Puts B1 CFR Under Review for Upgrade -------------------------------------------------------- Moody's Investors Service placed Atotech UK Topco Ltd's B1 corporate family rating and its B1-PD probability of default rating on review for upgrade. Concurrently, Moody's has placed the B1 ratings of the guaranteed senior secured term loans of $1,350 million and EUR200 million due in 2028 and the $250 million guaranteed senior secured revolving credit facility due in 2026, all co-borrowed by Alpha 3 B.V., Alpha US Bidco, Inc., Atotech B.V., and other entities on review for upgrade. The outlook has been changed to ratings under review from stable for both issuers. This action follows the announcement that the board of directors of Atotech has accepted MKS Instruments, Inc.'s (MKS, Ba1 ratings under review) proposal to acquire Atotech in a cash and stock transaction. MKS plans to acquire Atotech for a per share price of $16.20 cash plus 0.0552 MKS shares, or about $5 billion total purchase price for the equity excluding transaction fees[1]. The cash portion of the purchase price will be funded with a combination of balance sheet cash and about $3 billion of new senior secured term loans. Moody's anticipates that MKS will assume Atotech's existing debt, and the acquisition is expected to close by year end. The rating action reflects Moody's expectation that Atotech's credit profile would benefit substantially from an acquisition by MKS. In response to the announcement, Moody's has placed MKS's Ba1 ratings on review for downgrade. While the acquisition will expand MKS's revenue scale and diversify its revenue and customer base, it will also result in a substantially higher leverage. Moody's estimates that MKS's debt to EBITDA will increase from 1.6x (twelve months ended March 31, 2021, Moody's adjusted) to about 5.8x (proforma combined twelve months ended March 31, 2021, excluding synergies, Moody's adjusted), or about 5.5x including anticipated cost synergies ($50 million to be achieved over 18 to 36 months). This level of financial leverage is high given the integration execution risks. Nevertheless, Moody's anticipates that at the conclusion of the ratings review, any downgrade of MKS's ratings would be limited to one notch. Accordingly, the rating agency expects that MKS will remain a materially stronger credit compared to Atotech prior to being acquired by MKS. RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The review will focus on the impact of the transaction on MKS's credit profile and details on the capital structure of the enlarged entity with respect to Atotech's current debt instruments and any plans to refinance Atotech's debt. Based on current information, at the conclusion of the review, Moody's anticipates that an upgrade of Atotech's ratings could exceed one notch. As Moody's has previously stated, Atotech's ratings could be upgraded if (1) Moody's adjusted debt/EBITDA falls towards 4.0x; and (2) retained cash flow/net debt increases above 15%, both on a sustained basis; (3) Moody's adjusted EBITDA margins remains in the high 20s in terms of percentage and (4) liquidity position remains strong. The ratings could be downgraded if (1) the company Moody's adjusted debt/EBITDA remains above 5.5x; (2) retained cash flow/net debt falls below 10%; and (3) if Atotech does not continue to generate positive free cash flow (FCF). PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Chemical Industry published in March 2019. COMPANY PROFILE Atotech UK Topco Ltd (Atotech) is the global leader in specialty electroplating chemicals. Electroplating is coating a material with a thin layer of precious metal to enhance its resistance or look. For 2020, Atotech generated $1.23 billion of revenue and Moody's-adjusted EBITDA of $313 million (25.3% margin). Established in 1869, Atotech had been part of TotalEnergies SE (A1 stable) since 1977. In January 2017, the Carlyle Group acquired Atotech from TotalEnergies SE for around $3.2 billion. Atotech became a listed company on February 04, 2021 but the Carlyle Group continues to be the majority shareholder. CANTERBURY FINANCE 4: Fitch Assigns Final BB+ Rating on 3 Tranches ------------------------------------------------------------------ Fitch Ratings has assigned Canterbury Finance No. 4 PLC final ratings. DEBT RATING ---- ------ Canterbury Finance No. 4 PLC A1 XS2347610995 LT AAAsf New Rating A2 XS2347611704 LT AAAsf New Rating B XS2347611969 LT AAsf New Rating C XS2347612009 LT Asf New Rating D XS2347613155 LT BBB+sf New Rating E XS2347615010 LT BB+sf New Rating F XS2347615101 LT BB+sf New Rating X XS2347615283 LT BB+sf New Rating TRANSACTION SUMMARY Canterbury Finance No.4 PLC is a static securitisation of buy-to-let (BTL) mortgages originated after 2017 by OneSavings Bank PLC (OSB), trading under its Kent Reliance brand, in England and Wales. The loans are serviced by OSB via is UK-based staff and offshore team. This transaction is OSB's fourth securitisation of its Kent Reliance originations. KEY RATING DRIVERS Positive Selection (Positive): The pool consists of UK BTL mortgage loans advanced to borrowers with no adverse credit history. This is more stringent than the adverse credit history generally accepted by OSB. The majority of loans have been advanced based on a full valuation and are underwritten by a robust lending policy. Loans selected for the Canterbury series have been proven to outperform OSB's wider book, which has contributed towards Fitch assigning an originator adjustment of 1.1x, lower than the 1.2x adjustment it applied to the initial analysis of previous Canterbury transactions. Specialist Product Exposure Reduced (Positive): About 10% of the pool contains loans secured against house in multiple occupation (HMO) properties. The exposure is lower than previous Canterbury transactions (19% in Canterbury Finance No.3 PLC and 40% in Canterbury Finance No.2 PLC). More specifically, OSB's HMO lending may also include first-time landlords, which Fitch views as a potential weakness. Consequently, Fitch views the lower exposure to HMOs in this transaction positively and it has contributed towards the originator adjustment. Borrower Affordability (Negative): The majority of loans are advanced with an initial fixed period reverting to OSB's BTL standard variable rate (SVR). OSB's SVR is currently 6.18%, which is higher than peers. Fitch's interest coverage ratio (ICR) calculation assesses the post-reversion interest payments using a stressed interest rate based on OSB's SVR. This pool has a Fitch weighted average (WA) ICR of 78%, which is lower than many Fitch-rated BTL transactions due to OSB's higher SVR. Coronavirus-related Additional Assumptions (Negative): Fitch has applied coronavirus assumptions to the mortgage portfolio (see EMEA RMBS: Criteria Assumptions Updated due to Impact of the Coronavirus Pandemic). The combined application of revised 'Bsf' representative pool WA foreclosure frequency (WAFF), revised rating multiples and arrears adjustment resulted in a multiple to the current FF assumptions of about 1.26x at 'Bsf' and no impact at 'AAAsf'. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement levels and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the WAFF of 15% and an increase in the WA recovery rate (RR) of 15%, implying upgrades of up to one rating category. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The transaction's performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. -- In addition, unanticipated declines in recoveries could result in lower net proceeds, which may make certain notes' ratings susceptible to potential negative rating action depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction's base case FF and RR assumptions. For example, a 15% WAFF increase and 15% WARR decrease would result in a model-implied downgrade of the class A notes of up to four notches. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. 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. DATA ADEQUACY Canterbury Finance No. 4 PLC Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. CONCEPT BATHROOMS: Enters Liquidation Due to Pandemic Impact ------------------------------------------------------------ Angus Williams at East Anglian Daily Times reports that Concept Bathrooms, a Bury St Edmunds bathroom business has gone into liquidation, leaving the government on the hook for a GBP50,000 pandemic loan. Concept Bathrooms, which has a registered trading address at 7 Chamberlayne Road in the town, appointed liquidators from Wilson Field on May 20, East Anglian Daily Times relates. According to documents filed with Companies House, when the company went into liquidation it owed GBP139,574.21, East Anglian Daily Times notes. The largest creditor is Barclays Bank which provided the company with a GBP50,000 coronavirus bounce back loan in June 2020 -- the maximum amount available under the scheme, East Anglian Daily Times states. According to East Anglian Daily Times, a spokesman for the Sheffield-based liquidators said: "Concept Bathrooms Ltd entered liquidation due to a lack of income that would allow them to repay loans obtained in 2018/19. Coronavirus-related lockdowns also had a detrimental impact. "The company employed three staff members, including the director; all three have lost their jobs. At this point, the company's creditors will not receive a dividend." LENDY: LAG Optimistic About Ruling on Distribution Payments ----------------------------------------------------------- Michael Lloyd at Peer2Peer Finance News reports that the Lendy Action Group (LAG) is optimistic that the judge will rule in its favour and allow model 2 investors to be given priority in distribution payments. During a court hearing this week, the LAG argued against Lendy's distribution waterfall structure that splits investors and creditors into two groups and is used to repay investors, Peer2Peer Finance News relates. Model 1 investors are defined as creditors, meaning their eventual payouts will be pooled with other creditors, including the Lendy directors, whereas model 2 are defined as investors, which means that they may be able to recover funds directly from the loans that they helped to fund, Peer2Peer Finance News states. LAG argued in favour of funds being distributed first to model 2 lenders, Peer2Peer Finance News discloses. According to Peer2Peer Finance News, spokesperson Lisa Taylor said the group claimed the model 2 investors should have been protected by Lendy under fiduciary responsibility and the platform had a duty of care towards them but instead acted in its own best interests. Ms. Taylor, as cited by Peer2Peer Finance News, said she was optimistic the judge will rule in LAG's favour when giving the decision in six to 12 weeks' time. She said she estimates model 2 investors would receive about GBP50 million or a little less and if they are successful in this case that would increase by an additional GBP20 million to GBP30 million, Peer2Peer Finance News relays. PIZZAEXPRESS GROUP: S&P Assigns 'B' LongTerm ICR, Outlook Stable ---------------------------------------------------------------- S&P Global Ratings assigned a long-term issuer credit rating of 'B' to U.K.-based casual dining chain PizzaExpress Group (Wheel Bidco Ltd.), the new intermediate holding company for PizzaExpress, ahead of the proposed refinancing. S&P also assigned its 'B' issue rating (recovery rating of '4') to the proposed GBP335 million senior secured notes due July 2026, and our 'BB-' issue rating (recovery rating of '1') to the proposed GBP30 million-equivalent super senior RCF due January 2026. S&P said, "The stable outlook indicates that the group will be able to benefit from its strengthened capital structure and lease portfolio and leverage on its operational rebound since the progressive reopening of its restaurants to the public in April. As a result, we expect the group to reduce leverage toward 4.5x-5.0x over the next 12 months, while achieving positive free operating cash flow (FOCF) after lease payments. The outlook also reflects our expectation that the group will maintain a sound liquidity position and prudent financial policy." The new PizzaExpress group presents a significantly improved financial position, with a sharp decline in financial debt and lease liabilities. The financial restructuring transaction, completed in November 2020, saw the holders of the old GBP465 million senior secured notes take control of PizzaExpress' equity, in exchange for reducing their claims to GBP200 million under the new group. Holders of a new money facility (largely participated by senior secured lenders) completed the shareholding and lender structure for the new PizzaExpress group, while the GBP70 million super senior loan provided by HPS Investments was rolled over. The completion of the company voluntary arrangement (CVA) allowed the group to significantly reduce its lease burden. Lease payments for the 53 weeks to Jan. 3, 2021 (fiscal year [FY] 2020) stood at GBP39 million, compared with rent expenses of GBP70 million in FY2019. These transactions resulted in a reduction in S&P Global Ratings-adjusted debt to GBP504 million in FY2020, from over GBP1.5 billion in FY2019. The group will need to successfully turn around its operating performance, which was weak over the past few years. The restructuring transaction of late 2020 included the disposal of the mainland China business to the group's previous owner, Hony Capital. S&P believes this disposal should lend some support on operating indicators, because the China segment historically diluted the group's like-for-like growth, profitability margins, and free cash flow generation, as well as diverting the management team's focus. However, that alone will not be enough to clear PizzaExpress' historical operational challenges, characterized by sluggish like-for-like growth in its main casual dining business in the U.K. and Ireland. A new, experienced, more U.K.-centric management team, increased marketing spend and plans to gradually refurbish the optimized restaurant estate could drive an improvement in underlying operating metrics for the group, although a degree of execution risk remains as competing leisure activities (such as travel) start to regain lost ground in the next 12 months. Although some competitive pressures have abated due to widespread site closures, the U.K. casual dining sector remains very competitive, and will be subject to continued margin pressure over our two-year forecast period. According to data from CGA and Alix Partners, the casual dining sector lost about 20% of its estate during the COVID-19 pandemic through closures, pointing to a reduction in the extreme competitive pressure that characterized the industry going into the pandemic. That said, with over 5,000 sites remaining as of May 2021, the market remains highly fragmented and competitive, and we anticipate that value (and therefore consistent pricing strategy) will remain a strong driver of consumer demand over the foreseeable future. S&P said, "We anticipate that cost inflation will remain a key theme for the sector, because of continued increases in the national minimum wage. In addition, the sector will bear the potential impact of increased border controls for European imported products (highly relevant in the case of an Italian-themed chain such as PizzaExpress). As such, although our base case envisions a sharp improvement in earnings and margins now that restaurants have fully reopened, we anticipate that PizzaExpress' profitability margins will remain under pressure in the medium term." The new group strategy will focus on improving and expanding PizzaExpress' core casual dining business, while continuing to benefit from its delivery and retail channels. S&P anticipates that PizzaExpress' new management team will increase its focus on turning around the core casual dining operations through a combination of investment in its long-standing brand, estate, and size. As such, S&P expects a big increase in marketing and capital expenditure (capex) over the next two to three years. These measures should support the group's overall and like-for-like growth once operating conditions normalize and provide some relief on profitability margins. However, there is still a high degree of uncertainty around the shape and sustainability of PizzaExpress' operational rebound. Potential long-lasting effects of the pandemic, including reduced footfall in office locations due to more widespread remote working, could lead to a long-term reduction in footfall in the high streets of large U.K. cities, where the group has a material presence. The proposed refinancing transaction will not significantly affect PizzaExpress' debt burden from its post-restructuring position, pointing to a more moderate financial policy. The proceeds from the GBP335 million senior secured note issuance will be used to redeem all liabilities present in PizzaExpress' current capital structure, as well as funding refinancing fees and transaction-related costs. Based on S&P's expectation of a relatively quick recovery in earnings post-pandemic, it anticipates that the group will gradually improve its earnings and cash flow metrics to reach adjusted leverage of about 7.0x in FY2021 and 4.0x-4.5x in FY2022, compared with over 11x in FY2019. At the same time, the still-substantial lease portfolio leads to EBITDAR to cash interest plus rents (EBITDAR cover) ratio sustainably in a highly leveraged range of 1.0x-1.5x in FY2021 pro forma the transaction, to 2.0x-2.2x in FY2022-FY2023. S&P said, "The stable outlook reflects our expectation that the group will show consistently sound operating and leverage metrics over the rest of calendar year 2021 and thereafter, leading to a sharp improvement in adjusted EBITDA from very low levels in 2020. We expect that this will result in adjusted leverage of about 7.0x in FY2021 and a continued quick deleveraging toward 4.5x in the next 12 months. At the same time, we anticipate that FOCF after leases will turn positive from this point, supporting the group's sound liquidity position over the next 12 months." S&P could lower the ratings over the next 12 months if: -- Operating performance falls short of S&P's base case resulting in slower earnings growth than it currently anticipates; -- Cash generation is insufficient to post meaningful FOCF after leases weakening the group's liquidity; or -- The credit metrics are weaker than S&P's expectation such that adjusted leverage remains above 5.0x on a rolling-12-months basis or EBITDAR cover ratio trails at less than 2x. These could occur if PizzaExpress' ability to compete effectively in a changing landscape weakens, including a material reduction in footfall in large city high streets or earnings per restaurant. S&P said, "We consider an upgrade as unlikely in the near term, because it would hinge on a consistent track record of operating recovery and deleveraging, both of which are already captured in our base case and current rating. We could raise the ratings if restaurant earnings and cash generation rebound faster and stronger than we currently anticipate. Sustainably stronger credit metrics such as debt to EBITDA close to 4x, EBITDAR cover ratio over 2.2x, and substantial positive and growing FOCF after leases could be commensurate with a higher rating. Ratings upside would be contingent on a reduction in the uncertainty around the casual dining sector in the U.K. and PizzaExpress strengthening its long-term competitive position, as well as the group's financial policy being consistent with sustaining the improved credit metrics." PIZZAEXPRESS: Fitch Assigns FirstTime 'B(EXP)' IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has assigned Wheel Bidco Limited (PizzaExpress) an expected first-time Long-Term Issuer Default Rating (IDR) of 'B(EXP)' with a Stable Outlook. Fitch has also assigned its prospective GBP335 million senior secured notes an expected rating of 'B+(EXP)' with a Recovery Rating 'RR3' and its new GBP30 million super senior revolving credit facility (RCF) an expected rating of 'BB(EXP)' with RR1. The assignment of final ratings is conditional on the completion of the notes issue, repayment of existing debt and final terms and conditions of the notes issue being in line with information already received. The proposed notes will rank behind the group's super senior RCF. The 'B(EXP)' IDR encapsulates meaningful execution risks to the company's recovery from the pandemic and growth in like-for-like (lfl) sales in an uncertain economic environment in a sector that is prone to over-expansion and stiff competition. Rating strengths are leverage that is moderate for the restaurant sector following its debt restructuring, an established core brand, a new experienced management team, an optimised restaurant portfolio following company voluntary arrangement (CVA) in a less crowded market post-pandemic. The Stable Outlook reflects Fitch's expectations of recovery in restaurant covers to 2019 levels by 2022 and sufficient financial flexibility. Fitch expects healthy profitability, positive free cash flow (FCF) and average funds from operations (FFO) lease adjusted gross leverage of 5.7x from 2022 onwards, in line with the 'b' rating category. Fitch could revise the Outlook to Negative on slower recovery, weaker profitability and large FCF outflows eroding liquidity and leading to higher-than-expected leverage metrics in 2022. KEY RATING DRIVERS Swift Recovery by 2022: Fitch expects a recovery in lfl cover numbers for its 357 mature UK&I PizzaExpress restaurants to 2019 levels by 2022. Fitch's view is supported by reduced restaurant supply following the pandemic, pent-up demand for eating out, investment in its brand and a new strategy to build loyalty under the experienced new management team. Fitch's rating case does not incorporate further pandemic restrictions beyond mid-July. Execution Risk in Uncertain Environment: Fitch sees meaningful execution risks to sales recovery and subsequent lfl growth from the challenging macro environment and planned expansion. Uncertainty stems from expected rising unemployment, the discretionary nature of eating out and, potentially, lower and slower recovering footfall for sites in cities and tourist-driven sites. Fitch also sees possible expansion by competitors leading to an over-saturated market with discounting behaviour driving lfl sales. Fitch's forecast incorporates nearly 50 new PizzaExpress sites in the UK&I and 10 internationally during 2021 - 2024. This follows a reduction of its own operated estate by around 120 restaurants via CVA and other closures during 2020, which allowed it to cut underperforming sites. Higher ASPH: Average spend per head (ASPH) - a key revenue driver - is temporarily higher because of VAT reduction to 5% during the pandemic, but Fitch anticipates some reduction as VAT gradually reverts to 20% by April 2022. However, in line with the company's new strategy not to engage in discounting, Fitch does not expect ASPH to reduce to historical levels of around GBP14 (2017-2018) for the UK&I. Lfl dine-in covers at 34% below 2019 levels in the four weeks to 20 June are compensated by higher ASPH and higher delivery revenues leading to lfl revenue at just 3% below 2019's. Good Profit Metrics: The company's expected average FFO margin of around 12%, is adequate and more reflective of a 'bb' rating category. Profitability is helped by the simplicity of the pizza category, food & beverage supply-chain savings, optimised staffing and reduced rental cost following CVA. Fitch expects revenues to trend above GBP500 million over Fitch's four-year rating horizon, and EBITDA rising towards GBP80 million, which is after lease expense as per Fitch's criteria. Pressures will come from cost inflation, and the end of lower rents under CVA in 4Q23, which is somewhat compensated by price and cover increases and a growing scale. Reduced Leverage: Fitch expects FFO adjusted gross leverage of below 6.0x from 2022 onwards, following the company's debt restructuring in 2020. Leverage compares favourably with that of some Fitch-rated peers although their ownership of assets provides them with flexibility to reduce leverage, while PizzaExpress rents all of its restaurants. Fitch forecasts positive FCF margins from 2022 onwards, which would support some organic deleveraging. In the absence of contracted debt amortisation, Fitch expects accumulated cash to be invested in expansion or distributed to shareholders. Established Brand in Popular Category: Fitch expects PizzaExpress with its well-known brand to benefit in the market with fewer eating-out options available to consumers post-pandemic. It has limited revenue diversification from international markets and only one core brand. However the company benefits from retail licensing income (around GBP10 million historically), which is margin-enhancing and supports the brand. DERIVATION SUMMARY PizzaExpress is rated one notch higher than Stonegate Pub Company Limited (B-/Negative), supported by stronger profitability and a more conservative financial structure as Fitch expects PizzaExpress to deleverage to 5.7x by 2023 on an FFO adjusted gross basis versus 6.5x at Stonegate. This is somewhat balanced by Stonegate's stronger business profile with a larger size, better financial and operational flexibility given its freehold property and less severe impact from Covid-19 restrictions. Comparing PizzaExpress with Fitch-rated US casual dining peers, Wok Holdings, Inc (CCC+/Positive) and Sizzling Platter, LLC (B-/Stable), PizzaExpress's modest size is offset by its stronger profitability and lower leverage. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- ASPH in UK&I at GBP15.7 in 2021, declining to GBP14.7 in 2022 amid VAT rate rise; then gradually increasing to GBP15.3 by 2024; -- Restaurant covers in the UK&I at 16.2 million in 2021, reflecting lockdown and gradual recovery; increasing to 25.8 million in 2022, benefitting from a lower supply of restaurants post-pandemic and additional investment in the brand; and gradually increasing to 29.3 million by 2024, supported primarily by new restaurant openings; -- 49 restaurant openings in the UK&I and 10 internationally in 2021-2024, in line with management plan; -- International sales increasing at 7.2% CAGR between 2021 and 2024; -- EBITDA margin at 11% in 2021, driven by lockdown at the beginning of the year; increasing to 17.1% in 2022, reflecting cost savings (F&B and CVA impact); then gradually declining towards 15% on the expiration of lower lease period under CVA, inflation, higher marketing expenses and less than mature sites; -- Capex at 6%-9% of sales over the next four years for site openings and refurbishments, in line with management plan; -- No dividends or M&A. Fitch's Key Recovery Rating Assumptions The recovery analysis assumes that PizzaExpress would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. PizzaExpress's GC EBITDA is built on expected EBITDA with assumptions reflecting a slower and weaker post-pandemic recovery, with lower restaurant covers and limited ability to increase ASPH due to a competitive environment and no new openings. The GBP57 million GC EBITDA is 25% below estimated 2022 EBITDA. The GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the enterprise valuation (EV). Fitch has applied a 5.0x EV/ EBITDA multiple to the GC EBITDA valuation to calculate a post-reorganisation EV. This multiple is within the 4.0x-6.0x range Fitch has used across publicly and privately rated peers. It considers the scale, limited international diversification and the one core brand of PizzaExpress. The planned senior secured notes rank behind the prospective GBP30 million super senior RCF, which is assumed to be fully drawn upon default. Our waterfall analysis generates a ranked recovery for the GBP335 million senior secured notes, in the 'RR3' band, indicating a 'B+(EXP)' instrument rating, one notch up from IDR. The waterfall generated recovery computation (WGRC) on current metrics and assumptions is 68% based on the proposed capital structure. The ranked recovery for the GBP30 million super senior RCF is in the 'RR1' band with a WGRC of 100%, indicating a 'BB(EXP)' instrument rating, three notches up from the IDR. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade (to B+): -- Fitch does not envisage positive rating action under the current capital structure at least over the rating horizon; however, a future positive rating action would be based on a strong post-pandemic recovery, followed by lfl sales growth leading to strong cash profit margins; -- FFO lease-adjusted leverage below 5.0x in combination with the announcement of a leverage policy / target; -- FFO fixed charge cover sustainably above 2.5x. Factors that could, individually or collectively, lead to negative rating action/downgrade (to B-): -- Weaker-than-expected recovery, failure to achieve pre-pandemic operational metrics due to stiff competition, less successful expansion leading to lower sales and declining profitability metrics resulting in neutral or negative FCF beyond 2021; -- FFO lease-adjusted leverage trending towards 6.5x; -- FFO fixed charge cover sustainably below 1.6x; -- Tightening liquidity position amid slower recovery or further (currently not anticipated) Covid-19 restrictions. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: Fitch views PizzaExpress's liquidity as satisfactory. After projected negative FCF in 2021 due to the pandemic, Fitch forecasts the company will generate low single-digit FCF margins and be able to self-fund its medium-term capex plan through to 2024. Fitch projects the committed GBP30 million RCF will remain undrawn in the next four years. Its debt structure is concentrated. However, the planned refinancing will extend the RCF and notes maturities to 2025 and 2026, respectively. ISSUER PROFILE PizzaExpress is a leading casual dining operator with around 450 restaurants, of which 357 are own operated in the UK & Ireland. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. PIZZAEXPRESS: Moody's Gives 'B2' CFR & Rates New Secured Notes 'B2' ------------------------------------------------------------------- Moody's Investors Service has assigned a B2 corporate family rating and B2-PD probability of default rating to Wheel Bidco Limited (PizzaExpress or the company), the parent company for the PizzaExpress group, a leading casual dining operator in the UK. Concurrently, Moody's has assigned instrument ratings of B2 to the company's new GBP335 million backed senior secured notes and a Ba2 rating to the company's GBP30 million super senior secured revolving credit facility both due 2026. The outlook is stable. RATINGS RATIONALE With lockdown restrictions on its UK estate set to be fully lifted in the weeks ahead PizzaExpress is now refinancing the capital structure put in place at the time of the restructuring last year. The reduction in funded debt at that time was material while the restaurant closures and rent reductions agreed in the concurrent Company Voluntary Arrangement (CVA) resulted in an improved quality of earnings from the remaining estate. Moody's estimates that after the refinancing pro-forma leverage, measured as Moody's-adjusted debt to EBITDA, is about 4.9x on the basis of 2019 results, adjusted for restaurants closures in the CVA. The rating agency considers that this positions PizzaExpress adequately in the B2 rating category on the basis that over the next 12 months the company can return to pre-pandemic EBITDA levels. The B2 CFR also positively reflects (1) the company's position as one of the largest and longest standing operators in the UK casual dining restaurant segment; (2) a degree of business risk diversification via international operations and licensed retail offerings; (3) Moody's forecast of a positive impact on earnings of various fresh strategic priorities under a new management team and owners; and (4) the rating agency's expectations of less intense and promotional market dynamics following a significant number of restaurants closures by the company and other casual dining operators. Less positively the CFR also reflects (1) the still levered capital structure with Moody's adjusted leverage expected to remain close to 5x in the next 12-18 months; (2) free cash flow generation still expected to be limited, and somewhat constrained by capital spending levels; (3) a pre-pandemic track record of weak like-for-like (LFL) revenue development and declining profitability under previous management; (4) execution risks associated with the revised strategy to grow LFLs ahead of historic industry averages; and (5) the highly competitive nature of the restaurant industry with various types of indirect competition including pubs, home delivery, and other types of leisure spending. ESG CONSIDERATIONS Moody's takes into account the impact of environmental, social and governance (ESG) factors when assessing companies' credit quality. The coronavirus pandemic constitutes a social risk under the rating agency's ESG framework, given the substantial implications for public health and safety and the company's operations were heavily affected by it over the last fifteen months. However, as remaining restrictions affecting restaurants are set to be lifted in the weeks ahead the company is poised to benefit from strong pent up demand and a rather less intense competitive environment. In terms of governance, an ownership structure that comprises pre-restructuring creditors is unusual and at this relatively early stage the company's medium-term financial policies are unclear. However, at this stage it is credit positive that the refinancing involves no material change to the significantly lower debt levels resulting from last year's restructuring. The highly experienced senior team recruited and their strong track records is also positive from a governance perspective. LIQUIDITY PizzaExpress has an adequate liquidity profile. Proforma for the refinancing transaction, the company will have GBP28 million of cash as well as full availability under a GBP30 million super senior secured revolving credit facility (RCF) to support capital spending and working capital needs. The RCF is subject to a leverage covenant under which Moody's expects the company to have significant headroom. STRUCTURAL CONSIDERATIONS The B2 CFR and the company's PDR of B2-PD are at the same level reflecting Moody's assumption of a 50% loss given default (LGD) at the structure level in line with the rating agency's standard practices when there are at least two levels of seniority among the tranches of funded debt. The new super senior secured RCF and backed senior secured notes benefit from a collateral package which includes share pledges and guarantees from the issuer and material subsidiaries, and floating charges over the assets of the issuer and guarantors. The RCF's priority right for repayment in the event of a default coupled with its relatively modest size drive the three notch uplift in its Ba2 rating relative to the B2 CFR and the rating of the backed senior secured notes. RATING OUTLOOK The stable outlook reflects Moody's expectations that the company will be able to at least return to the 2019 pro-forma EBITDA levels over the course of the coming quarters. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade the company's rating if: (1) the company delivers sustained positive organic revenue and EBITDA growth; (2) Moody's adjusted Debt/EBITDA reduces sustainably below 4.0x; (3) RCF/Net Debt is sustained at close to 20%; and (4) the company maintains an adequate liquidity profile. Downward pressure could materialise if (1) Moody's adjusted leverage does not reduce below 5.5x in the next 12 months; (2) EBIT/Interest is well below 2x; or (3) the company's liquidity profile materially deteriorates. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Restaurant Industry published in January 2018. PROFILE Founded in 1965, PizzaExpress is one of the largest operators in the UK casual dining market, measured by number of restaurants. Following its November 2020 restructuring it currently has 363 sites in the UK and Ireland (down from 481), 36 directly operated International restaurants, and 48 international restaurants operated by franchisees. In addition, the company has a licensed retail business. In 2019, the last fiscal year before the coronavirus pandemic, the company generated revenues and (pre-IFRS16) EBITDA from continuing operations of GBP505.5 million and GBP77.4 million respectively. The company is now controlled by its former lenders, three of which - Bain Capital Credit, Cyrus Capital Partners, and H.I.G. Capital - collectively own 52.9% of the business. PIZZAEXPRESS: Plans to Raise Sterling Bonds After Restructuring --------------------------------------------------------------- Silas Brown at GlobalCapital reports that PizzaExpress is looking to raise sterling bonds to refinance its capital structure, after bondholders took control of it last year from Chinese private equity group Hony Capital. As reported by the Troubled Company Reporter-Europe on Jan. 20, 2021, PizzaExpress had closed a further 23 UK restaurants with discussions ongoing on a number of other sites. The closures come after the chain shut 74 restaurants after entering a company voluntary arrangement (CVA) in September 2020, The Caterer noted. The CVA reduced rents and gave landlords the opportunity to terminate leases until Dec 3, The Caterer disclosed. A number of sites have already been returned to landlords, The Caterer stated. Around 2,400 UK jobs were cut by the company in 2020 through a combination of voluntary and compulsory redundancies, The Caterer related. In PizzaExpress' accounts for 2019, filed before England entered a national lockdown in January, its directors warned that coronavirus was having a "significant impact" on its business, The Caterer recounted. RAIL CAPITAL: Fitch Gives 'B(EXP)' on New Loan Participation Notes ------------------------------------------------------------------- Fitch Ratings has assigned Rail Capital Markets Plc's proposed loan participation notes (LPNs) due 2026 an expected senior unsecured 'B(EXP)' rating and placed it on Rating Watch Negative (RWN). The new LPNs are scheduled to be issued at the beginning of July 2021, at which point Fitch expects to convert the expected rating into a final rating. The final rating is subject to the receipt of final documentations conforming to information already reviewed. KEY RATING DRIVERS The notes will be issued for the sole purpose of funding a loan by Rail Capital Markets Plc to JSC Ukrainian Railway (UR; B/RWN). UR intends to use the proceeds of the loan to refinance the repayment of its existing short-term debt, which will improve its liquidity. The noteholders will rely solely on UR's credit and financial standing for the payment of obligations under the notes. The LPNs are rated at the same level as UR's Long-Term Issuer Default Rating, reflecting Fitch's view that they will constitute direct, unconditional senior unsecured obligations of UR and rank pari passu with all other present and future unsecured and unsubordinated obligations. DERIVATION SUMMARY UR's 'ccc' Standalone Credit Profile (SCP) and support score of 27.5 under Fitch's Government-Related Entities Criteria lead to rating equalisation with the Ukraine sovereign IDR at 'B'. The RWN reflects insufficient immediate liquidity at end-April 2021. Once the notes are successfully placed, UR's ratings are likely to be removed from RWN. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: The expected senior unsecured debt rating will be upgraded on a similar action on UR's Long-Term IDR.Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The expected senior unsecured debt rating will be downgraded on a similar action on UR's Long-Term IDR. For UR's rating sensitivities see the Rating Action Commentary published on 29 April 2021: Factor that could, individually or collectively, lead to positive rating action/upgrade: -- An affirmation would result from an improved liquidity position, sufficient to service debt payments coming due in the next 12 months. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade of Ukraine's sovereign rating. -- Downward reassessment of the SCP, resulting from persistent liquidity stress. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. CRITERIA VARIATION Fitch has applied a GRE Criteria variation by overriding the rating floor of 'B' stemming from UR's GRE support score of 27.5 and a SCP at no more than three notches away from the sovereign's IDR. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS UR's IDRs are directly linked to Ukraine's IDRs. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. VINCENT SHOPFITTERS: Enters Liquidation, 16 Jobs Affected --------------------------------------------------------- Eleanor Pringle at Eastern Daily Press reports that Vincent Shopfitters, an independent shopfitters which has been operating in Norfolk for five decades, has gone into liquidation owing more than GBP500,000. As a result, 16 people have been made redundant, Eastern Daily Press discloses. Vincents Shopfitters, based in Newton St Faith, has an estimated deficit of GBP552,810 outstanding to creditors, Eastern Daily Press states. Liquidator RSM Restructuring Advisory -- which was appointed at the start of the month -- said it was "unlikely" a return would be made to unsecured creditors, Eastern Daily Press relates. However an "amount" of the GBP30,578 owed to former staff in holiday and arrears was expected to be paid, Eastern Daily Press notes. According to Eastern Daily Press, a spokeswoman for RSM, said: "The firm operated as a successful shop fitting service to many high street names over a 50-year period. "Vincents (Shopfitters) Limited had foreseen a future of successful trading with a strong orderbook of work for 2019 Q4 and the rest of 2020. "Unfortunately, as the pandemic hit in 2020 many of the company's client base were forced to cease trading and close non-essential retail stores. "Covid-19 has had a major impact on the retail sector, resulting in an unstainable fall in customer orders and cancelations. As a result of their exposure to the sector, Vincents (Shopfitters) ceased trading on May 14, 2021 after finalizing its remaining projects. "All 16 staff have been made redundant and the business has been wound up. It is unlikely a return will be made to unsecured creditors; an amount will be returned to preferential creditors. "RSM Restructuring Advisory is working with Vincents (Shopfitters) with a view to maximizing realisations for creditors." WAHACA: Expects Swift Recovery Once Restaurants Fully Reopen ------------------------------------------------------------ Sophie Witts at The Caterer reports that Wahaca co-founder Mark Selby has said the group expects to make a swift recovery once its restaurants are able to fully reopen. According to The Caterer, writing in accounts for parent company Oaxaca, Mr. Selby said Wahaca had a "solid financial platform" to grow from after undergoing a company voluntary arrangement (CVA) last year. The Mexican restaurant group was trading in line with expectations until the pandemic forced all its sites to close in March 2020, The Caterer notes. The impact of prolonged restrictions meant it underwent a CVA in October, which saw the permanent closure of 12 restaurants, The Caterer states. Lenders and shareholders wrote off GBP25 million in debt and a further GBP5 million was injected into the business, The Caterer recounts. Wahaca later secured long-term financing facilities of GBP15 million which are fully drawn and repayable in September 2024, The Caterer relays. Turnover for the year ended June 28, 2020, was GBP34.7 million (2019: GBP50 million), gross profit margin was 32.7% (2019: 43.6%) and adjusted operating loss was GBP1.3 million (2019: profit of GBP3.2 million), The Caterer discloses. Net loss before tax was GBP17 million, compared to a loss of GBP4.2 million in 2019, and net liabilities were GBP29 million, The Caterer states. During lockdown Wahaca developed a successful delivery channel, upgraded all its chicken and pork to be British and free range, and developed its menu so around 50% is suitable for vegetarians, The Caterer relates. =============== X X X X X X X X =============== [*] BOOK REVIEW: Hospitals, Health and People --------------------------------------------- Author: Albert W. Snoke, M.D. Publisher: Beard Books Softcover: 232 pages List Price: $34.95 Order your personal copy today at http://www.beardbooks.com/beardbooks/hospitals_health_and_people.html Hospitals, Health and People is an interesting and very readable account of the career of a hospital administrator and physician from the 1930's through the 1980's, the formative years of today's health care system. Although much has changed in hospital administration and health care since the book was first published in 1987, Dr. Snoke's discussion of the evolution of the modern hospital provides a unique and very valuable perspective for readers who wish to better understand the forces at work in our current health care system. The first half of Hospitals, Health and People is devoted to the functional parts of the hospital system, as observed by Dr. Snoke between the late 1930's through 1969, when he served first as assistant director of the Strong Memorial Hospital in Rochester, New York, and then as the director of the Grace-New Haven Hospital in Connecticut. In these first chapters, Dr. Snoke examines the evolution and institutionalization of a number of aspects of the hospital system, including the financial and community responsibilities of the hospital administrator, education and training in hospital administration, the role of the governing board of a hospital, the dynamics between the hospital administrator and the medical staff, and the unique role of the teaching hospital. The importance of Hospitals, Health and People for today's readers is due in large part to the author's pivotal role in creating the modern-day hospital. Dr. Snoke and others in similar positions played a large part in advocating or forcing change in our hospital system, particularly in recognizing the importance of the nursing profession and the contributions of non-physician professionals, such as psychologists, hearing and speech specialists, and social workers, to the overall care of the patient. Throughout the first chapters, there are also many observations on the factors that are contributing to today's cost of care. Malpractice is just one example. According to Dr. Snoke, "malpractice premiums were negligible in the 1950's and 1960's. In 1970, Yale-New Haven's annual malpractice premiums had mounted to about $150,000." By the time of the first publication of the book, the hospital's premiums were costing about $10 million a year. In the second half of Hospitals, Health and People, Dr. Snoke addresses the national health care system as we've come to know it, including insurance and cost containment; the role of the government in health care; health care for the elderly; home health care; and the changing role of ethics in health care. It is particularly interesting to note the role that Senator Wilbur Mills from Arkansas played in the allocation of costs of hospital-based specialty components under Part B rather than Part A of the Medicare bill. Dr. Snoke comments: "This was considered a great victory by the hospital-based specialists. I was disappointed because I knew it would cause confusion in working relationships between hospitals and specialists and among patients covered by Medicare. I was also concerned about potential cost increases. My fears were realized. Not only have health costs increased in certain areas more than anticipated, but confusion is rampant among the elderly patients and their families, as well as in hospital business offices and among physicians' secretaries." This aspect of Medicare caused such confusion that Congress amended Medicare in 1967 to provide that the professional components of radiological and pathological in-hospital services be reimbursed as if they were hospital services under Part A rather than part of the co-payment provisions of Part B. At the start of his book, Dr. Snoke refers to a small statue, Discharged Cured, which was given to him in the late 1940's by a fellow physician, Dr. Jack Masur. Dr. Snoke explains the significance the statue held for him throughout his professional career by quoting from an article by Dr. Masur: "The whole question of the responsibility of the physician, of the hospital, of the health agency, brings vividly to mind a small statue which I saw a great many years ago.it is a pathetic little figure of a man, coat collar turned up and shoulders hunched against the chill winds, clutching his belongings in a paper bag-shaking, tremulous, discouraged. He's clearly unfit for work-no employer would dare to take a chance on hiring him. You know that he will need much more help before he can face the world with shoulders back and confidence in himself. The statuette epitomizes the task of medical rehabilitation: to bridge the gap between the sick and a job." It is clear that Dr. Snoke devoted his life to exactly that purpose. Although there is much to criticize in our current healthcare system, the wellness concept that we expect and accept today as part of our medical care was almost nonexistent when Dr. Snoke began his career in the 1930's. Throughout his 50 years in hospital administration, Dr. Snoke frequently had to focus on the big picture and the bottom line. He never forgot the importance of Discharged Cured, however, and his book provides us with a great appreciation of how compassionate administrators such as Dr. Snoke have contributed to the state of patient care today. Albert Waldo Snoke was director of the Grace-New Haven Hospital in New Haven, Connecticut from 1946 until 1969. In New Haven, Dr. Snoke also taught hospital administration at Yale University and oversaw the development of the Yale-New Haven Hospital, serving as its executive director from 1965-1968. From 1969-1973, Dr. Snoke worked in Illinois as coordinator of health services in the Office of the Governor and later as acting executive director of the Illinois Comprehensive State Health Planning Agency. Dr. Snoke died in April 1988. ********* 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 2021. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *