/raid1/www/Hosts/bankrupt/TCREUR_Public/240308.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, March 8, 2024, Vol. 25, No. 50
Headlines
A U S T R I A
SIGNA GROUP: Founder Files for Personal Insolvency in Austria
F R A N C E
SIRONA HOLDCO: Moody's Affirms B3 CFR & Alters Outlook to Negative
VIVALTO SANTE: Moody's Affirms 'B2' CFR, Outlook Remains Stable
I R E L A N D
CLONMORE PARK: Fitch Assigns 'B-sf' Final Rating on Cl. F-R Notes
SEGOVIA EUROPEAN 5-2018: Moody's Affirms B2 Rating on Cl. F Notes
L U X E M B O U R G
CONNECT FINCO: Moody's Assigns 'B1' Rating on First Lien Loans
INCEPTION HOLDCO: Moody's Assigns 'B2' CFR, Outlook Stable
N E T H E R L A N D S
ALCOA NEDERLAND: Moody's Gives Ba1 Rating to New Unsec. Notes
ALCOA NEDERLAND: S&P Rates $750MM Senior Unsecured Notes 'BB'
R U S S I A
[*] RUSSIA: Corporate Bankruptcies Spike in January-February 2024
S P A I N
GRIFOLS SA: Moody's Puts 'B2' CFR Under Review for Downgrade
TDA 26-MIXTO 1: Fitch Affirms 'CCCsf' Ratings on Class 1-D Debt
T U R K E Y
KUVEYT TURK: Fitch Affirms 'B-/B' LongTerm IDRs, Outlook Stable
TURKIYE FINANS: Fitch Affirms 'B-/B' LongTerm IDRs, Outlook Stable
U N I T E D K I N G D O M
ABRA GROUP: Moody's Upgrades CFR to Caa1 & Alters Outlook to Stable
CONCORDE MIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable
GALILEO GLOBAL: S&P Affirms 'B' LT ICR, Outlook Remains Stable
GREENSILL: Insolvency Service Confirms Outcome of Investigation
MATCHESFASHION: Frasers Group Puts Business Into Administration
PARKMORE POINT 2022-1: S&P Lowers F-Dfrd Notes Rating to 'B-(sf)'
ROLLS-ROYCE PLC: Moody's Ups CFR to Ba1, Outlook Remains Positive
SAIETTA GROUP: Administrators Mull Sale of Business and Assets
SELINA HOSPITALITY: Releases Latest Investor Presentation
STRATTON MORTGAGE 2020-1: Fitch Affirms BB+sf Rating on Cl. F Notes
WIGGLECRC: Frasers Group to Acquire Brands, Intellectual Property
X X X X X X X X
[*] BOOK REVIEW: The Heroic Enterprise
- - - - -
=============
A U S T R I A
=============
SIGNA GROUP: Founder Files for Personal Insolvency in Austria
-------------------------------------------------------------
Olaf Storbeck at The Financial Times reports that property tycoon
Rene Benko, founder of the Signa group, has filed for personal
insolvency in Austria, as a corporate empire that spanned luxury
properties and department stores across Europe and the US unravels
in the courts.
A spokesperson for Innsbruck district court told the FT that it had
received an insolvency filing on behalf of the 46-year-old and was
currently assessing it.
The court was already reviewing Mr. Benko's personal financial
situation after Austria filed an insolvency motion against him
earlier this year, the FT discloses. According to the FT, a lawyer
for Mr. Benko, who Forbes ranked as one of the richest Austrians
until last year, confirmed that he filed a motion on Mr. Benko's
behalf on March 6.
Key companies in Mr. Benko's Signa group are already in
administration as part of the largest and most complex insolvency
proceedings in Austria's history, the FT notes.
Signa, which piled up billions of euros in debt, disintegrated
under rising interest rates, falling property valuations and
lenders' increasing reluctance to refinance loans, the FT relays.
Before its collapse last year, Signa had a helicopter and corporate
jet at Benko's disposal, and employed party planners, hunters and
private jet crew to entertain clients and burnish the group's
reputation, the FT recounts.
The group never published consolidated accounts and did not
disclose its overall level of debt, the FT states.
Last month, Signa creditors filed a criminal complaint against
their former business partner, urging Austria's anti-fraud
prosecutors to investigate events at the collapsed property group,
the FT relays.
===========
F R A N C E
===========
SIRONA HOLDCO: Moody's Affirms B3 CFR & Alters Outlook to Negative
------------------------------------------------------------------
Moody's Investors Service affirmed the B3 long-term corporate
family rating and the B3-PD probability of default rating on Sirona
HoldCo (Seqens), as well as the B3 instrument ratings on Sirona
BidCo France's EUR930 million senior secured term loan B (TLB) and
the EUR130 million senior secured revolving credit facility (RCF),
both due 2028. Moody's changed the outlook to negative from
stable.
The rating action reflects:
-- Execution risks with regards to various restructurings, working
capital optimization programme and liquidity management
-- Weak liquidity and reliance on EBITDA improvement in the second
half of 2024 that leaves little margin for error
-- Uncertainty regarding the recovery path of, foremost,
p-Aminophenol (PAP) EBITDA that itself hinges on competitive
dynamics in the global PAP market
RATINGS RATIONALE
The B3 CFR reflects cost advantages due to the vertical integration
into solvents; potential for cost reduction and working capital
optimization in 2024 to offset metric weakness; and the receipt of
government subsidies for its new paracetamol production unit, which
limits Seqens' own capital expenditure. High barriers to entry
related to the industry's significant regulatory requirements also
help protect Seqens market position.
The B3 CFR also takes into account high leverage, negative FCF and
weakened liquidity, as well as very high business risk. Business
risk includes Seqens' improving but still moderate size relative to
much larger and more diversified global competitors, exposure to
pharmaceutical regulation and quality controls because production
issues can have a significant effect on operating performance, and
the cyclicality of its commoditized solvents business.
LIQUIDITY
Seqens' liquidity is weak. At fiscal year-end 2023 (FYE23) Seqens
had cash of around EUR117 million, around EUR106 million of which
was with group entities in China. Seqens intends to upstream cash
of around EUR35 million to EUR50 million through dividends from
China in 2024. Management also expects to release working capital
of around EUR30 million, largely through a reduction of inventories
in the first half of 2024. Moody's expects revolver drawings at or
below EUR53 million which would not trigger the springing covenant
to be tested. The senior secured net leverage financial covenant
has diminishing headroom over the course of 2024. The company,
however, will raise additional debt of EUR37 million to cover
reimbursable investment advances and working capital facilities. To
further preserve liquidity, Seqens has significantly lowered its
2024 recurring capital spending budget by around 40% to EUR26
million, or around 2.5% of annual sales.
OUTLOOK
The outlook is negative and reflects execution risks, excess
intra-year leverage and an uncertain EBITDA recovery path.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade the ratings if Seqens fails to achieve an
improvement in operating performance such that credit metrics
remain strained (including, but not limited to, EBITDA to interest
expense falling below 1.5x; debt/EBITDA remaining above 7.0x); the
company does not generate positive FCF over the next 12-18 months;
or the company's liquidity position worsens.
For an upgrade of ratings Moody's would expect: debt to EBITDA
sustainably below 6.0x; EBITDA to interest expense well above 2.0x;
and a track record of positive FCF generation.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in October 2023.
COMPANY PROFILE
Seqens, headquartered in Ecully, France, is a producer of small
molecules active pharmaceutical ingredients (APIs), solvents for
pharmaceutical customers as well as chemicals for the personal care
industry. Seqens in 2023 (2022) generated pro-forma revenues of
around EUR1,018 million (EUR1,302 million) and EBITDA of around
EUR158 million (EUR212 million). The company is majority-owned
(76.9%) by funds of private equity sponsor SK Capital.
VIVALTO SANTE: Moody's Affirms 'B2' CFR, Outlook Remains Stable
---------------------------------------------------------------
Moody's Investors Service has affirmed the B2 corporate family
rating and the B2-PD probability of default rating of Vivalto Sante
Investissement. Moody's has also affirmed the B2 rating on the
EUR890 million senior secured term loan maturing in July 2028 and
the EUR200 million senior secured revolving credit facility (RCF)
maturing in January 2028. The outlook remains stable.
RATINGS RATIONALE
The rating affirmation reflects Vivalto's stable operating
performance despite inflationary pressures and integration costs
weighing on profitability. The company's turnover has significantly
increased since 2018 due to acquisitions, but profitability lags
compared to peers due to the need for significant integration
efforts and the Covid-19 downturn.
In 2023, revenue was boosted by acquisitions realized at the end of
2022, as well as good organic growth and tariff increase. However,
Moody's expects adjusted EBITDA margin to decrease to 14.5% in 2023
from 15.1% in 2022. The main reasons for the decline are linked to
inflation, which was not fully offset by tariff increase, and a
decrease in support mechanisms like Covid-19 government subsidies.
In 2024, revenue growth will be driven by tariff increase,
increased activity levels, and acquisitions. Moody's understands
that Vivalto has confirmed the termination of the Denia's
public-private partnership contract in Spain (Government of Spain,
Baa1 stable) in accordance with the decision of the former
Valencian regional administration (Generalitat de Valencia, Ba1
stable) not to renew the contract beyond its end. In 2023, it
provided EUR193 million to the company's consolidated revenue line
and EUR32 million of EBITDA. This will continue to weigh on
profitability in 2024, despite expected easing inflationary
pressure. Going forward, Moody's expects profitability to improve,
as the company fully integrates acquisitions and enhances its
revenue mix through expansion into more profitable sectors such as
psychiatry and day hospitals, and enhancing hotel revenues.
Overall, in 2024, Moody's forecasts an adjusted leverage ratio of
4.7x, well within the B2 rating guidance. At the same time, Moody's
forecasts an adjusted EBITA to interest ratio of 1.3x, which is
below the B2 rating guidance, as well as its main peers. This is
partly due to high depreciation expense because Vivalto owns a real
estate portfolio valued at EUR965 million as of December 31, 2023.
The ownership of real estate assets (of which 66% is unencumbered),
however, provides additional financial flexibility, offering
potential for sale-and-leaseback transactions to support
liquidity.
Vivalto's ratings are supported by (1) the company's standing as
France's (Government of France, Aa2 stable) third-largest private
hospital operator, a position bolstered by a degree of geographical
diversification across Europe; (2) the supportive regulatory
framework of the French healthcare system; (3) favorable secular
trends for private hospitals, driven by an ageing population with a
higher life expectancy resulting in an increased demand for medical
care; and (4) a real estate portfolio valued at EUR965 million as
of December 31, 2023, offering potential for sale-and-leaseback
transactions to support liquidity.
Conversely, the ratings are constrained by (1) estimated
Moody's-adjusted gross debt to EBITDA ratio of 4.7x (using a 4x
rent multiple for operating lease commitments) and Moody's-adjusted
EBITA to interest expense ratio of 1.3x in 2023; (2) the exposure
to regulatory changes in France, although this risk is currently
low; (3) persistent albeit reducing inflation; and (4) risk of
debt-funded acquisitions which could impede credit metrics
improvement.
LIQUIDITY
Vivalto has a good liquidity, supported by an estimated cash of
EUR279 million as well as an undrawn revolving credit facility of
EUR200 million as of December 31, 2023. In the next 18 months,
Moody's forecasts limited free cash flow generation (FCF) of EUR9
million and bolt-on acquisitions of EUR157 million in 2024. Moody's
believes Vivalto's real estate assets could present potential for
monetisation via sale-and-leaseback deals to support liquidity. The
company has a EUR890 million senior secured term loan maturing in
July 2028 and a EUR200 million undrawn RCF maturing in January
2028. Moody's estimates the company to maintain ample headroom
against the springing net leverage covenant included in the RCF
documentation and set at 9.0x, tested when the RCF is drawn by more
than 40%. The net leverage ratio was at 3.7x as of September 30,
2023.
RATING OUTLOOK
The stable outlook reflects the steady revenue growth owing to
positive demand trends and high barriers to entry supporting the
business profile. It also assumes profitability improvement,
notwithstanding present shortcomings.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop if Moody's-adjusted gross
debt to EBITDA remains below 4.5x; Moody's-adjusted EBITA to
interest expense ratio remains above 2.0x ; Moody's-adjusted FCF to
gross debt ratio remains above 5% - all on a sustained basis.
Downgrade rating pressure could develop if Moody's-adjusted gross
debt to EBITDA ratio remains above 5.5x for a prolonged period;
Moody's-adjusted EBITA to interest expense ratio remains materially
below 1.5x for a prolonged period; Moody's-adjusted FCF remains
negative for a prolonged period; profitability deteriorates because
of competitive, regulatory and pricing pressure; the company's
credit profile deteriorates resulting from debt-funded
acquisitions; liquidity deteriorates.
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Established in 2009, Vivalto Sante Investissement is a leading
private hospital operator with a pan-European presence. The firm's
early focus was on France, particularly in regions such as
Brittany, Normandy, Ile de France, and Pays de la Loire. In 2022,
Vivalto broadened its footprint by acquiring companies with
operations in Switzerland (Government of Switzerland, Aaa stable),
Portugal (Government of Portugal, A3 stable), Spain (Government of
Spain, Baa1 stable), and Central Europe. Since November 2021, the
majority ownership of Vivalto has been held by Vivalto Sante
Holding 3, a holding company under the control of Vivalto Partners,
the family holding of founder Daniel Caille. This group of
financial investors, which includes IK Investor, Mubadala
Investment Company, MACSF, and Bpifrance (Aa2 stable), holds a 66%
stake in Vivalto. Practitioners collectively hold around 32%, with
the remaining shares divided between management and employee
shareholding funds.
=============
I R E L A N D
=============
CLONMORE PARK: Fitch Assigns 'B-sf' Final Rating on Cl. F-R Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Clonmore Park CLO DAC Reset final
ratings.
Entity/Debt Rating Prior
----------- ------ -----
Clonmore Park
CLO DAC
A-Loan LT PIFsf Paid In Full AAAsf
A-Note
XS2495510666 LT PIFsf Paid In Full AAAsf
B-1 XS2495510823 LT PIFsf Paid In Full AAsf
B-2 XS2495511128 LT PIFsf Paid In Full AAsf
C-1 XS2495511474 LT PIFsf Paid In Full A+sf
C-2 XS2507908643 LT PIFsf Paid In Full Asf
Class A-R Loan LT AAAsf New Rating
Class A-R Notes
XS2766727114 LT AAAsf New Rating
Class B-1-R Notes
XS2766727544 LT AAsf New Rating
Class B-2-R Notes
XS2766727627 LT AAsf New Rating
Class C-R Notes
XS2766727890 LT Asf New Rating
Class D-R Notes
XS2766728435 LT BBB-sf New Rating
Class E-R Notes
XS2766728948 LT BB-sf New Rating
Class F-R Notes
XS2766729086 LT B-sf New Rating
D-1 XS2495511631 LT PIFsf Paid In Full BBBsf
D-2 XS2507910037 LT PIFsf Paid In Full BBB-sf
E XS2495511805 LT PIFsf Paid In Full BB-sf
F XS2495512019 LT PIFsf Paid In Full B-sf
TRANSACTION SUMMARY
Clonmore Park CLO DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
have been used to redeem the existing notes except the subordinated
notes, to fund the existing portfolio, and to top up the portfolio
using excess cash to reach a target par of EUR350 million. The
portfolio is actively managed by Blackstone Ireland Limited. The
collateralised loan obligation (CLO) has a three-year reinvestment
period and a seven-year weighted average life test (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 25.9.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 60.2%.
Diversified Asset Portfolio (Positive): The transaction also
includes various other concentration limits, including the maximum
exposure to the three-largest Fitch-defined industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has two matrices;
both effective at closing with fixed-rate limits of 5% and 12.5%.
Both matrices are based on a top-10 obligor concentration limit of
25%. The closing matrices correspond to a seven-year WAL test.
The transaction has a reinvestment criterion governing the
reinvestment similar to those of other European transactions.
Fitch's analysis is based on a stressed-case portfolio with the aim
of testing the robustness of the transaction structure against its
covenants and portfolio guidelines.
Cash-flow Modelling (Positive): The WAL used for the transaction's
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant at the issue date (subject to a floor of six years), to
account for the strict reinvestment conditions envisaged by the
transaction after its reinvestment period. These include, among
others, passing the coverage tests and the Fitch 'CCC' bucket
limitation test post reinvestment, as well as a WAL covenant that
progressively steps down over time, both before and after the end
of the reinvestment period. Fitch believes these conditions would
reduce the effective risk horizon of the portfolio during the
stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A-R
notes and would lead to downgrades of two notches for the class
B-R, C-R, and E-R notes, one notch for the class D-R notes and to
below 'B-sf' for the class F-R notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B-R, and D-R to F-R notes
display a rating cushion of two notches and class C-R notes a
rating cushion of one notch.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would lead to a downgrade of up to
four notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to an upgrade of up to two notches for the
rated notes, except for the 'AAAsf' rated notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
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.
SEGOVIA EUROPEAN 5-2018: Moody's Affirms B2 Rating on Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Segovia European CLO 5-2018 Designated Activity
Company:
EUR25,250,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Aa1 (sf); previously on Jul 20, 2023
Upgraded to Aa3 (sf)
EUR22,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A3 (sf); previously on Jul 20, 2023
Affirmed Baa2 (sf)
Moody's also affirms the ratings on EUR212.5m of notes:
EUR206,500,000 (Current outstanding amount EUR140,757,561) Class
A-1 Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf);
previously on Jul 20, 2023 Affirmed Aaa (sf)
EUR9,500,000 Class A-2 Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Jul 20, 2023 Affirmed Aaa
(sf)
EUR16,500,000 Class B-1 Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Jul 20, 2023 Affirmed Aaa
(sf)
EUR15,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031,
Affirmed Aaa (sf); previously on Jul 20, 2023 Affirmed Aaa (sf)
EUR20,250,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Jul 20, 2023
Affirmed Ba2 (sf)
EUR10,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Jul 20, 2023
Affirmed B2 (sf)
Segovia European CLO 5-2018 Designated Activity Company, issued in
August 2018, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Segovia Loan Advisors (UK) LLP. The
transaction's reinvestment period ended in August 2022.
RATINGS RATIONALE
The rating upgrades on the Class C and Class D notes are primarily
a result of the deleveraging of the senior notes following
amortisation of the underlying portfolio since the last rating
action in July 2023.
The affirmations on the ratings on the Class A-1, Class A-2, Class
B-1, Class B-2, Class E and Class F notes are primarily a result of
the expected losses on the notes remaining consistent with their
current rating levels, after taking into account the CLO's latest
portfolio, its relevant structural features and its actual
over-collateralisation ratios.
The Class A-1 notes have paid down by approximately EUR53.1m
(25.7%) since the last rating action in July 2023. As a result of
the deleveraging, over-collateralisation (OC) has increased.
According to the trustee report dated February 2024 [1] the Class
A/B, Class C, Class D and Class E OC ratios are reported at 151.7%,
133.2%, 120.4% and 110.6% compared to June 2023 [2] levels of
141.4%, 127.7%, 117.7% and 109.9% respectively.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR274.3m
Defaulted Securities: EUR6.5m
Diversity Score: 56
Weighted Average Rating Factor (WARF): 2998
Weighted Average Life (WAL): 3.57 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.64%
Weighted Average Coupon (WAC): 4.32%
Weighted Average Recovery Rate (WARR): 44.92%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
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 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
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.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
===================
L U X E M B O U R G
===================
CONNECT FINCO: Moody's Assigns 'B1' Rating on First Lien Loans
---------------------------------------------------------------
Moody's Investors Service has assigned B1 ratings to Connect Finco
Sarl's proposed amended and extended backed 1st lien senior secured
revolving credit facility and backed 1st lien senior secured term
loan B, with Connect U.S. Finco LLC as a co-borrower. Both entities
are in the Inmarsat restricted group, with Viasat, Inc. (Viasat) as
the parent. Viasat's B2 corporate family rating, B2-PD probability
of default rating, and all its other ratings remain unchanged.
Also, Connect Finco Sarl's B1 senior secured notes rating remains
unchanged. The outlook remains stable for Viasat and Connect Finco
Sarl. Moody's will maintain the B1 rating on Connect Finco Sarl's
existing $1.7 billion (face value) senior secured term loan B but
will downsize it to $284 million (non-extended portion) and will
withdraw the existing B1 rating on the company's $700 million
senior secured revolving credit facility when the transaction
closes.
RATINGS RATIONALE
Viasat's B2 CFR is constrained by: (1) the anomaly with its
Viasat-3 F1 satellite, which limits its ability to combat
competitive pressures in the fixed broadband business together with
potential delayed launch and operational risks of its Viasat-3 F2
and F3 satellites; (2) the anomaly with its Inmarsat-6 F2
satellite, which was intended to provide increased capacity and
redundant coverage; (3) ongoing negative free cash flow generation
due to periodic satellite construction in order to remain
competitive while business risk is rising from evolving technology
and increasing supply of satellites; (4) high consolidated
financial leverage (starting Debt/EBITDA of 5.8x for the
combination with Inmarsat), although Moody's expects the metric to
be sustained below 5.5x by the end of fiscal 2025 (ending March 31,
2025) despite uncertain global macroeconomic growth; and (5)
increasing competition in the aviation and maritime businesses. The
rating benefits from: (1) its largest scale among rated peers in
the satellite space, which is further enhanced by the Inmarsat
acquisition; (2) increased recurring revenue and margins, together
with improved segment and geographic diversification; (3) good long
term growth prospects due to rising demand for voice and data
connectivity globally; and (4) very good liquidity.
There is no cross guarantee or cross default between Viasat and
Inmarsat debt. Inmarsat is ring-fenced, with no upstream
distribution of cash flow to Viasat, and that allows the pari-passu
proposed secured revolving credit facility, proposed secured term
loan B and existing secured notes to be rated B1. Also, Inmarsat's
debt does not benefit from loss absorption cushion provided by
Viasat's unsecured notes.
Viasat has very good liquidity (SGL-1) through the next twelve
months to February 28, 2025 with sources approximating $2.9 billion
while it has uses of about $560 million in this timeframe. Sources
include cash and cash equivalents of $1.65 billion at December 31,
2023, full availability under the company's $647.5 million
revolving credit facility that expires in August 2028, and full
availability under Inmarsat's new $550 million revolving credit
facility that will expire in 2027. Cash uses comprise Moody's
negative free cash flow estimate of about $500 million through the
next twelve months, mainly due to capital spending on new satellite
construction and customer premise equipment, and about $60 million
amortization payment on its Ex-Im credit facility and term loans.
Viasat's revolver is subject to financial leverage and coverage
covenants and Moody's expects cushion to exceed 15% through the
next four quarters. Inmarsat's revolver will be subject to a
financial leverage covenant when drawings exceed 40% of the
commitment and Moody's does not expect the covenant to be
applicable through the next four quarters. The combined company has
limited flexibility to generate liquidity from asset sales.
The outlook is stable because Moody's expects the company to
demonstrate good operating performance and sustain consolidated
financial leverage below 5.5x within 24 months after closing the
Inmarsat acquisition. The stable outlook also assumes that the
company will complete construction and launch of the Viasat-3 F2
and F3 satellites within the next 12 to 18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Viasat's ratings could be upgraded if it successfully constructs,
launches and obtains normal operation of its Viasat-3 F2 and F3
satellites, and sustains consolidated FCF/Debt towards 5%,
Debt/EBITDA below 5x and EBITDA-Capex/Interest towards 2x.
Viasat's ratings could be downgraded if there is significant
deterioration in the Inmarsat or Viasat businesses, or if it
sustains consolidated Debt/EBITDA above 6.5x, EBITDA-Capex/Interest
below 1x or FCF/Debt below 0%.
The principal methodology used in these ratings was Communications
Infrastructure published in February 2022.
Viasat, headquartered in Carlsbad, California, operates a consumer
satellite broadband internet business, an in-flight connectivity
business, and provides satellite and related communications,
networking systems and services to government and commercial
customers. Inmarsat operates a satellite communications network
using L-band, Ka-band and S-band spectrum, and provides voice and
data services to customers on land, at sea and in the air.
INCEPTION HOLDCO: Moody's Assigns 'B2' CFR, Outlook Stable
----------------------------------------------------------
Moody's Investors Service has assigned a B2 corporate family rating
and B2-PD probability of default rating to Inception HoldCo
S.A.R.L. (IVIRMA or the company), the top entity of IVIRMA's
banking restricted group. At the same time, Moody's has assigned a
B2 instrument rating to the proposed EUR1,008 million equivalent
backed senior secured term loan B (TLB), due in 2031, which will
have two tranches in EUR and USD, and to the proposed EUR200
million backed senior secured revolving credit facility (RCF), due
in 2030. Both instruments will be issued by Inception FinCo
S.A.R.L., a finance vehicle of IVIRMA, and will be fully guaranteed
by the company's key subsidiaries. The outlook on both entities is
stable.
The company is looking to refinance its existing debt and fund
transaction fees and expenses, with the proposed instruments.
RATINGS RATIONALE
The B2 rating considers the company's global leading position in
the assisted reproductive technologies (ART) industry notably
in-vitro fertilisation, with a diversified clinical network and
vertically integration with genetics testing and procurement
capabilities, its good brand awareness and leading positions in
key, albeit fragmented markets in Iberia, US, UK, Italy and
Nordics, the strong market growth prospects driven by demographic
and societal trends such as delayed parenthood and continued
increase in the awareness and acceptance of ART services, and good
organic growth track record underpinned by strong execution
capabilities and know-how.
The rating also considers the inherent exposure to regulatory risks
such as changes in donor regulations which could affect gametes
supply, although the company's geographic diversification provides
some mitigants; and exposure to macroeconomic conditions because of
high share of out-of-pocket funding by patients in Europe. The
company's weak credit metrics at closing of the transaction, with a
Moody's-adjusted gross leverage of 7x at end-2023 also constrain
the rating. Under its ESG framework, Moody's views IVIRMA's
financial policy and concentrated ownership, as key governance
risks, and key drivers of the rating action. In particular, the
company has a high tolerance for leverage, and its majority
shareholder exerts control of the company through its Board. The
agency views positively that KKR supported Eugin and Conceptions
acquisitions through an equity injection.
Over the next 12-18 months, the agency expects good earnings growth
with Moody's-adjusted gross leverage reducing below 6x , and an
adequate interest coverage with Moody's-adjusted EBITA to interest
expense ratio of around 2x, as well as improving Moody's-adjusted
free cash flow (FCF) generation towards EUR50 million. Although
Moody's has not considered debt-funded acquisitions in its
forecasts, given the fragmented nature of the industry and IVIRMA's
history as a consolidator, potential material acquisitions could
delay leverage reduction if financed by new debt. However this is
not the agency's central scenario.
The agency expects IVIRMA to grow in the high single digit range on
an organic basis over the next 12-18 months, supported by the
company's integration of its latest acquisitions in the US,
expected volume growth in new treatments, and the company's leading
position in ART. At the current rating level, there is no capacity
for Moody's gross adjusted leverage to increase.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that IVIRMA's
operating performance will be strong over the next 12-18 months,
with earnings growth being supported by efficient integration of
recent acquisitions and realisation of planned synergies. The
agency expects the company's Moody's-adjusted gross leverage to
improve to 6x by the end-2024, with increasing cash generation and
continued at least adequate liquidity. Deleveraging will be key for
the company to solidify its positioning at B2 rating level. The
outlook assumes that the company will not undertake any major
debt-funded acquisitions or shareholder distributions.
LIQUIDITY
IVIRMA's liquidity is adequate supported by EUR53 million of cash
expected post-closing of the refinancing, access to its new EUR200
million RCF, which is expected to be undrawn at closing, and
Moody's expectations of Moody's-adjusted FCF of around EUR30
million in 2024 and EUR50 million in 2025. Moody's assumes limited
working capital requirements and total capital expenditure of
around 5% of revenue, over the next 12-18 months.
The RCF includes a springing senior secured leverage covenant set
at 10.5x, tested only when the RCF is drawn above 40%. Moody's
estimates sufficient capacity in the covenant in case the RCF is
used.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure could built up over time if the company continues
to demonstrate, on a sustainable basis, a solid organic growth,
higher Moody's-adjusted EBITDA margins coupled with a successful
integration of acquisitions, and growing market shares in home
markets. Numerically, an upgrade could occur if its
Moody's-adjusted debt/EBITDA falls below 5.0x, its Moody's-adjusted
EBITA/interest improves towards 3.0x, and its Moody's-adjusted free
cash flow (FCF)/debt improves towards high single-digits (in
percentage terms). Predictability over the company's financial
policies and leverage tolerance would also be prerequisites for an
upgrade.
Negative pressure could arise if the company demonstrates weak
growth in revenue or earnings, or does not deliver on expected
synergies from acquisitions leading to Moody's-adjusted debt/EBITDA
remaining above 6.0x beyond 2024, Moody's-adjusted EBITA/interest
of below 2.0x, or Moody's-adjusted FCF remaining around the
break-even levels, or if its liquidity weakens.
STRUCTURAL CONSIDERATIONS
The B2 rating of the senior secured term loan B and RCF, in line
with the CFR, reflects their pari passu ranking in the capital
structure and the upstream guarantees from material subsidiaries of
the company. The B2-PD PDR, in line with the CFR, reflects Moody's
assumption of a 50% family recovery rate, typical for bank debt
structures with a limited or loose set of financial covenants.
There is a EUR150 million payment-in-kind (PIK) note borrowed by
Inception HoldCo S.A.R.L.'s parent company. The PIK note enters the
restricted group as a shareholder loan, which Moody's considers as
equity for adjusted metrics.
COVENANTS
Moody's has reviewed the marketing draft terms for the new credit
facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of consolidated EBITDA
(determined in accordance with the agreement) and will include all
companies representing 5% or more of consolidated EBITDA, provided
that only companies incorporated in England, Delaware, New York,
Spain and Luxembourg are required to provide guarantees and
security, and no regulated entity is required to do so. Security
will be granted over key shares, bank accounts and receivables in
Spain and Luxembourg, and over unspecified assets in Delaware, New
York and England.
Unlimited pari passu debt is permitted up to a senior secured
leverage ratio of 4.25x, and unlimited unsecured debt is permitted
subject to a total leverage ratio of 7.50x or a 2x fixed charge
coverage ratio. Any permitted debt may be incurred as an
incremental facility. Any restricted payments is permitted if total
leverage is 3.75x or lower. Asset sale proceeds are only required
to be applied in full (subject to exceptions) against the senior
debt where total leverage is 4.00x or greater.
Adjustments to consolidated EBITDA include the full run rate of
cost savings and synergies, capped at 30% of consolidated EBITDA
and believed to be realisable within 24 months of the relevant
event.
The proposed terms, and the final terms may be materially
different.
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
IVIRMA was formed in 2017 through the combination of IVI and RMA.
IVI, founded in 1990, was a leader in fertility treatment in Europe
and Latin America. RMA, founded in 1999, was a leading company in
reproductive medicine in the United States. According to IVIRMA,
the company is the world's largest fertility platform with 178
clinics across 14 countries in Europe and the Americas. The company
generated revenue of EUR696 million and company-adjusted EBITDA of
EUR161 million in 2023 and has been majority owned by funds managed
by KKR since 2022.
=====================
N E T H E R L A N D S
=====================
ALCOA NEDERLAND: Moody's Gives Ba1 Rating to New Unsec. Notes
-------------------------------------------------------------
Moody's Investors Service assigned a Ba1 rating to Alcoa Nederland
Holding B.V.'s (ANHBV) proposed new backed senior unsecured notes
due in 2031, guaranteed by Alcoa Corporation (Alcoa) and its
subsidiaries that are guarantors under the revolving credit
agreement. At the same time, Moody's downgraded the ratings of
ANHBV's ("Alcoa") existing backed senior unsecured notes to Ba1
from Baa3 and assigned a Ba1 Corporate Family Rating, a Ba1-PD
Probability of Default Rating and the SGL-2 Speculative Grade
Liquidity Rating to Alcoa. The ratings outlook has been changed to
stable from negative.
RATINGS RATIONALE
The ratings downgrade reflects a significant deterioration in
Alcoa's operating and financial performance, the resulting decline
in its credit metrics and the need for additional liquidity to fund
its restructuring plans in Australia and Spain. The downgrade also
incorporates Moody's expectations that the aluminum market
conditions will not evidence a material improvement in the next
12-18 months. This risk, along with the uncertainty around San
Ciprian operations in Spain and the negative impact of mining
lower-grade bauxite ore in Australia for the next few years could
lead to persistently negative free cash flow and elevated leverage.
The ESG considerations, and specifically, environmental and
governance considerations are key drivers of this rating action,
given the impact of the ongoing Western Australia EPA assessment on
mined bauxite grades and future mine plans, elevated leverage and
the acquisition of Alumina Limited which will further increase the
company's gross debt. Alcoa's rating is supported by its position
as a leading producer of bauxite, alumina, and aluminum, its
geographical and aluminum product diversity, upstream integration
in the aluminum value chain that provides a natural hedge against
the volatility in alumina and bauxite prices.
Moody's forecasts that the Aluminum and Alumina segments
performance will strengthen in 2024-2025. However, given the
current weakness in the aluminum market, the risks around the
anticipated demand recovery in the traditional end-markets in the
near term, the growth in China's primary aluminum production and
the pace at which lower input costs will flow through Alcoa's
business, Moody's believes Alcoa's earnings recovery will be
gradual and protracted. Alcoa's credit metrics worsened materially
since H1 2022 due to unprecedented challenges experienced by the
global aluminum industry in 2022-2023 including high energy prices,
fuel, raw material and labor costs, the abnormally long lag between
the precipitous fall in aluminum prices in 2022 and the subsequent
decline in input costs as well as having to mine lower grade
bauxite ore in Australia.
On February 25, 2024, Alcoa announced its plan to purchase Alumina
Limited, its AWAC JV partner, via an all-stock deal. The
transaction is expected to close by September 30, 2024, subject to
meeting specific conditions and securing regulatory approvals. The
acquisition will simplify the corporate structure and the
decision-making process and could lead to greater operational and
financial flexibility and substantial benefits in the long term.
However, in the near term, it will require Alcoa to fund the
curtailment of Kwinana refinery and all related post-closure
liabilities and to assume about $300 million in Alumina Limited's
debt currently outstanding under its $500 million bank credit
facility.
Moody's estimates that unless alumina prices increase materially
from current levels, largely, because of lower bauxite grades, the
Alumina segment earnings will remain below historical levels until
2027 at the earliest, which will increase the company's reliance on
the Aluminum segment to generate the majority of its earnings and
cash flows. At the same time, Moody's believes that higher
sustained aluminum prices are required for the Aluminum segment
performance to improve meaningfully and for Alcoa's credit metrics
to return to levels commensurate with the investment grade rating
before 2027. Assuming flat LME aluminum price of $2,200/t, Midwest
premium of $400/t and alumina price of $350/t, all close to spot
prices, Moody's forecasts that Alcoa will generate the
Moody's-adjusted EBITDA of about $650 million in 2024, lower than
estimated previously, about $1.1 billion in 2025 and $1.3 billion
in 2026. Leverage, as a result, would be expected to decline from
6.8x in 2023 to 5.5x in 2024, 3.1x in 2025 and 2.8x in 2026. Free
cash flow is estimated to remain negative in 2024-2026.
The stable outlook reflects Moody's expectations that the aluminum
market conditions, and Alcoa's financial and operating performance,
will evidence a gradual improvement in the next 12-18 months and
that leverage will improve towards levels commensurate with a Ba1
rating. The stable outlook also assumes that the company will
maintain its good liquidity position.
Alcoa has a good liquidity profile supported by its cash position
of $944 million as of December 31, 2023, a $1.25 billion undrawn
secured revolving credit facility (RCF - unrated) at Alcoa
Nederland Holding B.V., guaranteed by Alcoa (parent) and certain
subsidiaries and maturing in June 2027, and a one-year $250 million
secured revolving facility with a Japanese bank maturing in April
2024 ($201 million drawn on January 24, 2024) with covenants and
collateral substantially the same as those included in the RCF. The
Company amended and restated its $1.25 billion RCF in June 2022
reducing the size of commitments from $1.5 billion to $1.25 billion
and extended the maturity date from November 2023 to June 2027.
With its FY2023 results, the company announced that it amended the
RCF, temporarily (for FY2024) reducing the minimum interest
coverage ration from 4x to 3x and increasing the limitation on
addbacks to EBITDA for restructuring charges, while reinstating the
collateral package for the RCF with a ratings-based release
mechanism that would apply starting in 2025. The revolver has a
first priority security interest in substantially all assets of the
Alcoa Corporation, ANHBV, the material domestic wholly-owned
subsidiaries of Alcoa Corporation, and the material foreign
wholly-owned subsidiaries of Alcoa Corporation located in
Australia, Brazil, Canada, Luxembourg, the Netherlands, Norway and
Switzerland including equity interests of certain subsidiaries that
directly hold equity interests in AWAC entities. The revolver
financial covenants also include a total maximum debt to
capitalization ratio of 60%, which Moody's expect the company to
remain in compliance with.
The Ba1 rating of the proposed new and existing senior unsecured
notes, at the same level as the CFR, reflects the preponderance of
unsecured debt in the capital structure, given the level of
unsecured notes and other unsecured liabilities relative to the
$1.25 billion secured revolving credit facility and the $250
million Japanese Yen revolving credit facility.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings upgrade is unlikely in the near term but would be
considered if Alcoa improves its cost position, restores
profitability, generates positive free cash flow, reduces gross
debt and improves its liquidity position such that its credit
metrics were expected to sustain at levels commensurate with a
strong investment grade rating. Quantitatively, Moody's could
consider an upgrade if EBIT margin were expected to sustain at
17.5% or higher, EBIT/interest of at least 6x, debt/EBITDA of no
more than 2x and the (CFO-dividends)/debt ratio of at least 40%. An
upgrade would also require a strong commitment and ability to
maintain an investment grade balance sheet through the cycle.
Negative pressure on the ratings could develop if Alcoa's operating
and financial performance, profitability and cash flow generation
do not improve, resulting in continuously negative FCF, further
deterioration in liquidity and persistently weak credit metrics.
Any weakening of the company's balanced financial policy,
shareholder distributions or capital spending significantly
exceeding Moody's expectations, a pursuit of an aggressive business
expansion or a material debt-financed acquisition that is deemed
detrimental to its financial profile could also result in the
downgrade. Quantitatively, Moody's could consider a downgrade if,
on a sustained basis, the EBIT margin were expected to remain below
10%, the EBIT/interest expense ratio below 3.5x, the debt/EBITDA
ratio above 3.25x and the (CFO-dividends)/debt ratio below 25%.
Alcoa Nederland Holding B.V. is a wholly owned subsidiary of Alcoa
Corporation. Headquartered in Pittsburgh, PA, Alcoa Corporation
holds the bauxite, alumina, aluminum, cast products and energy
business. Alcoa's bauxite and alumina business is presently
conducted through its AWAC joint venture with Alumina Limited (60%
Alcoa/40% Alumina Limited). Revenues for the FY2023 were about
$10.6 billion.
The principal methodology used in these ratings was Mining
published in October 2021.
ALCOA NEDERLAND: S&P Rates $750MM Senior Unsecured Notes 'BB'
-------------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue-level rating and '3'
recovery rating to the proposed $750 million senior unsecured notes
due 2031 issued by Alcoa Corp.'s subsidiary Alcoa Nederland Holding
B.V. The '3' recovery rating indicates its expectation for
meaningful (50%-70%; rounded estimate: 65%) recovery in the event
of a default. The company will use the proceeds from these notes to
support its liquidity as it undertakes portfolio restructuring
actions over the next 12 months.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- S&P assigned its 'BB' issue-level rating to the company's
proposed $750 million senior unsecured notes due 2031, which is the
same level as itsr rating on its existing senior unsecured debt.
-- The '3' recovery rating on the senior unsecured notes indicates
S&P's expectation for meaningful (50%-70%; rounded estimate: 65%)
recovery.
-- Alcoa's rated senior unsecured debt comprises $500 million of
4.125% notes due 2029, $750 million of 5.5% notes due 2027, $500
million of 6.125% notes due 2028, and the proposed $750 million
notes due 2031.
-- Alcoa Nederland Holding B.V., is a subsidiary of the guarantor,
Alcoa Corp.
-- S&P's emergence EBITDA assumption incorporates its recovery
assumptions for minimum capital expenditure (3.5% based on future
expectations) and its standard 15% cyclicality adjustment for
issuers in the metals and mining upstream sector. Meanwhile, the 5x
multiple is in line with the multiples S&P uses for other upstream
metals and mining companies.
-- S&P assumes the company defaults in 2029 due to prolonged
cyclically low alumina and aluminum prices that weaken its asset
quality and lead to significant capacity rationalization. Such a
scenario could occur due to imbalances in global supply and demand,
difficult economic conditions, or product substitution. Therefore,
the company's cash flow from operations would be insufficient to
cover its fixed charges related to interest and capital outlays.
-- S&P's estimated debt claims also include about six months of
accrued but unpaid interest outstanding at the point of default.
-- S&P estimates a distressed gross recovery value of
approximately $4 billion, which it bases on emergence EBITDA of
about $800 million (consistent with fixed charges) and a 5x EBITDA
multiple.
Simulated default assumptions
-- Year of default: 2029
-- EBITDA at emergence: $840 million
-- Implied enterprise value (EV) multiple: 5x
-- Gross EV: $4.2 billion
Simplified waterfall
-- Net EV after 5% administrative costs: $3.7 billion.
-- Obligor (U.S. operations)/nonobligor (foreign operations)
valuation split: 5%/95%
-- Total value available to unsecured claims: $2.6 billion
-- Estimated unsecured debt claims at default: $2.5 billion
--Recovery expectations for unsecured debt: Capped at 50%-70%
(rounded estimate: 65%)
===========
R U S S I A
===========
[*] RUSSIA: Corporate Bankruptcies Spike in January-February 2024
-----------------------------------------------------------------
Newsweek reports that Russia has seen a sharp spike in corporate
bankruptcies, according to a report that comes as Vladimir Putin
looks to tax companies more to pay for his social program and the
sanctions-hit economy continues to face turbulence.
According to Newsweek, the business newspaper Kommersant reported
that in the first two months of 2024, corporate bankruptcies had
increased by more than a half compared with the same period last
year -- and experts predicted an increase in insolvencies in
future.
Bartosz Sawicki, market analyst at Conotoxia Fintech, told Newsweek
Russian firms are facing refinancing issues "as the effects of
monetary tightening are starting to kick in."
Kommersant said that in January and February this year, 571 and 771
companies respectively, were declared bankrupt -- 57% and 61% more
than in the same months in 2023, citing court records in the
country's Unified Federal Register of Bankruptcy Information,
Newsweek relates.
Bankruptcies had been steadily declining, dropping from 10,306
cases in 2021 to 7,400 in 2023, Newsweek states. This has been
helped in part by a moratorium on insolvencies put in place due to
the coronavirus pandemic, as well as sanctions imposed in 2022
following Putin's full-scale invasion of Ukraine, Newsweek notes.
According to Newsweek, Russia's First Deputy Minister of Economy
Ilya Torosov told the paper that taking into account the moratorium
and data before the pandemic, "there has been no increase" in
bankruptcy proceedings.
Meanwhile, Anton Krasnikov, a partner at the Russian law firm
Sotbi, attributed the rise to a low base caused by the moratorium,
although he told the paper that bankruptcies were returning to
pre-pandemic levels, Newsweek relays.
=========
S P A I N
=========
GRIFOLS SA: Moody's Puts 'B2' CFR Under Review for Downgrade
------------------------------------------------------------
Moody's Investors Service placed the ratings of Grifols S.A. and
its subsidiaries on review for downgrade. The ratings placed on
review for downgrade include Grifols' B2 corporate family rating,
B2-PD probability of default rating, Caa1 senior unsecured rating
and Ba3 backed senior secured rating and senior secured rating.
They also include the Caa1 backed senior unsecured ratings of
Grifols Escrow Issuer, S.A.U. and the Ba3 backed senior secured
ratings of Grifols World Wide Operations Ltd. and Grifols World
Wide Operations USA, Inc. Previously, the outlook was negative.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The review follows the publication by Grifols of its full-year 2023
results and considers the weaker free cash flow (FCF) generation in
2023-24 than Moody's had projected and the delay in its audited
accounts publication. It also considers Grifols' approaching debt
maturities, including two bonds due in February 2025 and May 2025
and a USD1.0 billion revolving credit facility (RCF) due in
November 2025, which it has not yet addressed. While Grifols has
confirmed that the sale process involving a 20% stake in Shanghai
RAAS (SRAAS) is ongoing, following the satisfactory conclusion of
confirmatory due diligence by the purchaser of the stake, the
timely completion of this transaction and of the subsequent
repayment/refinancing of its 2025 debt maturities still involves
execution risks.
Governance considerations, notably related to Grifols' risk
management, financial results predictability and organizational
complexity, were drivers of the rating action.
In 2023, Grifols continued to report negative FCF generation and
the company guided to breakeven FCF in 2024. This is lower than
Moody's expectations of a slightly positive FCF in 2023 and a
EUR200 million-EUR300 million FCF in 2024. The shortfall in 2024
FCF is mainly related to unexpected cash outflows which will
include (i) EUR370 million capital spending mostly related to
collection centers built under a collaboration agreement with
ImmunoTek GH, LLC.; and (ii) EUR110 million of restructuring and
transaction costs.
Moody's review will focus on (i) the finalization of Grifols' audit
process and the review of its 2023 audited financial accounts; (ii)
the company's plans to address its 2025 bond maturities and RCF
renewal, and more generally its liquidity profile for the next
12-18 months; and (iii) an assessment of the company's earnings and
FCF generation prospects in 2024 and beyond, in light of the
company's refinancing needs until and beyond 2025 and the higher
interest rate environment.
LIQUIDITY
Grifols' liquidity has weakened, as it faces large approaching debt
maturities. As of December 31, 2023, Grifols' liquidity sources
comprised a cash balance of EUR526 million and a USD1.0 billion
backed senior secured RCF due November 2025, under which EUR360
million was drawn as of December 31, 2023, leaving about EUR560
million available. The RCF is subject to a springing leverage
covenant (net debt/EBITDA at a maximum of 7x) that is activated if
drawings exceed 40%. Grifols' leverage covenant was 6.3x at the end
of 2023. As per the company's guidance, Moody's does not expect
positive FCF generation in 2024.
As of December 31, 2023, Grifols had EUR1.0 billion of current
financial liabilities, which include about EUR700 million of
current loans, about EUR80 million of current debt with GIC and
about EUR100 million of current leases. It also faces large debt
maturities in the first half of 2025 with two bonds totaling about
EUR1.85 billion maturing in February and May 2025. Grifols expects
to receive USD1.8 billion (about EUR1.6 billion) proceeds from its
SRAAS stake sale which it intends to apply to debt reduction.
ESG CONSIDERATIONS
Grifols's CIS-4 indicates the rating is lower than it would have
been if ESG risk exposures did not exist. Main ESG considerations
for Grifols are related to governance and industry-wide social
risks.
Grifols' G-4 reflects its track record of high leverage tolerance;
its complex and opaque organizational structure which includes
multiple partnerships and joint ventures, and related party
transactions; and frequent managerial changes recently. Weaknesses
in the predictability of Grifols' financial results have resulted
in the change of the Management Credibility and Track Record score
to 4 from 3.
Grifols is exposed to high industry-wide social risks which is
reflected in its S-4 issuer profile score and include product
safety risk, litigation exposure, high manufacturing compliance,
and exposure to regulatory changes which can affect product
prices.
LIST OF AFFECTED RATINGS
Issuer: Grifols S.A.
Outlook Actions:
Outlook, Changed To Rating Under Review From Negative
On Review for Downgrade:
Probability of Default Rating, Placed on Review for Downgrade,
currently B2-PD
LT Corporate Family Rating (Foreign Currency), Placed on Review
for Downgrade, currently B2
Senior Secured Bank Credit Facility (Local Currency), Placed on
Review for Downgrade, currently Ba3
BACKED Senior Secured Regular Bond/Debenture (Local Currency),
Placed on Review for Downgrade, currently Ba3
Senior Unsecured Regular Bond/Debenture (Local Currency), Placed
on Review for Downgrade, currently Caa1
Issuer: Grifols Escrow Issuer, S.A.U.
Outlook Actions:
Outlook, Changed To Rating Under Review From Negative
On Review for Downgrade:
BACKED Senior Unsecured Regular Bond/Debenture (Foreign Currency),
Placed on Review for Downgrade, currently Caa1
BACKED Senior Unsecured Regular Bond/Debenture (Local Currency),
Placed on Review for Downgrade, currently Caa1
Issuer: Grifols World Wide Operations Ltd.
Outlook Actions:
Outlook, Changed To Rating Under Review From Negative
On Review for Downgrade:
BACKED Senior Secured Bank Credit Facility (Foreign Currency),
Placed on Review for Downgrade, currently Ba3
Issuer: Grifols World Wide Operations USA, Inc.
Outlook Actions:
Outlook, Changed To Rating Under Review From Negative
On Review for Downgrade:
BACKED Senior Secured Bank Credit Facility (Local Currency),
Placed on Review for Downgrade, currently Ba3
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Medical
Products and Devices published in October 2023.
COMPANY PROFILE
Grifols, headquartered in Barcelona, Spain, is a global healthcare
company that is primarily focused on human blood plasma-derived
products and transfusion medicine. Grifols also supplies devices,
instruments and assays for clinical diagnostic laboratories. It
generated EUR6.6 billion in revenue in 2023.
TDA 26-MIXTO 1: Fitch Affirms 'CCCsf' Ratings on Class 1-D Debt
---------------------------------------------------------------
Fitch Ratings has upgraded one tranche of TDA 26-Mixto, FTA -
Series 2 (TDA 26-2) and removed it from Rating Watch Positive (RWP)
and affirmed the remaining tranches. Fitch has also affirmed TDA
26-Mixto, FTA - Series 1 (TDA 26-1), as detailed below:
Entity/Debt Rating Prior
----------- ------ -----
TDA 26-Mixto,
FTA - Series 1
Class 1-A2 ES0377953015 LT AAAsf Affirmed AAAsf
Class 1-B ES0377953023 LT AAAsf Affirmed AAAsf
Class 1-C ES0377953031 LT Asf Affirmed Asf
Class 1-D ES0377953049 LT CCCsf Affirmed CCCsf
TDA 26-Mixto,
FTA - Series 2
Class 2-A ES0377953056 LT AA+sf Upgrade A+sf
Class 2-B ES0377953064 LT Asf Affirmed Asf
Class 2-C ES0377953072 LT CCCsf Affirmed CCCsf
TRANSACTION SUMMARY
The transactions comprise residential mortgages serviced by Banco
de Sabadell, S.A. (BBB-/Positive/F3) and Banca March (not rated).
KEY RATING DRIVERS
Updated Rating Approach: The upgrade of TDA 26-2's class 2-A notes
to 'AA+sf' and removal from RWP reflect the update of Fitch's
analytical approach to the interest deferability of notes in its
Global Structured Finance Rating Criteria. Fitch may now assign
ratings up to 'AA+sf' to notes where Fitch assesses that interest
deferrals will be fully repaid pursuant to the terms of the
documents and by legal final maturity. As a result, the agency
assesses payment interruption risk (PIR) in the event of a servicer
disruption as immaterial for bonds rated up to 'AA+sf', when
interest payments on the bonds can be deferred without causing an
event of default.
Excessive Counterparty Exposure: The affirmation of TDA 26-1's
class C notes and TDA 26-2's class B notes at 'Asf' with Positive
Outlook reflect that the ratings are capped at the transaction
account bank's (TAB) long-term deposit rating (Societé Generale,
S.A; 'A'). The rating cap reflects the excessive counterparty
dependency on the TAB holding the cash reserves, as credit
enhancement (CE) held at the TAB represents more than half the
total CE available to these tranches. The sudden loss of these
funds would imply downgrades of 10 or more notches in accordance
with Fitch's criteria.
Neutral Asset Performance Outlook: The rating actions reflect its
broadly stable asset performance expectations for the transactions,
in line with the neutral asset outlook for eurozone RMBS
transactions and Fitch's views on the Spanish housing sector for
the next few years (see "Iberian Mortgage Market Index - October
2023"). The transactions maintain a low share of loans in arrears
over 90 days (less than 0.3% as of the latest reporting dates) and
are protected by substantial seasoning above 19 years.
The current loan-to-value ratios are low at around 21% for TDA 26-1
and 38% for TDA 26-2. The balance of gross cumulative defaults was
3.5% and 1.4%, respectively, relative to the initial portfolio
balance as of the latest reporting dates, smaller than the average
for Fitch-rated Spanish RMBS transactions of around 6.5%.
Portfolio Risky Attributes: The portfolios have larger than average
exposure to self-employed borrowers of around 15%-20%. These are
considered riskier than loans granted to third-party employed
borrowers. The portfolios are also exposed to substantial
geographic concentration risk, mainly to the regions of Baleares
(around 28% of TDA 26-1 and 46% of TDA 26-2's portfolio balance)
and Canarias (around 10% of TDA-26-1 and 28% of TDA-26-2). Fitch
has applied a higher set of rating multiples to the base
foreclosure frequency (FF) assumption to the portion of the
portfolios that exceeds 2.5x the population within these regions
relative to the total national population.
Sufficient CE: Fitch deems the notes sufficiently protected by CE
against projected losses at their ratings. Fitch expects CE ratios
to continue increasing, driven by the sequential amortisation of
the notes and the non-amortising reserve funds. The combined
portfolio factor is below 10% of its original balance and a
mandatory sequential paydown of the liabilities is expected to
continue until the final maturity date in line with the
transactions' documentation.
ESG Considerations: In a 'AAAsf' rating scenario, TDA 26-2 remains
exposed to PIR in the event of a servicer disruption, as Fitch
deems the available cash reserve fund insufficient to cover
stressed senior fees, net swap payments and senior note interest
due amounts while an alternative servicer arrangement is being
implemented.
This assessment takes into consideration the very low borrower
count left in the pool of around 230, which exposes the transaction
to added volatility with a default of few borrowers as the cash
reserve fund can also be used to cover credit losses. This leads to
a cap on the class A notes' rating at 'AA+sf'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
For the notes that are rated at 'AAAsf, a downgrade of Spain's
Long-Term Issuer Default Rating (IDR) that could decrease the
maximum achievable rating for Spanish structured finance
transactions.
For TDA 26-1's class C notes and TDA 26-2's class B notes, a
downgrade of the TAB's long-term deposit rating could trigger a
corresponding downgrade of the notes. This is because the notes'
ratings are capped at the TAB rating given the excessive
counterparty risk exposure.
CE ratios unable to fully compensate the credit losses and cash
flow stresses associated with the current ratings, all else being
equal, may result in downgrades. A 30% increase in the weighted
average (WA) FF and decrease in the WA recovery rate by 30 % would
result in a one-notch downgrade of TDA 26-2's class B notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Notes rated 'AAAsf' are at the highest level on Fitch's scale and
cannot be upgraded
For TDA 26-1's class C notes and TDA 26-2's class B notes, an
upgrade of the TAB's long-term deposit rating could trigger a
corresponding upgrade of the notes. This is because the notes'
ratings are capped at the TAB rating given the excessive
counterparty risk exposure.
For TDA 26-2's class A notes, improved liquidity protection against
PIR.
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
TDA 26-Mixto, FTA - Series 1, TDA 26-Mixto, FTA - Series 2
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transaction[s] over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings on TDA 26-1's class C notes and TDA 26-2's class B
notes are directly linked to the TAB's deposit rating due to
excessive counterparty dependency.
ESG CONSIDERATIONS
TDA 26-Mixto, FTA - Series 2 has an ESG Relevance Score of '5' for
Transaction & Collateral Structure due to unmitigated payment
interruption risk, which has a negative impact on the credit
profile, and is highly relevant to the rating, resulting in a
change to the rating of at least a one-notch down.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===========
T U R K E Y
===========
KUVEYT TURK: Fitch Affirms 'B-/B' LongTerm IDRs, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Kuveyt Turk Katilim Bankasi A.S's
(Kuveyt Turk) Long-Term Foreign-Currency (LTFC) Issuer Default
Rating (IDR) at 'B-' and its Long-Term Local-Currency IDR (LTLC) at
'B'. The Outlooks are Stable and mirror those on the sovereign
IDRs, while that on the LTFC IDR also reflects reduced operating
environment pressures. Fitch has also affirmed the bank's Viability
Rating (VR) at 'b-'.
KEY RATING DRIVERS
Kuveyt Turk's 'B-' LTFC IDR is driven by its Shareholder Support
Rating (SSR) of 'b-' and underpinned by its standalone
creditworthiness as expressed by its VR. The LTFC IDR is capped at
'B-', one notch below Turkiye's, due to government intervention
risk, notwithstanding a high support propensity from Kuwait Finance
House (K.S.P.C.) (KFH; A/Stable). The LTLC IDR is also driven by
its SSR and, is one notch above its LTFC IDR, reflecting lower
intervention risk in LC. The bank's 'B' Short-Term (ST) LC and FC
IDRs are the only possible option mapping to LT IDRs in the 'B'
category.
The VR reflects Kuveyt Turk's concentrated operations in a
challenging Turkish market, rapid growth and only adequate
capitalisation. It also considers its leading position in niche
participation banking despite its overall small market share and
adequate FC liquidity.
Shareholder Support: The SSR reflects Kuveyt Turk's strategic
importance to KFH, its important role within the wider group and
reputational risks to KFH from a default of the subsidiary.
However, government intervention risk caps the SSR at one notch
below the sovereign rating. The cap reflects Fitch's view that the
likelihood of government intervention that would impede Kuveyt
Turk's ability to service its FC obligations is higher than that of
a sovereign default.
Operating Environment Pressures Recede: Kuveyt Turk's operations
are concentrated in the challenging Turkish operating environment.
A recent shift towards the normalisation of the monetary policy has
reduced near-term macro-financial stability risks and decreased
external financing pressures. Banks remain exposed to high
inflation, lira depreciation, slowing growth expectations, and
multiple macro-prudential regulations, despite recent
simplification efforts.
Leading Participation Bank: Kuveyt Turk is the largest
participation bank in Turkiye, with associated benefits to its
franchise and business model. Nevertheless, it has a small market
share among Turkish banks (end-3Q23: 3% of banking sector assets).
Participation banking is a strategically important segment to the
Turkish government.
Asset-Quality Risks: Kuveyt Turk's Stage 3 financing ratio improved
to 1.2% at end-2023 (end-2022: 1.6%), reflecting strong nominal
financing expansion (70%), recoveries and write-offs. Asset-quality
risks remain due to macroeconomic volatility, exposure to the SME
segment (end-3Q23: 53% of gross financing), and moderate Stage 2
financing (7% at end-3Q23, 29% covered by specific loan loss
allowances). Its high share of FC financing (around 40% of
financing) is also a risk, as not all borrowers are fully hedged.
Strong Profitability: Kuveyt Turk's operating profit increased to
6.5% of total assets in 2023 (2022: 5.5%), supported by strong fee
and customer-driven trading income despite a slightly weaker margin
due to the impact of macro prudential regulations. Profitability
remains sensitive to asset-quality risks and macro-economic and
regulatory developments.
Only Adequate Capitalisation: Kuveyt Turk's high common equity Tier
1 (CET1) ratio (18.3% at end-2023; around 13% net of regulatory
forbearance) benefits from a 50% reduction in risk weighting on
assets financed by profit-share accounts. However, capitalisation
is only adequate given the bank's high leverage, with a fairly low
equity/ assets ratio of 7.7% at end-2023 (sector average: 9%).
Capitalisation is supported by high pre-impairment operating
profitability and ordinary support from KFH, but is sensitive to
macroeconomic challenges and asset-quality risks.
Deposit-Funded, Adequate FC Liquidity: Kuveyt Turk is largely
deposit-funded (end-2023: 85% of non-equity funding), of which
around 50% is in FC (including sizeable precious metal deposits).
Refinancing risks are mitigated by liquidity support from KFH. FC
liquidity at end-3Q23 was sufficient to fully cover maturing FC
debt due within 12 months and 16% of FC deposits.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of the bank's LTFC IDR would follow a downgrade of both
its VR and SSR. A downgrade of the bank's LTLC IDR would follow a
downgrade of the SSR.
The VR could be downgraded on a marked deterioration in the
operating environment, or on a material erosion in the bank's FC
liquidity buffers, for example, due to a prolonged funding market
closure or deposit instability, or in the bank's capital buffers,
if not offset by shareholder support. The VR is also sensitive to a
sovereign downgrade.
A downgrade of Turkiye's sovereign ratings, or an increase in its
view of government intervention risk, could lead to a downgrade of
the SSR, leading to negative rating action on the bank's LT IDRs.
The SSR is also sensitive to Fitch's view of the shareholder's
ability and propensity to provide support.
The ST IDRs are sensitive to downgrades of their respective LT
IDRs
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Turkiye's LT IDRs would likely lead to similar
actions on the bank's SSR and LT IDRs. A material improvement in
Turkiye's external finances or a marked improvement in its net
foreign-exchange reserves position, resulting in a significant
reduction in its view of government intervention risk in the
banking sector, could lead to an upgrade of the SSR and LTFC IDR to
the level of Turkiye's LTFC IDR.
Kuveyt Turk's VR could be upgraded if the operating environment in
Turkiye improves materially, most likely on the back of a sovereign
upgrade, coupled with the bank strengthening its capitalisation and
maintaining an adequate FC liquidity buffer.
An upgrade of ST IDRs is unlikely and would require a multi-notch
upgrade of the respective LT IDRs.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Kuveyt Turk's subordinated debt rating (issued through its
special-purpose vehicle KT21 T2 Company Limited) is one notch below
the bank's 'B-' LTFC IDR anchor rating. Fitch uses Kuveyt Turk's
LTFC IDR as the anchor rating as shareholder support is likely to
be extended to the subordinated notes.
The notching for the subordinated notes includes one notch for loss
severity and zero notches for non-performance risk relative to the
anchor rating. The one notch for loss severity, rather than its
baseline two notches, reflects its view that shareholder support
(as reflected in the bank's LTFC IDR) could help mitigate losses
and incorporates the cap on the bank's LTFC IDR at 'B-' by its view
of government intervention risks. Fich has not applied any
additional notching for non-performance risks, as the notes do not
incorporate going-concern loss-absorption features.
The 'RR5' Recovery Rating on the notes reflects below-average
recovery prospects in a default.
The bank's National Rating is underpinned by support from its
parent KFH and is in line with foreign-owned peers'.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The National Ratings are sensitive to changes in Kuveyt Turk's LTLC
IDR and its creditworthiness relative to that of other Turkish
issuers.
The subordinated debt rating is sensitive to a change in Kuveyt
Turk's LTFC IDR anchor rating. The rating of the subordinated notes
is also sensitive to a reassessment of potential loss severity and
incremental non-performance risk.
VR ADJUSTMENTS
The operating environment score of 'b-' for Turkish banks is lower
than the category-implied score of 'bb', due to the following
adjustment reasons: sovereign rating (negative) and macro-economic
stability (negative).
Earnings and profitability score of 'b' is below the
category-implied score of 'bb', due to the following adjustment
reason: risk-weight calculation (negative).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Kuveyt Turk's ratings are linked to KFH's.
ESG CONSIDERATIONS
Kuveyt Turk's ESG Relevance Score of '4' for Management and
Strategy reflects its view that the increased regulatory burden on
all Turkish banks hinders the operational execution of management
strategy. This reflects the constraints on management ability
across the sector to determine their own strategy and price risk as
a result of increased regulatory intervention, but also the
operational challenges of implementing the regulations at bank
level. This has a moderate impact on the rating, in combination
with other factors.
Kuveyt Turk's ESG Relevance Score of '4' for Governance Structure
reflects its Islamic banking nature where its operations and
activities need to comply with sharia principles and rules, which
entails additional costs, processes, disclosures, regulations,
reporting and sharia audit. This has a negative impact on its
credit profiles and is relevant to the rating in conjunction with
other factors.
Kuveyt Turk has an ESG Relevance Score of '3' for Exposure to
Social Impacts, above sector guidance for an ESG Relevance Score of
'2' for comparable conventional banks, which reflects that Islamic
banks have certain sharia limitations embedded in their operations
and obligations, although this only has a minimal credit impact on
Islamic banks.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Kuveyt Turk
Katilim
Bankasi A.S LT IDR B- Affirmed B-
ST IDR B Affirmed B
LC LT IDR B Affirmed B
LC ST IDR B Affirmed B
Natl LT AA(tur)Affirmed AA(tur)
Viability b- Affirmed b-
Shareholder Support b- Affirmed b-
KT21 T2
Company Limited
Subordinated LT CCC+ Affirmed RR5 CCC+
TURKIYE FINANS: Fitch Affirms 'B-/B' LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Turkiye Finans Katilim Bankasi A.S.'s
(TFKB) Long-Term Foreign-Currency (LTFC) and Long-Term
Local-Currency (LTLC) Issuer Default Ratings (IDR) at 'B-' and 'B',
respectively. The Outlooks are Stable and mirror the sovereign
IDRs', while that on the LTFC IDR also reflects reduced operating
environment pressures. Fitch has also affirmed the bank's Viability
Rating (VR) at 'b-'.
KEY RATING DRIVERS
TFKB's 'B-' LTFC IDR is driven by its Shareholder Support Rating
(SSR) of 'b-' and underpinned by its standalone creditworthiness as
expressed by its VR. The LTFC IDR is capped at 'B-', one notch
below Turkiye's, due to government intervention risk,
notwithstanding a high support propensity from The Saudi National
Bank (SNB; A-/Stable). The LTLC IDR is also driven by the SSR and,
is one notch above TFKB's LTFC IDR, reflecting lower intervention
risk in LC. The bank's 'B' Short-Term (ST) LC and FC IDRs are the
only option mapping to LT IDRs in the 'B' category.
The VR reflects TFKB's concentrated operations in a challenging
Turkish market and its only adequate core capitalisation. The VR
also considers the bank's small but reasonable franchise in
participation-banking and adequate FC liquidity.
Shareholder Support: TFKB's SSR reflects its strategic importance
to its 67% owner SNB, its important role within the wider group and
reputational risks to SNB from a default of the subsidiary.
However, government intervention risk caps the SSR at one notch
below the sovereign LTFC IDR. The cap reflects Fitch's view that
the likelihood of government intervention that would impede TFKB's
ability to service its FC obligations is higher than that of a
sovereign default.
Operating Environment Pressures Recede: TFKB's operations are
concentrated in the challenging Turkish operating environment. A
recent shift towards the normalisation of the monetary policy has
reduced near-term macro-financial stability risks and decreased
external financing pressures. Banks remain exposed to high
inflation, lira depreciation, slowing growth expectations, and
multiple macro-prudential regulations, despite recent
simplification efforts.
Small Franchise: TFKB has a small (around 1% of total sector
assets) but rapidly growing franchise in Turkiye in participation
banking, and also benefits from ordinary support from its parent.
Participation banking is a strategically important sector to the
government.
Asset-Quality Risks: TFKB's impaired financing ratio improved to
1.8% at end-3Q23 (end-2022: 3.0%), supported by financing growth,
write-offs and some collections. Stage 2 financing was moderate at
6% of gross financing, although adequately covered by financing
loss allowances at 20%. Asset-quality risks are heightened by a
high exposure to SMEs (end-3Q23: around half of total financing) in
a slower growth and higher rate environment. FC financing
(end-3Q23: 22%), albeit below the sector average, remains a risk as
not all borrowers are hedged against lira depreciation.
Non-Financing Income Supports Profitability: TFKB's operating
profit increased to 5.1% of average total assets in 9M23 (2022:
3.2%), benefiting from significant trading income (30% of total
operating income), which partly offset a 186bp margin contraction
resulting from the impact of the macro-prudential regulations.
Profitability remains sensitive to asset-quality risks and
macro-economic and regulatory developments.
Only Adequate Capitalisation: TFKB's common equity Tier 1 (CET1)
ratio (17% at end-3Q23; 13.8% net of regulatory forbearance) is
only adequate given the bank's fairly low equity/ assets ratio
(end-3Q23: 7.7%; sector average: 9%). The CET1 ratio benefits from
a 50% reduction in risk weighting on assets financed by
profit-share accounts, which results in an estimated 4pp uplift to
the ratio. Capitalisation is supported by high pre-impairment
operating profitability and ordinary support from SNB, but is
sensitive to macro-economic challenges and asset-quality risks.
Deposit-Funded, Adequate FC Liquidity: TFKB is largely funded by
customer deposits (end-3Q23: 88%), of which 42% are in FC and
around 30% in foreign-exchange (FX) protected lira deposits.
Wholesale funding in FC comprised a fairly low 7% of total funding
and has been declining, which, along with support from SNB, limits
refinancing risk. FC liquidity at end-3Q23 was sufficient to fully
cover maturing FC debt due within 12 months and 21% of FC
deposits.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of the bank's LTFC IDR would follow a downgrade of both
its VR and SSR. A downgrade of the bank's LTLC IDR would follow a
downgrade of the SSR.
The VR could be downgraded on a marked deterioration in the
operating environment, or on a material erosion in the bank's FC
liquidity buffers, for example, due to a prolonged funding market
closure or deposit instability, or in the bank's capital buffers,
if not offset by shareholder support. The VR is also sensitive to a
sovereign downgrade.
A downgrade of Turkiye's sovereign ratings, or an increase, in its
view, of government intervention risk, would lead to a downgrade of
the SSR, leading to downgrades of the LT IDRs. The SSR is also
sensitive to a negative change to the shareholder's ability and
propensity to provide support.
The Short-Term IDRs are sensitive to downgrades of the respective
LT IDRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Turkiye's LT IDRs would likely lead to similar
actions on the bank's SSR and LT IDRs. A material improvement in
Turkiye's external finances or a marked improvement in its net FX
reserves position, resulting in a significant reduction in its view
of government intervention risk in the banking sector, could lead
to an upgrade of the SSR and LTFC IDR to the level of Turkiye's
LTFC IDR.
TFKB's VR could be upgraded if the operating environment in Turkiye
improves materially, most likely on the back of a sovereign
upgrade, coupled with a considerable strengthening of the bank's
business profile and a strengthening in capitalisation.
An upgrade of the bank's ST IDRs is unlikely and would require a
multi-notch upgrade of the respective LT IDRs.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
TFKB's National Rating is underpinned by support from parent SNB
and is in line with foreign-owned peers'.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The National Rating is sensitive to changes in the bank's LTLC IDR
and in its creditworthiness relative to that of other Turkish
issuers.
VR ADJUSTMENTS
The operating environment score of 'b-' for Turkish banks is lower
than the category-implied score of 'bb', due to the following
adjustment reasons: sovereign rating (negative) and macro-economic
stability (negative).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
TFKB's ratings are linked to SNB's.
ESG CONSIDERATIONS
TFKB's ESG Relevance Score of '4' for Management and Strategy
reflects its view that the increased regulatory burden on all
Turkish banks hinders the operational execution of management
strategy. This reflects the constraints on management's ability
across the sector to determine their own strategy and price risk as
a result of increased regulatory intervention, but also the
operational challenges of implementing the regulation at bank
level. This has a moderate impact on the bank's credit profile and
is relevant to the ratings, in combination with other factors.
TFKB's ESG Relevance Score of '4' for Governance Structure reflects
its Islamic banking nature, where its operations and activities
need to comply with sharia principles and rules, which entails
additional costs, processes, disclosures, regulations, reporting
and sharia audit. This has a negative impact on its credit profile
and is relevant to the ratings in conjunction with other factors.
TFKB has an ESG Relevance Score of '3' for Exposure to Social
Impacts, above sector guidance for an ESG Relevance Score of '2'
for comparable conventional banks, which reflects that Islamic
banks have certain sharia limitations embedded in their operations
and obligations, although this only has a minimal credit impact on
Islamic banks.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Turkiye Finans
Katilim Bankasi
A.S. LT IDR B- Affirmed B-
ST IDR B Affirmed B
LC LT IDR B Affirmed B
LC ST IDR B Affirmed B
Natl LT AA(tur)Affirmed AA(tur)
Viability b- Affirmed b-
Shareholder Support b- Affirmed b-
===========================
U N I T E D K I N G D O M
===========================
ABRA GROUP: Moody's Upgrades CFR to Caa1 & Alters Outlook to Stable
-------------------------------------------------------------------
Moody's Investors Service has upgraded Abra Group Limited (Abra)'s
corporate family rating to Caa1 from Caa3. At the same time,
Moody's has upgraded to Caa1 from Caa3 the ratings on the $960
million backed senior secured notes and $458 million backed senior
secured exchangeable notes due 2028 issued by Abra Global Finance
and unconditionally and irrevocably guaranteed by Abra. The outlook
for Abra and Abra Global Finance was changed to stable from
negative.
RATINGS RATIONALE
The upgrade of Abra's ratings follows Gol Linhas Aereas
Inteligentes S.A.'s (Gol) ability to secure a final court order for
a $1 billion debtor-in-position (DIP) financing as part of its
Chapter 11 financial reorganization process, which includes clauses
that secure the continuity of interest payment to Abra. As part of
the final order of the DIP, Gol will also reimburse $15 million to
Abra related to a bridge loan made in January 2024. The continuity
of Gol's interest payments to Abra during its Chapter 11 process
increases visibility over Abra's cash interest coverage.
At the end of January 2024, Abra had $86 million in cash, not
including $15 million that will return from Gol to Abra for the
loan made before the Chapter 11 filing. Abra's main source of cash
relates to the cash payments from Gol's secured notes due 2028, and
management fees from Gol and Avianca Group International Limited,
which provides coverage for the cash interest payment at Abra,
despite Moody's expectations of no dividend payments from Gol or
Avianca at least for the next 2 years. Moody's estimates that
Abra's sources of cash including the payments from Gol covers its
cash interest expense by 1.5x-2x, compared to only 0.4x-0.5x
excluding Gol's interest payments and management fees. Abra's main
cash outflows relate to its notes interest payments (about $60-70
million per year) and annual expenses at the holding level of
approximately $20 million per year. With this liquidity profile,
Abra can cover its upcoming debt obligations without facing major
liquidity squeezes.
Gol secured $1 billion in a DIP financing to continue operating
during the reorganization process, granted mainly by creditors of
Abra. Before Gol filed for Chapter 11, Abra signed a forbearance
agreement with its creditors to avoid the exercise of the rights
and remedies with respect to specified defaults as a result of
Gol's filing. The forbearance agreement Abra signed with its
creditors in January 2024 is expected to remain in place until Gol
exits the Chapter 11 process, as the priming of Abra's notes
collateral would trigger an event of default under the notes'
indenture.
Abra's Caa1 rating reflects the group's size, scale, market
position and good business profile of its main subsidiaries Gol
Linhas Aereas Inteligentes S.A. and Avianca Group International
Limited ("Avianca", B2 stable), with significant cross selling,
network and loyalty program coordination synergies, and increased
connectivity and geographic diversity within Latin America. The
Abra group offers over 1,700 daily flights with around 100 billion
in annual available-seat kilometers (ASKs), with a fleet of over
300 aircrafts, serving 155 destinations and with over 80 million
passengers transported and 30 million of members in its loyalty
programs. The company's adequate liquidity at the holding level
also supports the rating.
The rating is constrained by the credit profile of Gol and Avianca,
and by Abra's dependence on cash from the subsidiaries to cover
interest payments at the holding level. The company's evolving
corporate governance standards as a recently created company, and
the current lack of track record of realized synergies also
constrain the rating.
The Caa1 ratings of Abra's senior secured notes and senior secured
exchangeable notes due 2028 reflect the instruments' collateral
package, which includes a first priority lien on the subsidiaries
that hold 100% of the equity interests of Avianca, including
Avianca's convertible debt investment in Sky Airlines S. A. (SKY)
(which converts into 41% of the equity interest in SKY) and 100%
economic interest in Viva Colombia; a first priority lien on the
subsidiaries that hold 54% of the equity in Gol; a first priority
lien on Gol's secured notes due 2028 held by Abra and when replaced
on Gol's exchangeable senior secured notes due 2028; and a first
priority lien on the cash accounts at Abra and a pledge of any
intercompany loans at Abra. The secured notes comprise the totality
of the debt issued at Abra's holding level.
LIQUIDITY
Abra has an adequate liquidity profile, with an estimated
uncommitted cash position of about $100 million as of March 2024,
and only two debt instruments maturing in 2028. The company's main
source of cash relates to the cash payments from Gol's secured
notes due 2028, and management fees from Gol and Avianca, which
provides good coverage for the cash interest payment at Abra.
Moody's estimates that Abra's sources of cash will cover its cash
interest expense by 1.5x-2x.
RATING OUTLOOK
The stable outlook reflects Moody's expectations that Abra's
operating and financial performance will remain relatively stable
overtime, supported by the performances of its main subsidiaries,
Gol and Avianca.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Abra's rating would require an improvement in the
credit profile of Gol or Avianca. Additional sources of cash that
improves its coverage of cash interest could also lead to an
upgrade of its rating.
Abra's rating could be downgraded if the credit profile of Gol or
Avianca deteriorates, or if its liquidity profile at the holding
level deteriorates, with coverage of cash interest below 1x on a
sustained basis.
COMPANY PROFILE
Abra Group Limited (Abra) - created in 2022 and incorporated in the
UK - is the platform company that holds 54% of the equity in Gol,
one of Brazil's leading domestic low-cost carriers; 100% of Avianca
Group, that through its subsidiaries is a leading Latin American
airline serving the domestic markets of Colombia, Ecuador and
Central America, and international routes in North, Central and
South America, Europe and the Caribbean; and a financial investment
in SKY Airlines S. A. (SKY), a Chilean low-cost domestic carrier.
Abra reported pro forma consolidated revenue of $3.5 billion in the
nine months that ended September 2023.
The principal methodology used in these ratings was Passenger
Airlines published in August 2021.
CONCORDE MIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable
----------------------------------------------------------------
Moody's Investors Service has affirmed the B3 long-term corporate
family rating and B3-PD probability of default rating of Concorde
Midco Limited (Keyloop or the company). Concurrently, the rating
agency has affirmed the B2 instrument rating of the EUR752.5
million senior secured first lien term loan and the EUR60 million
senior secured first lien revolving credit facility (RCF) issued by
Concorde Lux S.a.r.l. The outlook on all ratings remains stable.
RATINGS RATIONALE
The affirmation of Keyloop's ratings reflects the company's solid
operating performance over the past couple of years, balanced with
its weak free cash flow generation and its aggressive financial
policy, demonstrated by multiple add-ons to the company's term loan
to fund bolt-on acquisitions.
Since the company's LBO transaction closed in March 2021, Keyloop
reported steady growth in revenues, supported by up-sell and
cross-sell of layered applications to the existing customer base,
contractual price increases as well as contribution from the
acquired companies. Furthermore, the company successfully executed
a number of cost savings initiatives which enabled it to improve
margins and to reduce Moody's-adjusted leverage to 7x in the last
twelve months (LTM) ended September 2023 from around 10x at closing
of the LBO.
The rating agency forecasts Keyloop's revenues to grow organically
in the low- to mid- single digit percentages over the next 12-18
months, supported by large dealerships' increasing technology
spend. However, Moody's-adjusted EBITDA will likely decrease due to
the company's ongoing investments in the platform and other IT
transformation projects which are treated as recurring expenses by
the rating agency. As a consequence, Moody's forecasts Keyloop's
leverage to increase above 7.5x in 2024 before reducing below 7x in
2025.
Keyloop's free cash flow generation was negative in 2022 and
Moody's expects it to remain depressed over the next 12-18 months,
owing to an high interest burden and material cash outflows related
to transformation and restructuring costs. The rating agency notes
that a prolonged period of negative free cash flow generation will
increasingly lead to downside ratings pressure.
The company's B3 CFR positively reflects the company's established
position as a provider of technology and services to automotive
dealers and automakers, with significant dealer management system
(DMS) market shares in its core countries; its good revenue
visibility, with over 90% of the total base being recurring in
nature; and high customer retention rates. Adequate liquidity and
currently low refinancing risk with debt maturities in 2028-29 also
support the rating.
Nevertheless the credit quality of the company is constrained by
Keyloop's high product and end market concentration; its weak
credit metrics, evidenced by high Moody's-adjusted leverage and
persistently negative cash flow generation; its low organic growth,
mainly relying on layered applications, with core DMS products
likely to have a broadly flat evolution; and the company's
aggressive financial policy, evidenced by the additional debt taken
on over the past few years which constrains leverage reduction.
RATING OUTLOOK
The stable rating outlook reflects Moody's expectation that the
company's operating performance will remain solid over the next
12-18 months and its free cash flow generation will turn positive
by 2025. The stable outlook also incorporates the rating agency's
assumption that there will be no transformational M&A and no
deterioration in the liquidity profile of the group.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could develop over time should Keyloop:
-- record solid like-for-like revenue and EBITDA growth on a
sustained basis; and
-- reduce Moody's-adjusted debt/EBITDA sustainably below 6.5x;
and
-- improve Moody's-adjusted FCF/debt towards the solid mid-single
digits in percentage terms on a sustained basis
Conversely, downward pressure on Keyloop's ratings would build if:
-- revenue and EBITDA growth is weaker than expected such that its
Moody's-adjusted debt/EBITDA increases; or
-- FCF remains consistently negative; or
-- liquidity position weakens.
LIQUIDITY
Keyloop's liquidity is adequate. At the end of September 2023, the
group had a cash balance of EUR69 million and access to a fully
undrawn EUR60 million committed RCF due in 2027.
The RCF is subject to a springing senior secured net leverage
covenant tested if drawings reach or exceed 40% of facility
commitments. Should it be tested, Moody's expects that Keyloop
would retain ample headroom against a test level of 8.75x
(September 2023: 4.9x).
Keyloop has no debt maturities in the near term, with the EUR752.5
million first-lien term loan and the GBP125 million second-lien
term loan maturing in 2028 and 2029, respectively.
STRUCTURAL CONSIDERATIONS
The B3-PD probability of default rating reflects Moody's assumption
of a 50% family recovery rate, given the covenant-lite structure of
the term loan. The B2 ratings on the first-lien term loan and the
pari passu RCF - one notch above the B3 CFR - reflect their
priority ranking in the event of security enforcement, ahead of the
second-lien term loan. The rating agency notes that any significant
reduction in the cushion provided by the second-lien term loan
would put negative pressure on the B2 ratings on the first lien
debt instruments.
The instruments are guaranteed by a substantial number of
subsidiaries accounting for a minimum of 80% of Keyloop's
consolidated EBITDA. The security package is weak and includes a
pledge of shares, intercompany receivables, bank accounts and
assets in England and Wales through a featherweight floating
charge.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Software
published in June 2022.
COMPANY PROFILE
Headquartered in Reading, United Kingdom, Keyloop is a global
provider of DMS solutions, including integrated core enterprise
resource planning (ERP) and customer relationship management (CRM)
solutions, to the auto retail industry. In the 12 months that ended
September 2023, Keyloop reported revenue of EUR349 million and
company-adjusted EBITDA before exceptional items of EUR133 million.
After the completion of the LBO and the spin-off from its former
parent CDK Global, Inc (B2 stable) in March 2021, the company is
fully owned by the financial sponsor Francisco Partners.
GALILEO GLOBAL: S&P Affirms 'B' LT ICR, Outlook Remains Stable
--------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on Galileo Global Education Strategy (GGE).
The stable outlook reflects that S&P expects GGE to contain the
decrease in profitability over the next two fiscal years, with its
S&P Global Ratings-adjusted EBITDA margin remaining above 20%,
while continuing its topline expansion, leading to adjusted debt to
EBITDA at 7.0x, which S&P expects to decline thereafter. It also
reflects that S&P anticipates GGE will manage to generate at least
breakeven FOCF after leases in fiscal year 2025.
GGE reported resilient results for the first half of fiscal year
2024, mainly driven by recent acquisitions. Revenue expanded by
27.0% to EUR522 million compared with the same period of the
previous fiscal year. Growth was mainly supported by new
acquisitions--namely EMLyon, Nackademin, and UCIMED--contributing
about EUR78 million of the first-half fiscal 2024 revenue base.
During this period, GGE completed the acquisition of two schools,
Assifep, a vocational education centre in the North of France, and
the London Interdisciplinary School (LIS), offering undergraduate
and postgraduate degrees, as well as professional courses. LIS also
holds full degree-awarding powers in the U.K. from inception. On a
like-for-like basis, GGE still managed to expand by 8.4% over the
same period last year. The cost base increased moderately on the
back of a higher wage bill during the period, with academic labor
costs increasing by about 100 basis points compared with the
previous year, primarily reflecting higher cost base in recent
acquisitions rather than the effect of inflationary pressures. GGE
exhibited an S&P Global Ratings-adjusted EBITDA margin of 10.1% for
the first half of fiscal year 2024, 60 basis points lower than the
previous year's, driven by the dilutive effect of recent
acquisitions. S&P also notes the year-on-year increase in rents due
to inflation-linked contracts.
S&P said, "Although the next two years are expected to be
challenged by the underperformance of some schools, we expect the
situation to normalize in fiscal 2026, underpinned by GGE's robust
track record. GGE saw lower than first anticipated enrolment levels
for the academic year 2023-2024, for French and German onsite
schools (excluding EMLyon). As a result, GGE will likely show signs
of a more muted operating performance for fiscal years 2024 and
2025 than we initially anticipated. We note that French and German
onsite schools (excluding EMLyon) represented about 41% of the
group's revenue in fiscal 2023." This unsuccessful enrolment
campaign was driven by (i) managerial challenges at school level;
(ii) a difficult environment for apprenticeships in France on the
back of adverse regulatory changes and a tougher macroeconomic
context leading enterprises to lower the number of apprentices
(apprentices make-up about 40%-45% of students in GGE French
schools); (iii) unsuccessful marketing campaigns; and (iv) tough
competition from other schools. The number of new students enrolled
on the French perimeter is expected to decrease to 17,500 from
18,800 last year.
That said, GGE has been implementing several measures to reorganize
these schools, which have started to bear fruit. Additionally, it
has been conducting cost saving programs aimed at limiting the
decrease in profitability. S&P said, "We expect the situation to
normalize by fiscal year 2026 once the 2023-2024 student cohort
graduates, supported by GGE's ability to increase student volumes,
on the back of new programs and campus launches. GGE's pricing
flexibility on tuitions fees--with an expected 5% increase for the
academic year 2024-2025--should help it mitigate the impact on
profitability for fiscal year 2025, as the elasticity of demand is
somewhat limited in contrast to other sectors. GGE's expertise and
proven track record of integrating universities and schools should
enable it to push up absolute EBITDA and margins, as the group
typically focuses on acquiring assets that depict lower margins
than its core schools but that have a potential for margin
improvement. Concerning France Online, growth prospects should be
minimal over the next three years, with GGE rightsizing operations
and limiting investments. That said, while regulatory interventions
have disrupted the business, we expect GGE to benefit from a
rationalized market landscape, with fewer competitors in the next
few years."
GGE will pursue an active merger & acquisition (M&A) strategy to
further diversify the business, increase scale, and realize
synergies across its network of schools. The core of GGE's business
model is to expand through acquisitions and consolidate a
still-fragmented market for private higher education. Over the past
decade, GGE has shown a good track record of integrating new
schools, increasing enrolment and profitability. It demonstrated
valuable turnaround skills, notably at Regent's, a school in the
U.K., acquired in August 2020 for a symbolic one British pound
because it was loss making. In less than two years, GGE managed to
make Regent's profitable, earlier than initially planned, for 2024.
S&P said, "We see potential for synergies in two main aspects: via
the development of common programs; and via the grouping of schools
in the same area on a shared campus. Year to date, GGE has added
two schools to its portfolio, and we expect this active M&A
strategy will continue to bring sizable topline and absolute EBITDA
growth."
S&P said, "We expect acquisitions will keep distorting
profitability over the next three fiscal years. Over the past three
years, GGE has been actively pursuing its M&A strategy. In terms of
profitability, this has led to a sharp deterioration of the EBITDA
margin to 26.4% in fiscal 2023 from 30.6% in fiscal 2020. This is
attributable to two main factors: ramping-up effect of newly
acquired schools exhibiting lower profitability compared to GGE
core schools; and increasing restructuring costs following the
rationalization and reorganization of the cost structure for recent
acquisitions. We expect these effects to gradually fade away as
schools ramps up and GGE reaches a critical size, decreasing the
effect of the acquisition pipeline.
"We expect GGE to generate limited FOCF over the next two fiscal
years on the back of muted operating performance, high investment
intensity, and the still elevated interest rate environment
reducing headroom within its 'B' rating. On the back of a
stagnating absolute EBITDA generation for both fiscal years 2024
and 2025, coupled with increased capex and cash interest payments,
we expect GGE to generate negative FOCF after leases for fiscal
2024 and positive but minimal FOCF for the following year. Since
fiscal year 2023, the group has been accelerating its capex program
on the back of recent acquisitions requiring additional facilities
and some core schools reaching full capacity. In fiscal 2023, the
group spent about EUR117 million in capex and we expect the peak to
be reached in fiscal 2024, notably driven by the finalization of
the new EM Lyon Gerland campus. A sizable share of capex is also
dedicated to digital enhancements and IT investments. We therefore
anticipate that GGE's capex in fiscal 2024 will be about EUR150
million, lower than to management's initial budget, as we expect
some delays in projects. Due to postponed spending to fiscal year
2025, we also anticipate capex to be high for that year, although
lower, at about EUR130 million. We also expect FOCF generation to
be depressed by the still elevated cash interest payment driven by
the floating nature of GGE's financial instruments at EUR80 million
in fiscal year 2024. That said, in calendar year 2023, the group
put in place some hedging with EUR700 million of its debt hedged at
1.00% until August 2025 and EUR150 million hedged at 2.50% until
February 2025."
GGE has limited headroom for additional debt intake aiming at
financing acquisitions over the next 18 months. In July 2022, GGE
raised an additional EUR300 million facility through an add-on to
its EUR1,000 million term loan B (TLB) to fund its acquisition and
project pipelines. The increase in the debt amount, and in deferred
considerations related to put options totalling EUR201.4 million
(of which EUR162.4 million is non-current exercisable only from
2025 onwards), caused leverage to spike to 7.2x in fiscal year 2023
and is expected to decrease toward 7.0x in fiscal 2024 and 6.6x in
fiscal 2025. For the year ending December 2023, GGE spent about
EUR28 million in acquisitions and had about EUR431 million of cash
and short-term deposits on its balance sheet, enabling additional
cash financed acquisitions and representing about 1.5x turn of
adjusted EBITDA somewhat compensating the spike in gross leverage.
S&P said, "Our base case includes annual acquisitions of EUR100
million, but we understand that this amount could be higher based
on opportunities. Considering the challenging operating environment
for the next two fiscal years, GGE has limited headroom for
additional debt intake all else remaining equal. We believe that
GGE will not make any dividend distributions to shareholders over
the next three years. Furthermore, while expansion capex is high
and a sizable portion of it committed, we would expect GGE to
preserve its liquidity and limit acquisitions should operating
performance remained depressed, to focus on the group's core
business and ensure the viability of its cash operations. GGE
enjoys relatively stable and visible revenues, in our view, giving
it more operational flexibility to manage both operating
expenditure and capex to preserve reasonable credit metrics."
S&P said, "The stable outlook reflects that we expect GGE will
contain the decrease in profitability over the next two fiscal
years, with the S&P Global Ratings-adjusted EBITDA margin remaining
above 20%, while continuing its topline expansion leading to
adjusted debt to EBITDA at 7.0x but expected to decline thereafter.
It also reflects that, in our view, GGE will manage to generate at
least breakeven FOCF after leases in fiscal 2025."
Downside scenario
S&P could take a negative rating action in the next 12 months if
the group:
-- Failed to contain the deterioration of its operating
performance in line with S&P's base case, leading to FOCF after
leases remaining negative for a prolonged period, resulting in
weaker liquidity;
-- Failed to successfully integrate the recently acquired
business, with exceptional costs proving more significant than
expected, or deliver organic growth, leading to suppressed
profitability or cash flow metrics; or
-- Continued to pursue debt-financed acquisitions or shareholder
remuneration at the expense of liquidity and credit metrics,
translating into debt to EBITDA at about 7.0x for a prolonged
period.
Upside scenario
S&P is unlikely to take a positive rating action over the next 12
months, given that GGE's highly leveraged capital structure and
financial sponsor ownership constrain the rating. It could take a
positive rating action if:
-- The group commits to a more conservative financial policy, with
adjusted debt to EBITDA decreasing comfortably below 5.0x on a
sustainable basis;
-- S&P observes strong free cash flows, shown by sizable FOCF
after lease payments on a sustainable basis; or
-- S&P saw a track record of supportive financial policy such that
stronger credit metrics were sustained.
S&P said, "Governance factors are a moderately negative
consideration, as is the case for most rated entities owned by
private-equity sponsors. We consider the company's aggressive
financial risk profile points to corporate decision-making that
prioritizes the interests of the controlling owners. This also
reflects generally finite holding periods and a focus on maximizing
shareholder returns."
GREENSILL: Insolvency Service Confirms Outcome of Investigation
---------------------------------------------------------------
The Insolvency Service on March 7 confirmed the outcome of its
investigation into the directors of the collapsed Greensill group
of companies.
A spokesperson for the Insolvency Service said:
"We can confirm that the Insolvency Service has commenced director
disqualification proceedings against Alexander (Lex) Greensill to
have him disqualified from running or controlling companies for a
period of up to 15 years in respect of his conduct as a director of
Greensill Capital (UK) Limited and Greensill Limited."
As this matter is now a live case before the court it is not
appropriate to comment further.
Further information:
Greensill Capital (UK) Limited and Greensill Capital Management
Company (UK) Limited both entered into administration on March 8,
2021. Greensill Limited entered into Creditors' Voluntary
Liquidation on July 30, 2021. Greensill Capital Securities Limited
entered into Creditors' Voluntary Liquidation on June 24, 2022.
Greensill Capital Pty Limited was the parent company to the
Greensill Group of which Greensill Capital (UK) Limited and
Greensill Limited formed a part. It entered into administration in
Australia on March 9, 2021 and then subsequently into liquidation
in Australia on April 22, 2021. The Court can take account of a
director's overseas activity under the Company Directors
Disqualification Act 1986.
Officials at the Insolvency Service have issued disqualification
proceedings on behalf of the Secretary of State for Business and
Trade in accordance with her powers under the Company Directors
Disqualification Act 1986. The application to court has been made
in the public interest.
Persons subject to disqualification orders and disqualification
undertakings are bound by a range of restrictions, including not
being able to be a director of any company registered in the UK or
an overseas company that has connections with the UK, or being
involved in the promotion, formation or management a company.
MATCHESFASHION: Frasers Group Puts Business Into Administration
---------------------------------------------------------------
Mark Kleinman at Sky News reports that Mike Ashley's
Frasers Group is putting Matchesfashion, the luxury online clothing
platform, into administration less than three months after buying
it.
Sky News has learnt that the company has filed a notice of
intention to appoint administrators after a number of brands
terminated their relationships with the site, and amid heavy
losses.
According to Sky News, sources said a stock exchange announcement
was expected to be made by Frasers on Thursday evening or Friday
morning.
It was unclear whether Frasers would seek to retain control through
a pre-pack insolvency deal, although insiders suggested that was
the likeliest outcome, Sky News notes.
It comes barely ten weeks since Mr. Ashley's high street empire
agreed to pay more than GBP50 million for Matchesfashion -- a deal
which itself crystallised heavy losses for its former private
equity backer, Sky News states.
It was unclear on Thursday whether Mr. Beighton would continue in
his role during the administration process, according to Sky News.
Matchesfashion had been caught out by the sharp slowdown in global
luxury goods sales which is affecting retailers across the sector,
Sky News discloses.
Farfetch, which was listed in New York but was founded in the UK,
agreed on a sale to South Korea's Coupang late last year, a deal
which entailed a major financial restructuring, Sky News recounts.
Matchesfashion features more than 500 established and "new
generation" designers, delivering to over 170 countries.
In November 2021, its accounts flagged "material uncertainty" over
its future without an improvement in its trading performance, Sky
News relates.
PARKMORE POINT 2022-1: S&P Lowers F-Dfrd Notes Rating to 'B-(sf)'
-----------------------------------------------------------------
S&P Global Ratings lowered its credit ratings on Parkmore Point
RMBS 2022-1 PLC's class C-Dfrd notes to 'A- (sf)' from 'A (sf)',
class D-Dfrd notes to 'BB+ (sf)' from 'BBB (sf)', class E-Dfrd
notes to 'B+ (sf)' from 'BB (sf)', and class F-Dfrd notes to 'B-
(sf)' from 'B (sf)'. At the same time, S&P affirmed its 'AAA (sf)'
rating on the class A notes and 'AA (sf)' rating on the class
B-Dfrd notes.
The rating actions reflect the transaction's deterioration in
performance since closing. Total arrears have increased by around
6% to 75% as of December 2023, while the payrate for loans in
severe arrears has decreased to about 33% from 40% over the last 36
months. S&P has therefore revised its payrate assumptions going
forward at 'BBB' and below rating levels.
Parkmore Point RMBS 2022-1 is a static U.K. RMBS transaction. The
portfolio comprises a mix of owner-occupied and BTL mortgage loans
which were previously securitized in Residential Mortgages
Securities 29 PLC, Residential Mortgages Securities 30 PLC, and
Residential Mortgages Securities 31 PLC.
The class Z notes have an uncleared principal deficiency ledger
balance of GBP509,000, mostly due to actual realized losses. The
cumulative losses currently stand at GBP780,000.
The total portfolio had amortized to GBP229 million as of December
2023 from GBP267 million at issuance. The prepayment rate has been
weak historically, with an average of 5%.
S&P has updated its credit and cash flow analysis based on the data
available for the December 2023 pool and since closing.
S&P's weighted-average foreclosure frequency assumptions for the
performing subpool have increased due to higher arrears, and the
weighted-average loss severity figures have dropped due to the
growth in the house price index. As such, credit coverage is now
lower than it was at closing.
Portfolio WAFF and WALS
RATING LEVEL WAFF (%) WALS (%) CREDIT COVERAGE (%)
AAA 87.74 32.44 28.46
AA 84.85 24.98 21.20
A 74.93 13.82 10.35
BBB 64.48 8.91 5.74
BB 53.22 6.40 3.41
B 50.48 4.71 2.38
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P said, "Considering these factors, we believe that the available
credit enhancement is commensurate with lower ratings on the class
C-Dfrd to E-Dfrd notes.
"Additionally, the class F-Dfrd notes face shortfalls under our
standard cash flow analysis at the 'B' rating level. Under a steady
state scenario based on observed prepayments with actual fees and
no setoff stress, the notes pass our 'B' cash flow stresses. We
therefore lowered the rating on the class F-Dfrd notes to 'B-
(sf)', given that they do not rely on favorable economic and
financial conditions to service their debt obligations and remain
current.
"We affirmed our 'AAA (sf)' rating on the class A notes and 'AA
(sf)' rating on the class B-Dfrd notes. The available credit
enhancement on these senior-most rated notes is commensurate with
their assigned ratings. Compared with the other classes of notes,
the buildup in credit enhancement on these tranches has been more
significant.
"Pepper (UK) Ltd. is the legal title holder and the servicer in
this transaction. In our view, it is an experienced servicer in the
U.K. market with well-established and fully integrated servicing
systems and policies. It has our ABOVE AVERAGE ranking as a primary
and special servicer of residential mortgages in the U.K.
"There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria."
Macroeconomic forecasts and forward-looking analysis
S&P said, "The information in this section reflects our most recent
published economic forecasts. The current U.K. macroeconomic
outlook remains uncertain and has recently been subject to
significant changes within short timeframes. In addition to
increased energy costs and the overall cost of living, rate rise
expectations remain fluid against a backdrop of a stagnating
macroeconomic environment. The ratings assigned reflect this market
uncertainty and our overall analysis considers the implications of
a further deterioration in credit conditions."
ROLLS-ROYCE PLC: Moody's Ups CFR to Ba1, Outlook Remains Positive
-----------------------------------------------------------------
Moody's Investors Service has upgraded all the ratings of
Rolls-Royce plc (the company) by one notch, including its corporate
family rating to Ba1 from Ba2 and its probability of default rating
to Ba1-PD from Ba2-PD. The outlook remains positive.
The rating actions reflect:
-- A material improvement in the company's credit ratios, ahead of
Moody's previous forecasts
-- Solid execution so far under the transformation programme
launched a year ago
-- Strong business environment across all of Rolls-Royce's
divisions
Moody's has also upgraded the company's long-term backed senior
unsecured rating to Ba1 from Ba2 and its backed senior unsecured
Euro Medium Term Notes (EMTN) programme rating to (P)Ba1 from
(P)Ba2.
RATINGS RATIONALE
In 2023, Rolls-Royce's credit ratios improved materially, on the
back of a significant increase in company-adjusted operating profit
to GBP1.6 billion from around GBP650 million in 2022. As a result,
Moody's-adjusted gross debt/EBITDA declined to around 2.0x in 2023
(2.6x excluding hedging, foreign exchange and other financial
result) from 5.3x at the end of 2022 (3.8x excluding hedging,
foreign exchange and other financial result). Moody's adjusted free
cash flow (FCF) grew to GBP1.3 billion in 2023 from GBP0.5 billion
a year earlier.
Civil Aerospace drove most of the uplift in operating profit, which
was around GBP700 million higher for the division in 2023. Moody's
estimates that the division's services gross profit contributed
around GBP500 million of that improvement, with the balance coming
from lower fixed costs. Higher volumes from continued recovery in
commercial flying hours (88% of 2019 vs 65% in 2022) and increased
pricing were key drivers. The commercial optimisation factor in
particular was central to the increased performance, thanks to
successful contract renegotiations during the year. Combined with
disciplined cost allocation and control, they reflect some of the
solid progress Rolls-Royce has made in 2023 under its
transformation programme.
The wide range of initiatives under way and strong business
conditions in the Defence and Power Systems divisions also support
the company's overall credit quality outlook. Moody's expects that
the company will continue to grow its adjusted operating profit, to
a range of GBP1.7 billion – GBP1.8 billion in 2024. The pace of
improvement will abate because of (i) a much stronger comparable
period in 2023, (ii) the more advanced stage of the market
recovery, and (iii) the rating agency forecast of some adverse mix
effects in Power Systems and Civil Aerospace, including a higher
proportion of large engine major shop visits.
Moody's-adjusted forecast FCF for 2024 is above GBP1.4 billion,
largely mirroring expected growth in profit. The lag between
increased flying hours (and therefore cash receipts from airlines)
and growth in maintenance will continue to benefit FCF to the tune
of GBP800 million this year. Moody's expects that Rolls-Royce will
repay a EUR550 million bond maturing in May 2024 using existing
cash and continuing to keep Moody's adjusted leverage below 2.5x.
The company's Ba1 CFR reflects: 1) high barriers to entry given the
critical technological content of the company's engines; 2) solid
growth expectations in commercial aerospace, fueled by market
recovery and growing orders, alongside good prospects in Defence
and Power Systems; 3) the good performance of the company's Trent
XWB and Trent 7000 engine programmes which represent the majority
of future orders and installed engine base; 4) the strategic
importance of Rolls-Royce to UK defence capabilities and to the
aerospace supply chain; and 5) the company's commitment to a
conservative financial policy.
However, Rolls-Royce's CFR is constrained by: 1) margin levels
still below industry peers in the civil aerospace segment, although
they are rapidly increasing; 2) supply chain challenges and
persistent inflation which could cap profit improvements; 3) some
concentration risk, given the company's relatively small number of
commercial aerospace engines for widebody aircraft; and 4)
longer-term strategic challenges including re-entry into the
narrowbody market and achieving profitable growth in new business
segments.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Among governance considerations supportive of Rolls-Royce's credit
quality are the improved track record of meeting or exceeding
financial guidance and quality of management's execution. In
addition, Rolls-Royce has publicly committed to strengthening its
financial position before resuming shareholder distributions.
LIQUIDITY
Rolls-Royce's liquidity is excellent. As of December 31, 2023, the
company's total liquidity amounted to GBP7.0 billion, excluding
GBP0.2 billion of restricted cash. It included unrestricted cash of
GBP3.5 billion and GBP3.5 billion of undrawn credit facilities
maturing between November 2026 and September 2027. Moody's
expectation of material free cash flow in 2024 and beyond also
enhances Rolls-Royce's liquidity. The company has increasing debt
maturities, starting with EUR550 million notes maturing in May 2024
and $1 billion notes maturing in October 2025 which Moody's expects
Rolls-Royce to repay out of cash.
RATING OUTLOOK
The positive outlook reflects Moody's expectations that Rolls-Royce
has the potential to improve its trading results, cash flows and
credit metrics in the next 12 months to levels commensurate with a
higher rating. The outlook also assumes that the company will
maintain a conservative financial policy targeting further
reductions in leverage and will maintain substantial liquidity,
including a large proportion of cash.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if:
-- Rolls-Royce builds a further track record of performance in
line with or above guidance, including sustainable operating margin
improvements
-- Rolls-Royce maintains a conservative financial policy allowing
Moody's-adjusted gross leverage to stay sustainably well below 3.0x
and net leverage materially lower than gross leverage
-- Moody's-adjusted free cash flow remains strong, both before and
after movements in long-term service agreements' liability
-- Liquidity remaining in the range of GBP5 billion to GBP7
billion, including substantial cash on balance sheet
The ratings could be downgraded if:
-- Moody's-adjusted debt/EBITDA increases towards 4.0x, or
-- Moody's-adjusted FCF/debt turns negative and liquidity
deteriorates, or
-- Operating margins or interest cover metrics weaken toward 2022
levels, or
-- Business profile deteriorates, including the company's market
positions, or lower than expected aftermarket profitability, or
-- Financial policy turns more aggressive, including on
shareholder returns, in the absence of business performance
improvements
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Aerospace and
Defense published in October 2021.
COMPANY PROFILE
Headquartered in London, England, Rolls-Royce is a leading global
manufacturer of aero-engines, gas turbines and reciprocating
engines with operations in three principal business segments --
Civil Aerospace, Defence and Power Systems. In 2023, the company
had adjusted revenue from continuing operations of GBP15.4 billion
and company-adjusted operating profit of GBP1.6 billion.
SAIETTA GROUP: Administrators Mull Sale of Business and Assets
--------------------------------------------------------------
Business Sale reports that administrators from EY are exploring
sale options for the business and assets of a listed
Silverstone-based engineering firm.
Saietta Group, along with its subsidiary Saietta Sunderland Plant,
fell into administration earlier this week, Business Sale relates.
The companies specialise in the design, development and supply of
complete powertrains for scooters, buses, electric vehicles and
marine applications. AIM-listed Saietta Group employs 54 staff at
its Silverstone HQ, while Saietta Sunderland Plant employs 33 staff
at its Houghton-le-Spring facility near Sunderland.
Last month, the company said in a statement to investors that it
would undertake a strategic review, including a formal sale
process, as a result of its depleting cash reserves, Business Sale
recounts. According to Business Sale, the statement read: "Whilst
the company's cashflow model shows positive cash balances to the
end of March, the company's directors are becoming increasingly
aware that certain contracted cash receipts may be withheld,
therefore bringing forward the date, absent any further funding, on
which the company can no longer solvently trade."
The statement continued: "The company will continue to look at all
financing and other strategic options available and has a number of
discussions ongoing."
"Should the company not have made material progress with its formal
sale process or with any other financing initiatives by the end of
next week, the company may need to commence planning for an
administration."
However, this process failed to produce a solvent solution,
resulting in the appointment of Lucy Winterborne and Dan Hurd of
EY-Parthenon's Turnaround and Restructuring Strategy team as joint
administrators of the company and its subsidiary on March 4,
Business Sale discloses.
According to Business Sale, in a statement, the joint
administrators said: "The companies have explored various solutions
to safeguard the future of the business, including a further equity
raise, debt finance and a solvent take-over of the business.
However, with creditor pressure increasing and no immediate solvent
solution, the companies have sought the protection of an
administration."
The joint administrators added that they would now explore options
for the sale of the business and assets of the companies, which
include proprietary electric motor technology, plant and equipment,
Business Sale notes.
SELINA HOSPITALITY: Releases Latest Investor Presentation
---------------------------------------------------------
Selina Hospitality PLC has released a new investor presentation,
highlighting, among others, its major company transactions and
updates, including a summary of its Noteholders and IDB
Restructuring of its 2026 Notes.
A copy of the Investor Presentation published is available at
https://tinyurl.com/3zv3xxu6
About Selina Hospitality PLC
United Kingdom-based Selina (NASDAQ: SLNA) is one of the world's
largest hospitality brands built to address the needs of millennial
and Gen Z travelers, blending beautifully designed accommodation
with coworking, recreation, wellness, and local experiences.
Founded in 2014 and custom-built for today's nomadic traveler,
Selina provides guests with a global infrastructure to seamlessly
travel and work abroad. Each Selina property is designed in
partnership with local artists, creators, and tastemakers,
breathing new life into existing buildings in interesting locations
in 24 countries on six continents -- from urban cities to remote
beaches and jungles.
STRATTON MORTGAGE 2020-1: Fitch Affirms BB+sf Rating on Cl. F Notes
-------------------------------------------------------------------
Fitch Ratings has upgraded Stratton Mortgage Funding 2020-1 PLC's
(SMF2020-1) class E notes by one notch, while affirming the rest.
Both the class E and F notes have been removed from Rating Watch
Positive (RWP).
Entity/Debt Rating Prior
----------- ------ -----
Stratton Mortgage
Funding 2020-1 PLC
A XS2215921748 LT AAAsf Affirmed AAAsf
B XS221592204 LT AAAsf Affirmed AAAsf
C XS2215922126 LT AA+sf Affirmed AA+sf
D XS2215922399 LT A+sf Affirmed A+sf
E XS2215922472 LT BBB-sf Upgrade BB+sf
F XS2215922639 LT BB+sf Affirmed BB+sf
TRANSACTION SUMMARY
SMF2020-1 is a securitisation of non-prime owner-occupied (OO) and
buy-to-let (BTL) mortgages backed by properties in the UK. The
mortgages were originated primarily by GMAC-RFC LTD (46%), Edeus
Mortgage Creators Limited (37%), and Kensington Mortgage Company
Limited (KMC, 16%).
The assets were previously securitised in Alba 2006-1 and Alba
2015-1 transactions. These are purchased by Ertow Holdings VI
Designated Activity Company (the seller) and sold to the issuer.
Only Alba 2006-1 was rated by Fitch.
KEY RATING DRIVERS
RWP Resolved: The class E and F notes were previously capped at
'BB+sf', as the notes were projected to incur interest deferrals
deemed excessive. However, following an update to Fitch's Global
Structured Finance criteria in January, this condition was removed
and affected tranches were subsequently placed on RWP to reflect
potential upgrades to their ratings. This drives the one-notch
upgrade to the class E notes.
Both class E and F notes are currently deferring interest, but
under stressed assumptions at their current ratings, outstanding
deferred interest is projected to be paid with a sufficient buffer
ahead of the notes' legal final maturity date.
Worsening Asset Performance: The transaction's one-month plus and
three-month plus arrears have increased over the past 12 months and
were 26.4% and 19.6% as at the December 2023 interest payment date.
The same measures were 14.2% and 8.3% a year ago. Fitch expects a
further deterioration in these measures as higher mortgage costs
for floating-rate borrowers in the pool are expected to persist.
Increasing Credit Enhancement (CE): The upgrade and affirmations
reflect increases in CE. CE for the class A notes has increased to
34.2% from 31.2% over the last 12 months, mainly driven by the
sequential amortisation of the notes. In Fitch's rating analysis,
CE build-up has offset the deterioration in asset performance,
supporting the affirmations of the notes.
Ratings Lower than MIRs: The class E and F notes' ratings are three
and two notches lower, respectively, than their model-implied
ratings (MIR). Fitch performed a forward-looking analysis by
running scenarios assuming increased losses at all rating levels,
to account for asset performance deterioration beyond that
envisaged by the standard criteria assumptions. This included
increasing the weighted average (WA) foreclosure frequency (FF) by
30% and decreasing the WA recovery rate (RR) by 15%, which support
the notes at their current ratings.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
and economic conditions. Weakening economic performance is strongly
correlated to increasing levels of delinquencies and defaults that
could reduce CE available to the notes given the borrowers in this
pool are already stretched in affordability.
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain notes' ratings
susceptible to negative rating action depending on the extent of
the decline in recoveries. Fitch found that a 15% increase in the
WAFF and a 15% decrease in the WARR would lead to downgrades of
three notches for the class C and D notes, two notches for the
class B and E notes, four notches for the class F notes and no
impact on the class A notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch found that a decrease in the WAFF of 15% and an increase in
the WARR of 15% would result in upgrades of six notches for the
class F notes, seven notches for the class E notes, three notches
for the class D notes and one notch for the class C notes. The
class A and B notes are at the highest achievable rating on Fitch's
scale and cannot be upgraded.
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
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, 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.
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
SMF2020-1 has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to pool exhibiting an
interest-only maturity concentration among the legacy
non-conforming OO loans of greater than 40%, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
SMF2020-1 has an ESG Relevance Score of '4' for Human Rights,
Community Relations, Access & Affordability due to significant
proportion of the pool containing OO loans advanced with limited
affordability checks, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
SMF2020-1 has an ESG Relevance Score of '4' for Data Transparency &
Privacy due to transaction data and periodic recording, which has a
negative impact on the credit profile, and is relevant to the
ratings 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. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in a rating decision.
WIGGLECRC: Frasers Group to Acquire Brands, Intellectual Property
-----------------------------------------------------------------
Simone Giuliani at Cycling News reports that the next step in the
administration of WiggleCRC appears to be unfolding, with The Times
reporting on March 3 that Frasers Group has agreed on a deal to
purchase the brands and intellectual property of the group.
Frasers Group has long been rumoured as a potential suitor for the
Wiggle business -- which was part of Signa Sports United NV -- once
the UK-based company went into administration in October after
recording a FY23 loss of GBP74.9 million on sales of GBP204.2
million., Cycling News notes.
According to Cycling News, the report in The Times said the value
of the sale was less than GBP10 million and that part of the appeal
for Frasers Group was the strong online and social media presence
of the Wiggle and Chain Reaction Cycles brands.
The latest development for WiggleCRC comes after it was revealed
last month the business, under the administration of FRP Advisory's
Anthony Wright and Alastair Massey, was set to lay off its entire
workforce as the final act before sale, as it was understood that
the new owner did not want to take on the staff from the existing
business, Cycling News discloses. It has since been reported that
a total of 447 employees will lose their jobs, Cycling News
states.
According to Cycling News, an anonymous source said that "once the
warehouse is clear, it's game over. Wiggle and CRC will cease. The
brands have been bought, but IP only -- no staff or stock."
That also included WiggleCRC's owned brands, which include Vitus
and Nukeproof bikes, alongside clothing and component brands such
as dhb, Prime and Lifeline, Cycling News relays. Administrators
had already switched off the international eCommerce stores for
Wiggle and Chain Reaction Cycles last year and delivered some
redundancies, but had kept the UK operations running while it
sought to sell the business, Cycling News notes.
According to the administrators' February statement of affairs, the
company's debt to suppliers sits at more than GBP26 million, with
customer vouchers of nearly GBP382,956 also outstanding, Cycling
News discloses. The statement puts the tally of total assets
available to unsecured creditors at less than GBP10 million, and
the 'estimated deficiency' -- which includes a total of around
GBP100 million in the items outlined as inter-company payables and
guarantor on Signa Sports United bank debt -- at more than GBP142
million.
The decision to place Wiggle into administration was made after
Signa Sports United unexpectedly announced that its own parent
company, Signa Holding, had terminated an unconditional EUR150
million funding commitment, Cycling News recounts.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The Heroic Enterprise
--------------------------------------
The Heroic Enterprise: Business and the Common Good
Author: John Hood
Publisher: Beard Books (reprint of book published by The Free
Press/Division of Simon and Schuster in 1996).
Paperback: 266 pages
List Price: $34.95
Order your copy at https://bit.ly/3awLUV3
Hood writes as a counterbalance to ideas that business should be
expected to contribute to the common good along the lines of
charities, say, or public health. He writes too against the highly
partisan, pernicious perspective that business activity is
antisocial and disruptive which at times gains some degree of
credibility.
Critiques of business have been around as long as commerce and
business have been around. These come usually from religious or
political zealots seeking dictatorial hold over all significant
kinds of human activity and enterprise. In this work, Hood aims to
counterbalance latter-day versions of such critiques arising in
American society. The counterculture, antiestablishment 1960s was
a time when such critiques were particularly strong. They have
moderated since, yet remain a persistent chorus which influences
politics and imagery and public affairs of business.
Hood does not aim to stifle or eliminate debate about the effects
of business on society or how business should engage in business.
What he aims for is dismissing once and for all myopic and almost
utopian conceptions about business and related erroneous purposes
and values of it. Such conceptions are worrisome to
businesspersons not because they believe they have any foundation,
but because they waste resources and energy in having to
continually correct them so business can function properly. And to
the extent such myopic conceptions are believed or entertained by
the public, they hamper the public and politicians in working out
policies by which the greatest benefits of business can be reaped
by society.
The author clarifies the place and role of business by contrasting
business with other parts of society. A standard, self-evident
tenet of sociologists going back to the time of Plato is that
society is made up of different parts fulfilling different roles
for the varied needs of society and so that a society will function
smoothly and survive. Business is distinguished from government
and philanthropy. "Businesses exist to make and sell things,
whereas by contrast "governments exist to take and protect things
[and] charities exist to give things away." The social
responsibility for each category of institution is inherent in its
purposes and activities. For example, businesses alone cannot
solve environmental problems. Whatever problems which can be
attached to business are related to government policies and
business's operations to satisfy consumer interests. Hence,
business alone cannot solve environmental problems, and should not
be expected to. Critics requiring that business solve
environmental problems without similarly requiring changes in
government policies and consumer interests are shortsightedly and
unreasonably tarnishing business while not making any relevant or
productive arguments for dealing with environmental problems.
In elucidating business's proper place in and contributions to
society, Hood is not unmindful that some businesses fail to fulfill
their role in good faith and beneficially. But instead of
criticizing business fundamentally, he proffers questions critics
can ask before targeting particular businesses. Two of these are
"Are corporations obtaining their profits through force or fraud?"
and "Are corporations putting investments at their disposal to the
most economically productive use?" Hood's perspective in support
of business against unfair and irrelevant criticisms is based on
the acknowledgment that business is operating productively, for the
common good, and is open to cooperative activities with other parts
of society in trying to resolve common problems.
"The Heroic Enterprise" is not an argument for business -- for as a
fundamental aspect of any society, business does not need an
argument to justify it. The book mostly takes the approach of
reviewing why business is necessary and therefore must be
naturally, easily accepted -- namely, because of the manifold
benefits business provides for society and because it along with
good government and respectable morals has been a primary engine
for the betterment of human life.
John Hood has much experience in the media and communication as a
syndicated columnist, TV commentator, and radio host. Author of
seven nonfiction books on subjects as business, advertising, public
policy, and political history, and many articles for national
publications such as the Wall Street Journal, Hood is President of
the John William Pope Foundation, a Raleigh, N.C.-based grantmaker
that supports public policy organizations, educational
institutions, arts and cultural programs, and humanitarian relief
in North Carolina and beyond. Hood also serves on the board of the
John Locke Foundation, the state policy think tank he helped found
in 1989 and led as its president for more than two decades. He
teaches at Duke University's Sanford School of Public Policy.
*********
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 2024. 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 * * *