/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240319.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 Tuesday, March 19, 2024, Vol. 25, No. 57 Headlines A U S T R I A SAPPI PAPIER: Fitch Affirms 'BB+' Rating on Sr. Unsecured Debt B E L A R U S LLC EUROTORG: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable B E L G I U M APOLLO FINCO: EUR348MM Bank Debt Trades at 17% Discount F R A N C E CASINO GUICHARD: EUR1.43BB Bank Debt Trades at 43% Discount CASSINI SAS: EUR141MM Bank Debt Trades at 16% Discount FINANCIERE LABEYRIE: EUR455MM Bank Debt Trades at 34% Discount G E R M A N Y ADAPA GMBH: EUR475MM Bank Debt Trades at 61% Discount CIDRON ATRIUM: EUR125MM Bank Debt Trades at 32% Discount I R E L A N D CVC CORDATUS XXX: Fitch Assigns 'B-(EXP)sf' Rating to Cl. F-2 Notes L U X E M B O U R G MACONLUX: Declared Insolvent by Luxembourg Court N E T H E R L A N D S ALCOA NEDERLAND: Fitch Assigns 'BB+' Rating on Sr. Unsecured Notes S L O V E N I A GORENJSKA BANKA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable S P A I N INCEPTION HOLDCO: Fitch Publishes 'B' LT IDR, Outlook Stable S W E D E N POLYGON GROUP: Fitch Affirms 'B' LongTerm IDR, Outlook Negative U N I T E D K I N G D O M ARRIVAL: Owes GBP200 Million to Creditors, Documents Show CIEP EPOCH BIDCO: GBP200MM Bank Debt Trades at 44% Discount CONSTELLATION AUTOMOTIVE: GBP325MM Bank Debt Trades at 26% Discount INKTHREADABLE LIMITED: Bought Out of Administration LOVE HEMP: Enters Administration for Second Time LUNAZ GROUP: Puts Commercial Arm Into Administration NEWGATE FUNDING: Fitch's Outlook on 3 Loan Transactions Now Stable UK PRINTING: Set to Go Into Administration VERY GROUP: Fitch Affirms 'B-' LongTerm IDR, Outlook Negative - - - - - ============= A U S T R I A ============= SAPPI PAPIER: Fitch Affirms 'BB+' Rating on Sr. Unsecured Debt -------------------------------------------------------------- Fitch Ratings has affirmed Sappi Limited's (Sappi) Long-Term Issuer Default Rating (IDR) at 'BB+' with Stable Outlook. Fitch has also affirmed Sappi Papier Holding GmbH's (SPH) unsecured debt rating at 'BB+' with a Recovery Rating of 'RR4'. The rating affirmation and Stable Outlook reflect its through-the-cycle view that Sappi's transition towards packaging and specialty products away from graphic paper, combined with a strong position in dissolving pulp, will start improving earnings generation in the financial year to September 2025 (FY25). The company is progressing well with the current transition projects and Fitch expects the related EBITDA improvement to be visible in FY25. Fitch forecasts temporarily weaker free cash flow (FCF) generation and leverage trajectory in FY24-FY25, mostly due to transition-related costs, capex and continued dividend distribution. Fitch views Sappi's high exposure to graphic paper and volatile pulp prices as a long-term constraint on the rating. KEY RATING DRIVERS Cash Flow Temporarily Under Pressure: Fitch expects higher capex largely to convert the PM2 graphic paper machine into specialty papers and additional restructuring costs on closures of two graphic paper mills to pressure FCF with no headroom under its negative sensitivity in FY24-FY25, before it turns positive. This is Sappi's strategy to reduce exposure to graphic paper, for which demand is declining. Fitch views successful execution of this strategy as a key rating factor. A longer -than-expected FCF recovery could hinder deleveraging and lead to a negative rating action. Flexibility in Dividend and Capex: Liquidity is comfortable, with available revolving credit facilities (RCFs) slightly offsetting limited FCF generation to FY25. Fitch believes that in the event of distress, Sappi has flexibility to adjust its dividend payments or revise capex, except for PM2, to preserve cash. Transition Period: Fitch views Sappi's strategy to limit exposure to graphic paper as a required business adjustment, albeit at the cost of temporarily weaker FCF and leverage. The strategy involves long-term investments and different routes to execute it, such as disposals, conversion to other packaging grids or closures of graphic paper machines, depending on market conditions. Sappi is well advanced with conversions and closures of the two mills. Fitch estimates the graphic paper will fall to around 35% of total revenue in FY26 (FY23:48%) and further if other actions are taken. Fitch views Sappi's business profile as weaker than peers', hence management's focus on reducing exposure to graphic paper, combined with a structural change in EBITDA generation and adherence to its financial policy are key for the leverage trajectory and the current rating. Leverage Temporarily Heightened: Fitch forecast EBITDA gross leverage to increase temporarily to 2.8x-2.3x and net leverage to 2.3x-2.1x in FY24-FY25 from 2.0x and 1.4x in FY23, respectively. This is driven by lower EBITDA, following weaker demand in FY24 and slower recovery as well as additional restructuring costs. Fitch thus expects leverage at FYE24 to be high relative to its sensitivities, but Fitch believes Sappi has sufficient capacity to deleverage thereafter. Profitability to Improve in FY25: Fitch forecasts Fitch-adjusted EBITDA margin at 9.6% in FY24 before it rises to 12.2% in FY25 and 13.5% in FY26. EBITDA generation is sensitive to volatile pulp prices and pressured by structurally declining demand for graphic paper. Fitch expects maintenance shutdowns, weak demand recovery and inflation to pressure margins in FY24. However, Fitch expects margins to then improve as fixed costs structurally fall on the closure of the mills. This will be further supported by new higher-margin packaging capacity from the PM2 machine in FY25, and a diluting contribution from the lower-margin graphic paper in the medium term. Positive Structural Change in Revenue: Sappi has proven its determination to realign the business towards its more stable and profitable packaging production offering. This has been evident through the closure of the two graphic paper mills in FY23-FY24 and conversion of the PM2 graphic paper machine by FYE25. Fitch expects packaging and specialty papers to be the largest segment in FY25 followed by graphic paper (currently the largest). Fitch views this improvement as credit-positive, but Fitch believes Sappi's business profile will remain more volatile than that of similarly sized packaging peers, with inherent pulp price volatility risk and structurally declining demand for graphic paper. Strong Diversification: Sappi's product portfolio is stronger and typically broader than that of packaging peers. Its raw material and end-use offerings have broad application across many industries including textiles, consumer goods, foodstuff, pharmaceuticals, packaging, automobile, dye sublimation paper and magazines. This diversification is slightly offset by the cyclical nature of the pulp and paper industries, declining demand for graphic paper and variable consumer discretionary spending. Instrument Notching: Fitch equalises Sappi Papier Holding GmbH's (SPH) senior unsecured debt rating with Sappi's rating. SPH issues debt to fund its international operations (ie. non-South African operations) and is independently funded from Sappi Southern Africa Limited (SSA). Fitch sees no material subordination of SPH's debt to either unsecured debt issued by SSA or secured debt issued within the Sappi Group. In the event of Sappi utilising material prior-ranking debt, it would likely lower recoveries for SPH unsecured debt, potentially leading to notching down of the instrument rating. If the amount of debt issued by either SPH or SSA becomes materially disproportionate to its revenue or earnings contribution to the group, it may affect the instrument ratings. DERIVATION SUMMARY Sappi's closest Fitch-rated peers are corrugated box producer Smurfit Kappa Group plc (Smurfit; BBB-/RWP), pulp and paper packaging producer Stora Enso Oyj (Stora; BBB-/Stable), Brazilian paper packaging producer Klabin S.A. (BB+/Stable) and Italian premium paper packaging and pressure-sensitive label producer Fiber Bidco S.p.A. (Fedrigoni; B+/Stable). The business profile also features some similarity to that of pulp producers Suzano S.A. (BBB-/Stable) and Eldorado Brasil Celulose S.A. (BB/Stable). Sappi is better geographically diversified than its higher-rated peer Stora, which is focused on Europe (68%), and similarly to Smurfit, given pending Smurfit's merger with WestRock Company. Sappi differentiates in terms of product offering with more end-use applications relative to peers'. However, a high 48% exposure in FY23 to structurally declining graphic paper and volatile pulp prices weigh on profitability compared with peers'. Fitch expects Sappi to further reduce its exposure to graphic paper, though it lags Stora's 15% share of paper revenue (2023), which the latter aims to almost eliminate by end-2025. Sappi's expected EBITDA margins (around 10%-13.5%) are lower than Smurfit's (around 15%-16%) and Stora's (around 13%-14%) and broadly similar to that of lower-rated peers such as Fedrigoni (12%-13%). Pulp producers Suzano and Eldorado have structurally different profitability profiles compared with Sappi, with strong double-digit margins. Sappi has quite different leverage metrics relative to peers'. Its forecast EBITDA gross leverage of no more than 2.8x -2.3x in the next two years is lower than higher-rated Stora's (above 3.0x). It is stronger than that of packaging peers in the 'BB' rating category, such as Klabin, Silgan Holdings Inc. (BB+/Stable), Berry Global Group, Inc. (BB+/Stable), all of which are likely to have EBITDA gross leverage of 4.0x-4.5x in the next two years. KEY ASSUMPTIONS - Revenue growth 7.0% in FY24, 0.4% in FY25, 9.4% in FY26 and 3.9% in FY27 - Product shift and fixed-cost reduction leading to EBITDA margins of 9.6% in 2024, 12.2% in 2025, 13.5% in 2026 and 14.6% in 2027 - Dividend payments resumed from 2023 to continue - Capex at 8.2% of revenue in 2024 and normalising to 7.5% in 2025-2027 - Refinancing of the 2024 and 2026 bonds at above rates for existing debt RATING SENSITIVITIES Factors That Could Individually or Collectively Lead to Positive Rating Action/Upgrade: - EBITDA gross leverage below 2x and EBITDA net leverage below 1.5x on a sustained basis - EBITDA margin above 14% on a sustained basis - FCF margin above 2% - Decreasing share of graphic paper revenue leading to improved business risk and less volatile profitability Factors That Could Individually or Collectively Lead to Negative Rating Action/Downgrade: - EBITDA gross leverage above 2.5x and EBITDA net leverage above 2.0x - EBITDA margin below 10% - Neutral to positive FCF margin - Shift in capital-allocation priorities toward debt-financed M&A or shareholder returns, instead of deleveraging - Greater volatility in margins due to unfavourable pulp and paper prices and/or decline in graphic paper revenue not counterbalanced with other packaging grades LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: At end-September 2023, Sappi had about USD485 million of cash, adjusted by Fitch for intra-year working-capital changes of 2% of sales. Liquidity is supported by undrawn committed RCFs of USD515 million at SPH with maturity in February 2027 and ZAR2 billion at SSA with maturity in August 2027. Fitch forecasts FCF will be pressured by higher capex, restructuring costs and dividend payments in FY24-FY25. However, liquidity remains comfortable with flexibility to amend capex, dividends or operating costs. Adequate Debt Structure: Sappi's refinancing risk is low due to strong leverage and coverage ratios, broad access to capital markets and an adequate debt maturity profile spread across 2026, 2028 and 2032 for senior unsecured notes. The company is working on refinancing its unsecured ZAR1.5 billion notes (USD79 million equivalent) due in May 2024. ISSUER PROFILE Sappi is a leading global provider of wood fibre-based raw materials (eg dissolving pulp, wood pulp) and end-use products (eg packaging and specialty papers, and graphic paper). Sappi's operations span over 35 countries in western Europe, North America and southern Africa. ESG CONSIDERATIONS 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 ----------- ------ -------- ----- Sappi Papier Holding GmbH senior unsecured LT BB+ Affirmed RR4 BB+ Sappi Limited LT IDR BB+ Affirmed BB+ ============= B E L A R U S ============= LLC EUROTORG: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable ------------------------------------------------------------- Fitch Ratings has affirmed LLC Eurotorg's 'B-' Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR), and Bonitron Designated Activity Company's 'B-' senior unsecured bond rating and removed them from Rating Watch Negative (RWN). The Outlook on the IDR is Stable and the Recovery Rating on the senior unsecured bond is 'RR4'. The removal of RWN reflects the diminished risk of default by Eurotorg in connection with the operating and funding environment in which it operates. This is due to a lower amount of foreign-currency debt; the re-domiciliation of Eurotorg Holding Plc (the sole shareholder of Eurotorg) to United Arab Emirates from the EU and a resilient trading performance in 2023 despite regulatory restrictions on passing cost inflation onto selling prices. Eurotorg's IDR continues to reflect its small scale relative to international peers', limited diversification outside its domestic market, and persistent risks to access to international payment systems and financing infrastructure, which weigh on its financial flexibility. These weaknesses are balanced by its conservative capital structure and a strong position in Belarus's food retail market. The LTFC IDR is constrained by Belarus's country ceiling. KEY RATING DRIVERS Improved International Payments Access: The re-domiciliation of Eurotorg Holding Plc reduces the risk of losing access to international payment infrastructure in connection with potential sanctions, which could hinder its ability to service interest and principal payments on its eurobond. Reduced outstanding debt on its eurobond further lowers the required cash repatriation amount and Fitch expects Eurotorg will be able to accumulate sufficient hard currencies outside Belarus well in advance of the bond maturity. Reduction of Foreign-Exchange Risk Exposure: Eurotorg's share of debt in hard currencies fell to 15%-16% in 2022-2023, from around 50% in 2021. After sizeable debt repurchases completed in 2022, Eurotorg continued to conduct bond buybacks in the open market, further reducing the outstanding loan participation notes (LPN) exposure to USD29 million at end-2023 from USD58 million at end-2022. Eurotorg continues to have access to hard currencies despite its profits being solely generated domestically. Profitability Stabilising at Lower Levels: Fitch believes Eurotorg has demonstrated good resilience in its overall 2023 performance to regulatory price restrictions. Its partial ability to pass on cost inflation to selling prices has allowed Eurotorg to contain EBITDA declines, based on its estimates, to around 15%-20% from 2022's levels. For 2024, taking into account contained inflation in Belarus in 2023 and recently introduced price regulations for producers, Fitch expects limited further pressure on EBITDAR margins, which Fitch assumes to fall only 50bp. Consistently Positive FCF: Despite margin pressure and its forecast of an increase in dividend payments, Fitch estimates Eurotorg's free cash flow (FCF) was positive in 2023 and project the same to 2026. While Fitch estimates a mild increase of leverage in 2023 (2022: 2.6x), moderate FCF generation, in addition to organic EBITDA growth for 2024-2026, should help reduce gross lease-adjusted EBITDAR leverage to 2.5x from 2025 onwards. Largest Food Retailer in Belarus: The rating is supported by Eurotorg's strong market position as the largest food retailer in Belarus, with a stable market share of around 19%-20% over the past five years, which is larger than that of its four largest competitors combined. Eurotorg continues to grow in line with the Belarussian retail market and Fitch estimates that sales grew 11.5% in 2023. The company benefits from its well-recognised Euroopt brand across the country and from increased consumer appeal for its discounter banners Hit! and Groshyk, giving it good diversification by store format. Small Market, Limited Diversification: The rating considers Eurotorg's limited geographic diversification as the company operates only in Belarus, which is characterised by a weak operating environment. Presence across different formats and regions of the country puts it in a stronger position than domestic competitors, including hard discounters, but does not reduce concentration risk, as Belarus is a small economy. The small size of the domestic market also leads to Eurotorg's substantially smaller business scale (EBITDAR equivalent to less than USD250 million in 2023) than other Fitch-rated global food retailers'. DERIVATION SUMMARY Fitch applies its Food-Retail Navigator framework to assess Eurotorg's rating and position relative to peers'. Comparing Eurotorg's rating with international retail chains, such as Tesco PLC (BBB-/Stable), or Russian peers such as X5 or Lenta, Eurotorg has smaller business scale and more limited geographic diversification, which is partly offset by stronger growth prospects and structurally greater profitability in the Belarussian food retail market. Relative to Bellis Finco plc (ASDA, B+/Stable), Eurotorg is rated two notches lower as its smaller size and exposure to foreign-exchange risk is only partially balanced by its stronger market position and bargaining power, and superior profitability. Furthermore, Eurotorg's ratings take into consideration the higher-than-average systemic risks associated with the Belarussian business and jurisdictional environment whereas international peers operate in stronger operating environments. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer - Belarusian rouble/US dollar at 3.2 at end-2023, 3.0 at end-2024, and 3.4 at end-2025 - CAGR of 3% in selling space in 2023-2026 - Mid-single-digit sales growth in 2024-2026 - EBITDA margins at around 6.4%-7% to 2026 - Working-capital outflows at 0.8%-0.9% of sales, reflecting logistic supply challenges and stricter payment terms - Capex around BYN60 million-BYN110 million per year over 2023-2026 - Dividends at BYN135 million-BYN185 million a year over 2023-2026 - No M&A in 2023-2026 RECOVERY ANALYSIS RECOVERY ASSUMPTIONS The remaining portion of USD83 million (out of which USD29 million are held by third parties) of Eurotorg's 2025 USD300 million LPNs are issued by Bonitron Designated Activity Company, an SPV domiciled in Ireland. The SPV is restricted in its ability to do business other than issue notes and provide a loan to Eurotorg. The notes are secured by a loan to Eurotorg, which ranks equally with its other senior unsecured obligations. Eurotorg is the major operating company within its group, accounting for most of the group's assets and EBITDA. Its recovery analysis assumes that Eurotorg would be considered a going concern in bankruptcy and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim. Eurotorg's going-concern EBITDA of USD110 million is below Fitch-estimated EBITDA of around USD180 million for 2023. It considers the company's profitability exposure to local price regulation and reflects Fitch's view of a sustainable, post-reorganisation EBITDA, on which Fitch based the valuation of the company. Fitch uses a mid-cycle enterprise value/EBITDA multiple of 4.0x to calculate a post-reorganisation valuation. This is 0.5x higher than the enterprise value multiple Fitch uses for Ukrainian poultry producer MHP (CC). For the debt waterfall assumptions, Fitch used its estimates of the group's debt at end-2023. Eurotorg's USD175 million of secured debt ranks senior to LPNs in the waterfall. For the purpose of recovery calculation, Fitch used all outstanding LPNs that have not been redeemed (USD83 million). The waterfall analysis generated a full ranked recovery for senior unsecured LPNs, indicating a higher rating than the IDR as the waterfall analysis output percentage on current metrics and assumptions was 100%. However, the LPNs are rated in line with Eurotorg's 'B-' IDR as notching up is not possible due to the Belarusian jurisdiction. Therefore, the waterfall analysis output percentage is capped at 50%/'RR4'. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Successful execution of expansion strategy as demonstrated by growing like-for-like (LFL) sales and stable profitability, leading to EBITDAR leverage at below 5.0x - EBITDAR fixed charge coverage trending towards 2.0x on a sustained basis - Slightly positive or neutral FCF and maintenance of a conservative financial policy - Adequate access to external liquidity Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Loss of access to international transactions infrastructure leading to inability to service foreign- currency liabilities - Sustained operating underperformance, including declining LFL sales and profitability, leading to EBITDAR leverage at above 6.0x - EBITDAR fixed charge coverage below 1.5x on a sustained basis - Difficulties in obtaining sufficient funding 12-18 months ahead of large debt maturities, or obtaining those on more onerous terms LIQUIDITY AND DEBT STRUCTURE Limited but Sufficient Liquidity: At end-2023, Fitch estimates that Eurotorg had sufficient cash to cover short-term debt maturities. Its expectations of positive FCF over the forecast horizon provide additional financial flexibility. Refinancing Risk Remains: Hard currency-denominated maturities in 2024 are limited and amount to USD10 million. Eurotorg has USD29 million outstanding in October 2025 under the LPNs. Fitch assumes that the company continues to have sufficient access to hard currencies within Belarus to address these maturities. However, Fitch acknowledges uncertainty regarding the near-to medium-term functioning of the financial system in Belarus and Russia, whose banks are currently the dominant lenders to Eurotorg, due to various sanctions imposed on the countries. This might hinder the company's ability to secure funding in the short-to-medium term. ISSUER PROFILE As of 31 December 2023, Eurotorg's retail store portfolio consisted of 175 rural and 801 urban convenience stores, 127 supermarkets, and 36 hypermarkets. ESG CONSIDERATIONS 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 ----------- ------ -------- ----- LLC Eurotorg LT IDR B- Affirmed B- Bonitron Designated Activity Company senior unsecured LT B- Affirmed RR4 B- ============= B E L G I U M ============= APOLLO FINCO: EUR348MM Bank Debt Trades at 17% Discount ------------------------------------------------------- Participations in a syndicated loan under which Apollo Finco BV is a borrower were trading in the secondary market around 82.8 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR348 million facility is a Term loan that is scheduled to mature on October 8, 2028. Apollo Finco BV was established in June 2021. It is a unit of Apollo Bidco. The Company's country of domicile is Belgium. =========== F R A N C E =========== CASINO GUICHARD: EUR1.43BB Bank Debt Trades at 43% Discount ----------------------------------------------------------- Participations in a syndicated loan under which Casino Guichard Perrachon SA is a borrower were trading in the secondary market around 56.9 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR1.43 billion facility is a Term loan that is scheduled to mature on August 31, 2025. The amount is fully drawn and outstanding. Casino Guichard-Perrachon SA operates a wide range of hypermarkets, supermarkets, and convenience stores. The Company operates stores in Europe and South America. The Company's country of domicile is France. CASSINI SAS: EUR141MM Bank Debt Trades at 16% Discount ------------------------------------------------------ Participations in a syndicated loan under which Cassini SAS is a borrower were trading in the secondary market around 84.5 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR141 million facility is a Term loan that is scheduled to mature on March 28, 2026. The amount is fully drawn and outstanding. Cassini SAS operates as a holding company to acquire the entire equity capital from current parent Comete Holding SAS. The Company's country of domicile is France. FINANCIERE LABEYRIE: EUR455MM Bank Debt Trades at 34% Discount -------------------------------------------------------------- Participations in a syndicated loan under which Financiere Labeyrie Fine Foods SASU is a borrower were trading in the secondary market around 66.2 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR455 million facility is a Term loan that is scheduled to mature on July 30, 2026. The amount is fully drawn and outstanding. Financiere Labeyrie Fine Foods sells seafood products. The Company prepares shrimp, duck items, salmon, sushi, trout, and foie gras. Labeyrie Fine Foods serves customers worldwide. The Company's country of domicile is France. ============= G E R M A N Y ============= ADAPA GMBH: EUR475MM Bank Debt Trades at 61% Discount ----------------------------------------------------- Participations in a syndicated loan under which adapa GmbH is a borrower were trading in the secondary market around 38.8 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR475 million facility is a Term loan that is scheduled to mature on September 24, 2028. The amount is fully drawn and outstanding. Adapa GmbH provides packaging products. The Company offers shrink films, laminates, wicket bags, tobacco pouches, and bread bags. The Company's country of domicile is Germany. CIDRON ATRIUM: EUR125MM Bank Debt Trades at 32% Discount -------------------------------------------------------- Participations in a syndicated loan under which Cidron Atrium SE is a borrower were trading in the secondary market around 67.9 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR125 million facility is a Term loan that is scheduled to mature on February 26, 2026. The amount is fully drawn and outstanding. Cidron Atrium SE operates as a special purpose entity. The Company was formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes. The Company's country of domicile is Germany. ============= I R E L A N D ============= CVC CORDATUS XXX: Fitch Assigns 'B-(EXP)sf' Rating to Cl. F-2 Notes ------------------------------------------------------------------- Fitch Ratings has assigned CVC Cordatus Loan Fund XXX DAC expected ratings, as detailed below. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. Entity/Debt Rating ----------- ------ CVC Cordatus Loan Fund XXX DAC A XS2774947282 LT AAA(EXP)sf Expected Rating B-1 XS2774947795 LT AA(EXP)sf Expected Rating B-2 XS2774947878 LT AA(EXP)sf Expected Rating C XS2774948090 LT A(EXP)sf Expected Rating D XS2774948173 LT BBB-(EXP)sf Expected Rating E XS2774948413 LT BB-(EXP)sf Expected Rating F-1 XS2774948769 LT B+(EXP)sf Expected Rating F-2 XS2778925706 LT B-(EXP)sf Expected Rating Subordinated Notes XS2774948843 LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY CVC Cordatus Loan Fund XXX DAC is a securitisation of mainly (at least 90%) senior secured obligations with a component of senior unsecured, mezzanine, second lien loans and high-yield bonds. Proceeds will be used to purchase a portfolio with a target par of EUR400 million. The portfolio is actively managed by CVC Credit Partners Investment Management Limited (CVC) and the collateralised loan obligation (CLO) will have about a 4.6-year reinvestment period and a 7.5-year weighted average life (WAL) test. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/'B-'. The Fitch weighted average rating factor (WARF) of the identified portfolio is 25.4. 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 (WARR) of the identified portfolio is 60.5%. Diversified Portfolio (Positive): The transaction will include various concentration limits in the portfolio, including a fixed-rate obligation limit at 12.5%, a top 10 obligor concentration limit at 20% and a maximum exposure to the three-largest Fitch-defined industries at 40%. These covenants ensure the asset portfolio will not be exposed to excessive concentration. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year, to 8.5 years, on the step-up date, which can be one year after closing at the earliest. The WAL extension is at the option of the manager but subject to conditions including passing the collateral-quality tests, portfolio profile tests, coverage tests and the reinvestment target par, with defaulted assets at their collateral value. Portfolio Management (Neutral): The transaction will have an approximately four-year reinvestment period and include reinvestment criteria 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. The transaction could extend the WAL test by one year on the date that is one year from closing, if the aggregate collateral balance (defaulted obligations at the lower of the market value and Fitch recovery rate) is at least at the target par and if the transaction is passing all the tests. Cash Flow Modelling (Positive): The WAL for the transaction's Fitch-stressed portfolio analysis is 12 months less than the WAL covenant. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period, which include passing the coverage tests, the Fitch WARF test and the Fitch 'CCC' bucket limitation test after reinvestment as well as a WAL covenant that progressively steps down, 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) and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would have no impact on the class A notes; a downgrade of no more than one notch on the class B, C, D and E notes; no more than two notches on the class F-1 notes; and to below ´B-sf' for the class F-2 notes. Downgrades, which are based on the identified portfolio, 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 of the identified portfolio than the Fitch-stressed portfolio, the rated notes display a rating cushion to a downgrade of up to three notches more than the cushion on the Fitch-stressed portfolio. Should the cushion between the identified and the Fitch-stressed portfolios erode due to manager trading post-reinvestment period or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would result in downgrades of up to four notches for the class A to D notes and to below 'B-sf' for the class E, F-1 and F-2 notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolios would lead to upgrades of up to three notches for the rated notes, except for the 'AAAsf' notes. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. 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 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. =================== L U X E M B O U R G =================== MACONLUX: Declared Insolvent by Luxembourg Court ------------------------------------------------ Madalena Queiros at Luxembourg Times reports that a Luxembourg court declared construction company Maconlux bankrupt on March 15, making it the latest victim of the country's construction downturn, despite a recent job cull in an attempt by the firm to avoid collapse. At the end of February, construction company Carvalho had warned it will seek bankruptcy, leaving 103 staff unemployed, Luxembourg Times recounts. This was preceded in December by renovation specialist Batipol, which employed 35 people, Luxembourg Times notes. "We had been negotiating with the company for a year and a half about an employment plan and now we've been surprised by the declaration of bankruptcy," Joe Gomes, the OGBL's deputy union secretary, told Contacto. The aim was "to find solutions to avoid this outcome", the union representative said. Bankruptcy was decreed by the court following a complaint by a supplier over an outstanding EUR29,000 debt, Luxembourg Times relates. Now, around 90 workers, most of them Portuguese nationals, are out of a job, Luxembourg Times discloses. Maçonlux in February made headlines over claims of outstanding wages and plans to dismiss an unspecified number of employees to cut costs, Luxembourg Times relays. Founder and CEO Antonio Manuel da Silva had warned last year of the pressure faced by the firm from rising energy and material bills together with higher payroll costs because of wage indexations, Luxembourg Times recounts. The OGBL is due to meet with workers soon to help them claim outstanding wages and to register with employment agency Adem, Luxembourg Times notes. ===================== N E T H E R L A N D S ===================== ALCOA NEDERLAND: Fitch Assigns 'BB+' Rating on Sr. Unsecured Notes ------------------------------------------------------------------ Fitch Ratings has assigned a 'BB+'/'RR4' rating to Alcoa Nederland Holding B.V.'s (Alcoa Nederland) proposed senior unsecured $750 million notes. The proposed notes will rank pari passu with Alcoa Nederland's existing notes. Proceeds of the proposed notes are for general corporate purposes. Fitch currently rates Alcoa Nederland's Long-Term Issuer Default Rating (IDR) 'BB+', senior secured revolving credit facility 'BBB-'/'RR2' and senior unsecured debt 'BB+'/'RR4'. The Rating Outlook is Stable. KEY RATING DRIVERS Weak Profitability, High Leverage: Fitch expects Alcoa's EBITDA leverage to remain above 3.0x through 2025, which is consistent with the 'BB' rating category. Fitch expects leverage to increase with near-term operating losses until planned cost reduction actions take effect and profitability recovers. Fitch expects that the company will need external funding to support its operations and restructuring activities during this period. Alcoa's capex is expected to remain above sustaining levels while the company will likely maintain its dividend. Fitch expects this will pressure cash flow generation and could lead to negative FCF through 2025, which would strain liquidity absent external funds. Operational and Mine-Specific Challenges: Fitch forecasts Alcoa's EBITDA margins to remain depressed through 2025, driven by operational setbacks and various mine-specific challenges. In October 2023, Alcoa initiated a restructuring plan at its Kwinana alumina refinery to respond to higher alumina production costs from using lower quality bauxite grades. The lack of economic alternative energy at San Ciprián results in unsustainable economics and a restructuring is likely needed. Higher cash costs of alumina production were not fully offset by declining caustic, calcined coke and pitch raw material costs. Fitch expects it to take at least two years for Alcoa to restructure operations and for profitability to recover. Alumina Acquisition Long-term Positive: The company's acquisition of the remaining 40% stake in Alumina World Alumina and Chemicals (AWAC) is positive to Alcoa's long-term credit profile as it enhances its cash flow generation. Despite the alumina segments challenges, the acquisition could result in more nimble management and synergies from operating the business as a subsidiary rather than a joint venture. AWAC is an unincorporated joint venture owned by Alcoa and Alumina Ltd. (Alumina). Credit Conscious Capital Allocation: Fitch expects share repurchases will depend on the level of the company's cash generation and for innovation project spending to be funded in a credit conscious manner. Fitch assumes that capital allocation will be balanced relative to the company's commitment to a strong balance sheet, evidenced by the company's modest dividend. Annual capex averaged about $400 million during 2019-2022 and Alcoa has guided to $550 million in capex in 2024. Sensitivity to Aluminum Prices: Fitch assumes average London Metal Exchange (LME) aluminum prices for full year 2024 of $2,350/t, increasing to $2,400/t in 2025 and moderating to $2,200/t over the longer term. While bauxite and alumina are priced relative to market fundamentals and the alumina segment accounted for 37% of Alcoa's total segment adjusted EBITDA in FY 2023, these product prices are sensitive to aluminum prices over the long run. The company estimates a $100/t change in the LME price of aluminum affects segment adjusted EBITDA by $205 million, including the effect of the power LME-linked agreements. Alcoa has some value-added energy and conversion income, and some power costs are LME linked, but the company will remain exposed to aluminum market dynamics. Low-Cost Position: Fitch believes Alcoa's cost position combined with its operational diversification provides significant financial flexibility through the cycle. The company assesses its bauxite costs in the first quartile, its alumina costs in the second quartile and its aluminum costs in the second quartile of global production costs. Most of Alcoa's alumina facilities are located next to its bauxite mines, cutting transportation costs and allowing consistent feed and quality. Aluminum assets benefit from prior optimization and smelters co-located with cast houses to provide value-added products, including slab, billet and alloys. DERIVATION SUMMARY Alcoa's operating challenges and need to raise liquidity, assumed through debt, to support operations results in a weaker financial structure and financial flexibility compared with 'BBB' category mining and metals peers. Alcoa's EBITDA leverage is generally expected to be above 3.0x through 2025 and compares unfavorably with metals peer Steel Dynamics (BBB/Positive) and Commercial Metals Company (BB+/Positive) with EBITDA leverage below 2.0x through 2025. Fitch expects Alcoa's EBITDA margins to average about 10% through 2027, commensurate with 'BB+' ratings, based on a gradual return to their historic operating cost position and the agency's conservative aluminum price assumptions. The ratings of Alcoa Nederland Holding B.V. are consolidated with those of Alcoa Corporation due to strong operational and strategic linkages, in line with Fitch's Parent and Subsidiary Rating Linkage Rating Criteria. The ratings of subsidiary Alcoa Nederland benefit from guarantees by Alcoa Corporation and certain subsidiaries. Fitch-rated aluminum peers include China Hongqiao Group Limited (BB+/Stable), and Aluminum Corporation of China Ltd. (Chalco; A-/Stable). Hongqiao benefits from greater size, higher vertical integration and EBITDA margins above 15%. Hongqiao has a less sophisticated product range than Alcoa but it maintains a higher EBITDA margin due to the scale and efficiency of its core aluminum smelting business. Hongqiao's EBITDA net leverage is lower than Alcoa's, but Alcoa has better operational and end-market diversity. Chalco is rated on a top-down approach based on the credit profile of parent Aluminum Corporation of China (Chinalco), which owns 32% of the company. Fitch's internal assessment of Chinalco's credit profile is based on the agency's Government-Related Entities Rating Criteria and is derived from China's rating, reflecting its strategic importance. KEY ASSUMPTIONS - Fitch commodity price deck for aluminum (LME spot) of $2,350 in 2024, $2,400 in 2025, and $2,200/t in 2026; - Estimated shipments at guidance; - Higher cash costs of alumina production; - Capex at guidance, above historical spending; - Alumina acquisition closes as per the stated terms in 3Q24; - Minimum liquidity of $1.5 billion; - Dividends at current rate. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade - EBITDA margins expected to be sustained above 15%, indicating higher value-added production and/or more disciplined markets; - EBITDA leverage expected to be sustained below 2.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade - EBITDA leverage expected to be sustained above 3.0x on a sustained basis; - EBITDA margins sustained below 10%. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: Fitch views Alcoa's liquidity as adequate and, as of Dec. 31, 2023, was supported by $944 million of cash on hand and an undrawn $1.25 billion secured revolver expiring June 27, 2027. The facility has a debt/capitalization maximum of 0.6x and a minimum interest coverage ratio, substantially EBITDA/cash interest expense, of 3.0x in 2024 and 4.0x thereafter. Fitch anticipates liquidity could be strained absent additional external funding given its view on negative FCF through the forecast. ISSUER PROFILE Alcoa Corporation is among the world's largest and low-cost bauxite and alumina producers with a leading position in second quartile cost aluminum products. DATE OF RELEVANT COMMITTEE 01 March 2024 ESG CONSIDERATIONS 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 ----------- ------ -------- Alcoa Nederland Holding B.V. senior unsecured LT BB+ New Rating RR4 =============== S L O V E N I A =============== GORENJSKA BANKA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable ----------------------------------------------------------------- Fitch Ratings has affirmed Slovenia-based Gorenjska Banka d.d., Kranj's (GBKR) Long-Term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook and Viability Rating (VR) at 'bb-'. KEY RATING DRIVERS Standalone Strength Drives Ratings: GBKR's IDRs are driven by its standalone financial strength, as expressed by its VR. The VR considers GBKR's stable business profile, good profitability, moderate capital buffers, stable funding and strong liquidity. However, the ratings also factor in GBKR's high risk concentrations, and the limited franchise. The bank's 'bb-' VR is one notch below the 'bb' implied VR due to a negative adjustment for business profile and risk profile. Operating Environment Stable: The Slovenian banks' operating environment score of 'bbb' balances the highest GDP per capita in central and Eastern Europe against the small overall size of the economy and highly competitive banking sector. Fitch expects recovering economic growth to offer banks reasonable opportunities to expand in 2024, while the financial results should moderate relative to the cyclically strong 2023, driven by contracting margins, increasing impairment charges and imposition of a bank levy. Stable Business Profile: GBKR's VR considers the bank's stable business profile, with a long-term strategic focus on servicing clients, primarily SMEs and retail clients, in its home region of Gorenjska in Slovenia. This makes GBKR a strong regional player with adequate capacity to generate stable earnings. This underpins its business profile score of 'bb-', above the implied 'b' category score. However, GBKR's overall Slovenian market share is small, at around 5% of total assets (end-2023). High Risk Appetite: Fitch views GBKR's risk appetite as higher than Slovenian peers, as reflected in the bank's above-average loan growth, industry concentrations, primarily to the construction and real estate segment (CRE, about 16% of total loans at end-2023, which includes cross-border lending). Decreased Related-Party Exposures: Gross on- and off-balance-sheet exposure to related parties decreased to 10% of common equity Tier 1 (CET1) capital at end-2023 (end-2022: 36%; end-2021: 65%), which supports its assessment of the bank's risk profile. Stable Asset Quality: GBKR's impaired (Stage 3) loan ratio remained broadly stable during 2023 (end-2022: 2.1%), in line with the banking sector trend. Specific loan loss allowance coverage remained low at around 33%, reflecting the bank's reliance on collateral. Fitch expects only a moderate increase in impairments in 2024 as operating conditions should remain supportive of Slovenian banks' asset quality. Good Profitability: GBKR's profitability improved markedly in 2023, driven by the higher interest rates and continued credit growth. Loan impairment charges increased, but remained modest, and stronger operating revenues balanced the moderate increase in operating costs. Fitch expects core profitability to moderate over 2024-2025, but to remain good, driven by narrowing margins, a moderate increase in impairment charges and the imposition of a bank levy. Moderate Core Capitalisation: Its assessment of capital and leverage considers the small absolute size of GBKR's capital base and sizeable risk concentrations. Fitch estimates the CET1 ratio improved by about 100bp in 2023 (end-2022: 14.3%), driven by internal capital generation. The bank targets managing the CET1 ratio close to 14% in 2024-2025, in view of the planned moderate risk-weighted assets growth and continued cash pay-outs. Stable Funding: Customer deposits are stable and diversified. It is dominated by sight deposits, mostly from households, while the share of term deposits is above higher-rated peers, indicating somewhat weaker customer relationships. Wholesale funding is moderate, sourced from the Slovenian Development Bank, subordinated loans from the sister bank, but also includes liabilities to cover minimum requirement for own funds and eligible liabilities. The liquidity position is solid and regulatory liquidity ratios are comfortably above minimum requirements. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade GBKR's VR, and hence Long-Term IDR, would be downgraded if the bank experiences a sharp deterioration in asset quality, capitalisation, and operating profitability metrics without clear prospects for recovery. In particular, the bank's ratings would likely be downgraded if: - The bank's CET1 ratio falls sustainably below 12%, implying only minimal headroom above the minimum regulatory requirement. - There was a substantial increase in risk appetite, including evidence of higher risk concentrations, especially if combined with asset quality and profitability deterioration, or evidence of material governance weakness reflected, in particular, in the material increase in related-party exposure. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade would require a significant strengthening of the bank's franchise, along with a material decrease in risk concentrations, while maintaining stable financial metrics. GBKR's Government Support Rating (GSR) of 'no support' reflects Fitch's view that due to the implementation of the EU's Bank Recovery and Resolution Directive, senior creditors of GBKR cannot rely on full extraordinary support from the sovereign if the bank becomes non-viable. An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. However, this is unlikely, given existing resolution legislation. VR ADJUSTMENTS The business profile score of 'bb-' has been assigned above the 'b' implied category score, due to the following adjustment reason: business model (positive). The asset quality score of 'bb-'has been assigned below the 'bbb' implied category score, due to the following adjustment: concentrations (negative). The earnings and profitability score of 'bb+' has been assigned below the 'bbb' implied category score due to the following adjustment: earnings stability (negative). The capitalisation and leverage score of 'bb-' has been assigned below the 'bbb' implied category score due to the following adjustments: size of capital base (negative) and risk profile and business model (negative). The funding and liquidity score of 'bb+' has been assigned below the 'bbb' implied category score due to the following adjustments: deposit structure (negative). ESG CONSIDERATIONS Fitch has revised GBKR's ESG Relevance Score for Governance Structure to '3 from '4', reflecting a decrease in the related-party exposures. 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 ----------- ------ ----- Gorenjska Banka d.d., Kranj LT IDR BB- Affirmed BB- ST IDR B Affirmed B Viability bb- Affirmed bb- Government Support ns Affirmed ns ========= S P A I N ========= INCEPTION HOLDCO: Fitch Publishes 'B' LT IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has published Inception Holdco S.a.r.l.'s (IVIRMA) Long-Term Issuer Default Rating (IDR) of 'B' with a Stable Outlook. At the same time, Fitch has assigned Inception's planned secured term loan B of around EUR1 billion an expected rating of 'B+(EXP)'/'RR3'. The term loan B will be used to refinance the existing senior secured debt facilities in full and will be issued by Inception Finco and Inception's other subsidiary, IVI America, LLC. Inception's IDR reflects the group's global leading position in the assisted reproduction techniques (ART) market following the integration between IVIRMA and General Life. Inception was further bolstered by its recent acquisition of Eugin Group, a US fertility business previously owned by German-based Fresenius SE & Co. KGaA (BBB-/Stable). These acquisitions are a strategic fit, expand Inception's geographical diversification across Europe and add market share in the US. This should boost profitability from scale and synergy extraction, but carries meaningful execution risk. The IDR is constrained by high, albeit easing, EBITDAR leverage, which Fitch expects to fall to 7.0x or below in 2024, to be consistent with Inception's IDR. The Stable Outlook reflects its view that Inception will consolidate its position in the global ART market and continue its stable operating performance and sustained positive free cash flow (FCF), mitigating its high financial leverage. KEY RATING DRIVERS Leverage-Neutral Refinancing: Inception's proposed refinancing is leverage neutral and will slightly extend maturities and lower its interest burden. Fitch also expects improved liquidity, as the company plans to upsize its revolving credit facility (RCF) to EUR200 million, from EUR170 million, which Fitch expects will remain undrawn at closing. EBITDAR fixed-charge coverage should remain adequate for Inception's rating, at 1.7x in for 2024, rising to above 2.0x thereafter. Meaningful Execution Risk from Ongoing Integration: Fitch views Inception's combination with GeneraLife and the acquisition of Eugin have boosted its scale and profitability. The company benefits from synergy extraction in integrated supplies, procurement and centralised marketing and other functions, mitigating inflationary pressure, and plans to open new clinics. Consequently, Fitch expects EBITDA margin to have been around 23% in 2023, widening towards 25% by 2026. Despite a large part of the integration of General Life already having been delivered in 2023, with the recent addition of Eugin Fitch continues seeing execution risks as meaningful until completion of both integrations (estimated by end-2024) as both businesses are material and possibly leading to higher integration costs with more protracted implementation than initially expected. Superior Profitability: Inception has high vertical integration across its value chain, which provides a competitive advantage against peers that tend to have a greater share of outsourcing, leading to its stronger gross and EBITDA margins. Fitch expects profitability to remain sustainably above 23% from 2025, when its acquisitions are fully integrated and it ramps-up new clinic openings. Clinics opened since 2022 show positive operating leverage. Strong Underlying FCF: Inception has strong cash flow generation that benefits from its superior EBITDA margin, the sector's inherent negative working capital characteristics and a lower interest burden post-transaction, despite large annual capex of 4%-5% of revenue for greenfield expansion. Fitch expects its FCF margin to strengthen towards mid-to-high single digits from 2025, following much lower non-recurring outflows related to its transformational acquisitions. However, part of its FCF is likely to be reinvested in greenfield projects or bolt-on M&A. Continuously weak or negative FCF would pressure the ratings. Global ART Market Leader: The business combination between IVIRMA and GeneraLife in 2022 created the world's largest fertility platform, eclipsing the scale of the closest competitor, while the January 2024 acquisition of US-based Eugin further enhanced the group's revenue diversification and growth cycles between the US and Europe. It also strengthened its global brand visibility, while its vast and established clinical network raises entry barriers. The company's comprehensive fertility treatment service offering, provided in uniformly equipped clinics, targets the high-end market and delivers above-peer average success rates. Resilient Business Model: Inception has shown resilient performance during prior recessions, with some temporary volatility during the Covid-19 pandemic due to travel disruption affecting international patients. Its vertically integrated business model helps to secure diverse supply from its gamete bank, which is one of the world's largest. Above industry-average success rates are supported by Inception's in-house genetic testing capabilities, underpinned by robust R&D expertise, which further strengthens its resilient business model. Financial Policy Drives Ratings: Fitch expects Inception's EBITDAR gross leverage to have reached 7.7x by end-2023, broadly in line with opening leverage of 7.8x, which is not representative of a 'B' rating category. However, Fitch forecasts leverage to moderate to levels commensurate with the 'B' rating, reaching 7.0x in 2024 and 5.7x by 2026, given the company's deleveraging potential and assuming the absence of major debt-funded acquisitions, in line with a conservative M&A funding policy and shareholder support on its 'buy and build' strategy. Fitch regards Inception as a natural market consolidator and therefore assume most of its FCF will be used to finance bolt-on acquisitions. Fitch capitalises rents in the company's adjusted leverage ratio to reflect the lease contracts of its clinics and the high likelihood of renewal upon lease expiry. Fitch expects the group's greenfield expansion and buy-and-build M&A strategy to allow for modest deleveraging, subject to the ramp-up periods of new clinics, acquisition economics and funding structure, execution risk and synergy extraction capability. Industry Trends: Fitch believes the group can expand organically at a rate that meets or exceeds the market. This is supported by rising ART demand, driven by sociodemographic and medical factors that are increasingly preventing people from conceiving naturally, although demand growth will vary by geography and the different cycles and penetration rates of ART services. Supportive Regulation: Revenue growth is also supported by a favourable regulatory framework in most markets, where ART is an emerging sector in healthcare. Fitch believes the adverse impact of the Supreme Court of Alabama's recent decision on frozen embryos is mitigated by the company's established record of successful operations in other geographies with tight regulatory environments. Fitch treats the possibility of a more restrictive cross-state regulatory shift in the US as an event risk. However, the continuation of favorable regulations is an important overarching consideration in its rating analysis. DERIVATION SUMMARY Global sector peers tend to cluster in the 'B'/'BB' range, with local regulatory frameworks influencing the companies' funding quality and operating profiles. Factors such as scale, services, geographic diversification, mix of payors and the variety of medical indications addressed contribute to the companies' distinct credit profiles. Many providers pursue debt-funded M&A, given the importance of scale and limited room for maximising organic return. Fitch rates Inception at the same level as French hospital operator, Almaviva Developpement (B/Stable), and Finnish social care and private healthcare provider, Mehilainen Yhtyma Oy (B/Stable), and one notch higher than Median B.V. (B-/Stable), a pan-European healthcare operator focused on rehabilitation and mental health. All three peers have similar operating characteristics in terms of stable patient demand and some ability to raise price subject to regulations. The companies aim to drive operating efficiencies, while investing in their clinic networks to remain competitive. The ratings of EMEA-based peers that are within the 'B' range tend to be constrained by weak credit metrics amid highly leveraged balance sheets that stem from persistent national and cross-border market consolidation. The peers' EBITDAR leverage averages at 6.0x-7.0x and EBITDAR fixed-charge cover metrics are tight, at 1.5x-2.0x. These metrics are further impacted by the current high interest-rate environment. Fitch also compares Inception with lab testing companies in light of its genetic testing capabilities. These companies include Ephios Subco 3 S.a.r.l. (B(EXP)/Positive), Inovie Group (B/Negative) and Laboratoire Eimer Selas (B/Negative). Lab testing companies tolerate higher leverage levels relative to their ratings, due to strong operating and cash flow margins in combination with non-cyclical revenue patterns, high visibility amid sector regulation, large business scale and wide geographic footprints. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Organic and M&A driven revenue growth at a 12% CAGR from 2023 to 2027, with annual M&A of around EUR40 million-60 million during 2025-2027 - EBITDA margin improving towards 25% in 2026 on realised efficiencies (2023: 23.1%) - Lease expenses, which Fitch capitalises, rising by an 11% CAGR from 2023 to 2027 to accommodate the projected revenue expansion - Effective interest rate easing to 6.5% in 2026 and 6.0% in 2027, including hedging of the base rate for the EUR700 million term loan B (2023: 8.6%) - Working capital changes at a slightly negative percentage of sales - Capex at around 4% of sales through to 2027 - Cash flow from non-operating activities mainly for one-off costs due to integration - FCF partly reinvested in M&As, with around EUR115 million to be spent over 2025-2027, supported by a multiple of 10x EBITDA per acquisition and a 22% EBITDA margin - RCF drawn by 5% over the medium-term to support working capital requirements RECOVERY ANALYSIS The recovery analysis assumes that Inception would remain a going concern in the event of restructuring and would be reorganised rather than liquidated. - Fitch assumes a 10% administrative claim. - Fitch assumes a going concern EBITDA of EUR150 million on the basis of which Fitch calculates the distressed enterprise value. - Fitch assumes a distressed multiple of 6.0x, reflecting the group's market leadership in a niche market with attractive growth and demand fundamentals, geographic diversification and the benefits of a vertically integrated business model. - Its waterfall analysis generates a ranked recovery for senior creditors in the 'RR3' band, indicating a 'B+(EXP)' instrument rating, as assigned to the prospective senior secured facilities, one notch above the IDR. The waterfall analysis output percentage on current metrics and assumptions is 57% for the new senior secured debt. Fitch assumes that the enlarged RCF of EUR200 million would be fully drawn prior to default, ranking pari passu with the new term loan B of EUR1 billion. Fitch also includes EUR122 million of local facilities at operating companies, which are structurally senior to other senior debt. Fitch expects to assign the final instrument rating upon closing of the refinancing, following its review of the execution documentation. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Successful execution of the medium-term strategy, with accretive inorganic expansion leading to an increased scale ahead of its rating case, with an EBITDA margin at or above 30% on a sustained basis - Continued favourable regulatory environment and positive market demographics supporting the company's business model and competitive advantage - EBITDAR leverage sustainably below 5.5x - FCF margin remaining above 10% on sustained basis - EBITDAR fixed-charge coverage sustainably above 3.0x Factors that could, individually or collectively, lead to negative rating action/downgrade: - Weakening credit profile due to reputational damage, adverse changes or the prospect of adverse changes to the regulatory framework or higher execution risk from unsuccessful business integration or strategy implementation - EBITDAR leverage remaining above 7.0x due to weakening trading or as a result of opportunistic and aggressively debt-funded M&A - Inability to improve FCF margin to the low-single digit positive level due to weaker operating performance or an aggressive capex policy towards greenfield expansion - EBITDAR fixed-charge coverage remaining below 2.0x LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Fitch regards liquidity as satisfactory, with EUR136 million in cash and an undrawn RCF of EUR170 million, to increase to EUR200 million post-refinancing. The proposed transaction will improve FCF through a lower interest burden, although Fitch forecasts neutral FCF generation in 2024 due to non-recurring acquisition costs. Fitch expects consistently higher positive FCF from 2025, allowing the company to accumulate up to EUR60 million in cash by end-2027. This includes EUR10 million of RCF drawings to manage working capital swings and assumes EUR150 million in acquisitions and earn-out payments until 2027 under the rating case, alongside nominal dividends related to the clinic platform. Post-refinancing, debt maturities will be extended by one year to 2030 for the RCF and to 2031 for the term loan B. ISSUER PROFILE Spain-based Inception is the world's largest fertility platform, with 178 clinics across 14 countries in Europe and the Americas. DATE OF RELEVANT COMMITTEE 29 February 2024 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 ----------- ------ -------- Inception Holdco S.a.r.l. LT IDR B Publish IVI America, LLC senior secured LT B+(EXP) Expected Rating RR3 Inception Finco S.a.r.l. senior secured LT B+(EXP) Expected Rating RR3 =========== S W E D E N =========== POLYGON GROUP: Fitch Affirms 'B' LongTerm IDR, Outlook Negative --------------------------------------------------------------- Fitch Ratings has affirmed Polygon Group AB's (Polygon) Long-Term Issuer Default Rating (IDR) at 'B' with Negative Outlook. Fitch has affirmed Polygon's EUR430 million first-lien term loan B1 (TLB1) at 'B', following a new EUR60 million TLB add-on. Fitch has also affirmed Polygon's EUR55 million delayed draw first-lien TLB2 and EUR90 million revolving credit facility (RCF) ratings at 'B'. The Recovery Ratings on all its debt are 'RR4'. The affirmation reflects its view that the TLB add-on is neutral to the ratings (see below for updated recovery analysis). The Negative Outlook mainly reflects subdued, but gradually improving, operating profitability leading to high leverage, which remains above its negative sensitivity and leaving no headroom at the current rating. Downside risk is exacerbated by continued high interest costs and an improving, but still uncertain, supply-side environment as well as consistent significant investments required to support Polygon's expected mid-single-digit organic growth. Fitch may change the Outlook to Stable if Fitch sees a lower risk of key ratios being weak for the rating or downgrade the rating if the weakness proves structural. KEY RATING DRIVERS Subdued but Improving Margins: Fitch expects a gradual recovery in Fitch-defined EBITDA margin to about 7% in 2024 and about 8% in 2025-2026 following its subdued level of about 6% in 2022. Its muted profitability in 2022 was mainly driven by various temporary supply-side challenges, including labour shortages and acute inflation in wages, energy and transport. In 1H23, Polygon recorded slower cost inflation and a declining employee sickness ratio. Margins should also be boosted as the company is on track to resolve its temporary local operational challenges in a few countries. However, execution risk is exacerbated by the integration risk related to recent acquisitions and the still uncertain supply-side environment despite the recent improvement. Neutral-to-Positive FCF: Fitch expects neutral-to-positive free cash flows (FCF) in 2024-2026 following negative FCF of about 1% of revenue in 2023 and 4% in 2022. Polygon's FCF generation since 2022 has been affected by subdued operating margins and high working-capital requirements, the latter partly related to the implementation of a new enterprise resource planning system in 2022. Fitch expects improving Fitch-defined EBITDA margins in 2024-2026 to be partly offset by continued high interest costs as well as consistent significant growth capex and working-capital investments required to support Polygon's expected mid-single-digit organic growth. High but Sustainable Leverage: The rating is constrained by high leverage; however, expected modest deleveraging implies that Polygon's outstanding debt is sustainable. Fitch estimates Fitch-defined EBITDA leverage was above its 7x negative sensitivity at end-2023. Fitch forecasts gross leverage of 7.0x at end-2024 with gradual deleveraging to about 5x by end-2026, mainly driven by improving operating margins and revenue growth. Polygon has no leverage headroom at the current rating. Resilient Demand: Fitch expects solid revenue growth in 2023-2026 from the combination of its buoyant property damage restoration (PDR) business and acquisitions. It benefits from a high share of long-term contracts with customers and a favourable geographic footprint focused on Germany and the Nordics. In 1H23, Polygon had about 8% organic growth, supported by strong demand in its main markets. Polygon's expected mid-single-digit organic growth is mainly driven by sector characteristics, such as an increasing number of restorable residential and commercial properties, ageing building stock and the increasing value of properties, which, in turn, results in more claims for damages. Sound Business Profile: Fitch views Polygon's business profile as solid, with market-leading positions and a contract-based income structure that is consistent with a 'BB' rating. It has operations in 16 countries, providing healthy geographic diversification, albeit with some dependence on Germany. Its service offering is well-diversified, which should attract larger insurance-company customers as it enters new markets. Manageable Concentration Risk: Fitch views Polygon's dependence on insurance companies, which generate close to two thirds of total revenue, as a manageable concentration risk for the 'B' category business services company. The relationships are generally balanced (albeit with some mismatch between Polygon's cost inflation and contractual revenue escalation), based on multi-year contracts with a very high retention rate. Leading Position in Niche Market: Polygon is the dominant participant in the European PDR market with a leading position in Germany, the UK, Norway and Finland. Polygon estimates its share in the key German market at 10%-13%. The sector is highly fragmented with many smaller and often family-owned businesses. Size is an important competitive advantage in the PDR market in winning framework agreements with large insurance companies. Additionally, larger participants provide a comprehensive offer with add-on services, which is an increasingly common requirement from insurance companies. Industry with Low Cyclicality: Demand for property damage control is stable and driven by insurance claims, which are resilient to economic trends. The majority of Polygon's revenue in its core German market is generated from framework agreements with customers and can be regarded as recurring, delivering good revenue visibility. Claims under these types of damages follow normal seasonal patterns, with water leaks and fires being the most important product segments for Polygon. The remaining revenue is more unpredictable and related to extreme weather conditions, which have increased over the past decade. Continued Acquisitive Strategy: Fitch expects Polygon to continue its M&A-driven growth strategy and to gain market share in selected geographies as it broadens its services scope. The group has a successful integration record and policy of acquiring companies with a clear strategic fit at sound valuation multiples. Nevertheless, the M&A pipeline, deal parameters and post-merger integration remain important rating drivers. In 1H23, Polygon's main acquisition was the UK-based reconstruction services company FSH Group Limited with annual revenue of about EUR20 million. Fitch assumes it will spend about EUR20 million on M&A per year in 2024-2026. DERIVATION SUMMARY Polygon is the market leader in the European PDR sector and has no direct peers in Fitch's rating universe. Its framework agreements with major property insurance providers and leading market positions in Germany, the UK and the Nordics limit volatility of profitability, provide some barriers to entry and enhance operating leverage. Polygon's business profile is slightly stronger than that of Sweden-based leading provider of installation and service solutions Assemblin Group AB (Assemblin; B/Stable). Polygon has a broader geographic footprint and lower direct exposure to the cyclical construction end-market. Both companies have broadly similar scale of operations, leading market positions, a large number of customers, a high share of contract revenue and an active M&A-driven strategy. Similarly to Assemblin, Polygon is smaller in size than Nordic building products distributors Quimper AB (Ahlsell, B+/Stable) and Winterfell Financing S.a.r.l. (Stark Group, B/Positive). Polygon's financial profile is expected to be weaker than that of Assemblin, due mainly to higher leverage. Both companies have broadly similar Fitch-defined EBITDA margins and generate neutral-to-positive FCF through the cycle. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Total revenue of about EUR1.3 billion in 2023, followed by mid-single-digit organic revenue growth in 2024-2026 - Total acquisition expenditure of about EUR25 million in 2023 and EUR20 million annually in 2024-2026 at a 0.5x enterprise value (EV)/sales multiple - Fitch-defined EBITDA margin at 6.7%-7.1% in 2023-2024, increasing to 7.8%-8.3% in 2025-2026 - Working-capital outflow at 0.8% of revenue in 2023-2024 and 0.5%-0.6% annually in 2025-2026 - Capex at 2.3%-2.5% of revenue annually in 2023-2026 - No dividends in 2023-2026 RECOVERY ANALYSIS Recovery Assumptions The recovery analysis assumes that Polygon would be restructured as a going concern (GC) rather than liquidated in a default. It mainly reflects Polygon's strong market position and customer relationships as well as the potential for further consolidation in the fragmented PDR sector. For the purpose of the recovery analysis, Fitch assumes that post-transaction debt comprises the first-lien EUR90 million RCF (assumed full drawdown), EUR430 million TLB, EUR55 million delayed draw TLB2, EUR60 million TLB add-on and a second-lien EUR120 million term loan. Fitch applies a distressed EV/EBITDA multiple of 5.0x to calculate a GC EV, reflecting Polygon's market-leading position, strong operating environment, a loyal customer base and potential for growth via the consolidation of the PDR sector. The multiple is limited by Polygon's small size and significant reliance on insurance companies in Germany. The GC EBITDA estimate of EUR61 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA level on which Fitch bases the EV. In such a scenario, stress on EBITDA would most likely result from M&A integration issues negatively affecting profitability, effectively representing a post-distress cash flow proxy for the business to remain a GC. After deducting 10% for administrative claims, its waterfall analysis generates a ranked recovery for the senior first-lien secured debt in the Recovery Rating 'RR4' band, indicating a 'B' instrument rating for the group's TLB, TLB2, TLB add-on and RCF. The waterfall analysis output percentage on current metrics and assumptions is 43%. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Increasing scale with EBIT margin above 6% on a sustained basis - Positive FCF post acquisitions - EBITDA gross leverage below 5.0x on a sustained basis - EBITDA interest coverage above 3.0x on a sustained basis Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA gross leverage above 7.0x on a sustained basis - EBITDA interest coverage below 2.0x on a sustained basis - Problems with integration of acquisitions leading to pressure on margins - Negative FCF generation LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: As at 31 December 2023, liquidity mainly comprised about a EUR90 million committed RCF (EUR50 million undrawn). The new EUR60 million TLB add-on will be used to pay down the drawn portion of the RCF. Polygon has no significant short-term debt maturities as the debt structure is now (post add-on transaction) concentrated on a EUR545 million senior secured TLB due in 2028 (including EUR55 million delayed draw TLB2) and a EUR120 million second-lien credit facility due in 2029. Fitch estimates negative FCF of around 1% of revenue in 2023 and forecast neutral-to-positive FCF in 2024-2026. ESG CONSIDERATIONS 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 ----------- ------ -------- ----- Polygon Group AB LT IDR B Affirmed B senior secured LT B Affirmed RR4 B =========================== U N I T E D K I N G D O M =========================== ARRIVAL: Owes GBP200 Million to Creditors, Documents Show --------------------------------------------------------- Peter Campbell at The Financial Times reports that failed electric van start-up Arrival collapsed owing close to GBP200 million and holding less than GBP150,000 of cash, insolvency documents show. According to the FT, Arrival's debts range from GBP10 million owed to HM Revenue & Customs and GBP650,000 to various local councils, to magazine subscriptions, a coffee roasting business and GBP720 to a document-shredding company. It also owed GBP421 to private-hire group Addison Lee and GBP4,000 to a landscape gardener, the FT discloses. Some of the unpaid bills stretch back at least two years, according to people familiar with the list of creditors filed by administrators EY, the FT notes. Backed early by Hyundai, the company was once valued at US$15 billion when it listed on the Nasdaq exchange in 2021. The business, which never generated revenues, had been cutting jobs before it collapsed to contain costs, the FT recounts. At one point, Arrival said it had let go of so many people that it was unable to file its accounts, something that ultimately led it to be delisted from Nasdaq, the FT notes. The UK arm of the business fell into administration earlier this year, the FT relates. The "statement of affairs" compiled by directors and filed by administrators at EY is an estimate of Arrival's condition and assets, the FT discloses. Fuller details will be published in other documents in the coming weeks. The latest filing shows the company had less than GBP150,000 in cash when it collapsed, and that it owed more than GBP73 million to other parts of the business, the FT states. Arrival owes about GBP87 million to secured creditors, GBP2 million to preferential creditors, and a further GBP102 million to unsecured creditors, the document shows, the FT relays. Many of the company's assets, including machinery, computer equipment and furniture, are worth a fraction of their original value, the FT notes. The documents, the figures in which are estimated, also value Arrival's intellectual property at GBP50 million, the FT states. The document also shows the spread of debts, both inside and outside the company, according to the FT. Seven current or former employees are owed almost GBP17,000 in total, the FT discloses. The company also owes money to several other Arrival entities, including a GBP1.1 million debt to a subsidiary in Mauritius, the FT notes. CIEP EPOCH BIDCO: GBP200MM Bank Debt Trades at 44% Discount ----------------------------------------------------------- Participations in a syndicated loan under which CIEP Epoch Bidco Ltd is a borrower were trading in the secondary market around 56.3 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The GBP200 million facility is a Term loan that is scheduled to mature on December 18, 2024. The amount is fully drawn and outstanding. CIEP Epoch Bidco Limited operates as a mechanical system contractor. The Company's country of domicile is the United Kingdom. CONSTELLATION AUTOMOTIVE: GBP325MM Bank Debt Trades at 26% Discount ------------------------------------------------------------------- Participations in a syndicated loan under which Constellation Automotive Ltd is a borrower were trading in the secondary market around 73.6 cents-on-the-dollar during the week ended Friday, March 15, 2024, according to Bloomberg's Evaluated Pricing service data. The GBP325 million facility is a Term loan that is scheduled to mature on July 16, 2029. The amount is fully drawn and outstanding. Constellation Automotive Group Limited offers digital used car marketplace. The Company offers used passenger cars, utility vehicles, and trucks, as well as provides parts and accessories, repairs and maintenance, finance, and insurance services. The Company's country of domicile is the United Kingdom. INKTHREADABLE LIMITED: Bought Out of Administration --------------------------------------------------- Business Sale reports that a Blackburn-based custom clothing company that fell into administration after struggling in the aftermath of the COVID-19 pandemic has been acquired in a rescue deal. Inkthreadable Limited was founded by Alexander and Aaron Cunliffe and Amy Dunn in 2011, when the three were still teenagers. According to Business Sale, despite initially being hit by COVID-19 and its associated lockdowns, the company subsequently experienced a surge in orders during the pandemic, leading it to undertake significant expansion. However, sales failed to remain at these levels, and the company began to suffer from cashflow issues that were exacerbated by tough trading conditions over the past year and significant debts and tax liabilities, Business Sale notes. The company, which was based at Blackburn Business Park after moving from its original Oswaldtwistle Mills premises during the pandemic, engaged Leonard Curtis Business Recovery on a "time to pay" agreement with HMRC as it sought to address its immediate financial issues, Business Sale relates. However, in January, it was decided that the company was effectively insolvent and that a rescue deal should be sought, Business Sale recounts. According to administrators, the company owed two mortgages to Arkle Limited in relation to its plant and machinery, as well as owing approximately GBP1.25 million to trade and expense creditors and had also received a government-backed "Bounce Back" loan totalling GBP28,842 during the pandemic, Business Sale states. Administrators have now secured a sale of the business to Hyper Merch Limited, of which Inkthreadable co-founder Alexander Cunliffe is a director, in a deal that will see the transfer of 20 jobs and other company assets, including plant and machinery and goodwill, for a total of GBP130,000, Business Sale discloses. LOVE HEMP: Enters Administration for Second Time ------------------------------------------------ James Beeson at The Grocer reports that CBD supplement firm Love Hemp has gone into administration for the second time in little over a year. In a letter to employees seen by The Grocer, the firm's administrators at Begbies Traynor warned of the possibility of redundancies. According to The Grocer, they said: "Notwithstanding our efforts to preserve the business, it may be that redundancies will have to be made if there are insufficient funds with which to pay the workforce and/or there is no viable business to continue." They added that if redundancies were necessary, employees should seek government funds as it was unlikely there would be "sufficient company funds available for redundancy pay". Love Hemp -- which counts former world heavyweight champion boxer Anthony Joshua among its shareholders -- previously went into administration in February last year, The Grocer relates. That administration resulted in the firm being delisted from the Aquis Stock Exchange, and subsequently sold to Portillion Capital, The Grocer notes. Trading in the company's shares was also suspended in May 2022 after an investigation by Aquis found the company had misled investors over its financial situation, The Grocer discloses. It was subsequently fined GBP70,000 by Aquis, The Grocer discloses. In December 2022, the company secured a GBP1.5 million loan to pay off debts to its invoice finance provider, but warned its working capital had been hit by slower payments from retail customers and dwindling consumer confidence, The Grocer recounts. In early 2023, Love Hemp issued a statement in response to claims made by former managing director Philip Small about its financial affairs, The Grocer relays. The company, as cited by The Grocer, said it refuted the claims but was willing to work with the Financial Conduct Authority, adding it had "no reason to believe any of these comments to be true". LUNAZ GROUP: Puts Commercial Arm Into Administration ---------------------------------------------------- Matt Oliver at The Telegraph reports that an electric vehicle (EV) start-up backed by celebrities including David Beckham and Jack Whitehall has put its commercial arm into administration, blaming the Government's decision to delay a ban on petrol car sales. Lunaz Group, which retrofits combustion engine vehicles with electric powertrains, on March 18 confirmed it was shutting down Lunaz Applied Technologies as part of a wider overhaul, The Telegraph relates. The troubled division was focused on "upcycling" bin lorries and had secured a deal with refuse collector Biffa to electrify its fleet, The Telegraph notes. The Silverstone-based company was founded in 2018 by entrepreneur David Lorenz and former Formula 1 technical director Jon Hilton, with the business securing investment from Mr. Beckham in 2021. The former England footballer reportedly took a 10% stake, with other investors including Mr. Whitehall -- who fronted promotional videos for Lunaz -- and the Reuben brothers and the Barclay family, who are the current owners of The Telegraph. As well as bin lorries, Lunaz has converted a series of classic cars for customers including Aston Martins and Rolls-Royces. According to The Telegraph, on March 18 a spokesman for Lunaz said it was "restructuring its business to re-scope timelines for the start of production for commercial vehicle products", adding: "This means, the business entity 'Lunaz Applied Technologies' has stopped operations." The company blamed the Government's decision to push back a ban of sales of new petrol cars and vans from 2030 to 2035 but said the commercial unit could resume production again "at a later date", The Telegraph relays. The spokesman added the move meant the company could focus its attention on passenger cars. "This restructure will ensure demand for passenger vehicles can be met while ensuring commercial vehicles can be produced once market conditions drive demand," they said. NEWGATE FUNDING: Fitch's Outlook on 3 Loan Transactions Now Stable ------------------------------------------------------------------ Fitch Ratings has revised Newgate Funding PLC Series 2007-1, Newgate Funding PLC Series 2007-2 and Newgate Funding PLC Series 2007-3 Outlook to Stable from Negative. It has also removed the class F notes of Newgate Funding 2007-1 and Newgate Funding 2007-2, as well as Newgate Funding 2007-3 class D and E notes from Rating Watch Negative (RWN). Entity/Debt Rating Prior ----------- ------ ----- Newgate Funding Plc Series 2007-1 Class A3 XS0287753775 LT AAAsf Affirmed AAAsf Class Ba XS0287757255 LT AA+sf Affirmed AA+sf Class Bb XS0287757412 LT AA+sf Affirmed AA+sf Class Cb XS0287759624 LT Asf Affirmed Asf Class Db XS0287767304 LT BBBsf Affirmed BBBsf Class E XS0287776636 LT BBB-sf Affirmed BBB-sf Class F XS0287778095 LT BB+sf Affirmed BB+sf Class Ma XS0287755713 LT AAAsf Affirmed AAAsf Class Mb XS0287756877 LT AAAsf Affirmed AAAsf Newgate Funding Plc Series 2007-3 Class A2b 651357AF2 LT AAAsf Affirmed AAAsf Class A3 651357AG0 LT AAAsf Affirmed AAAsf Class Ba 651357AH8 LT AA+sf Affirmed AA+sf Class Bb 651357AJ4 LT AA+sf Affirmed AA+sf Class Cb 651357AK1 LT AA-sf Affirmed AA-sf Class D XS0329654312 LT A+sf Affirmed A+sf Class E XS0329655129 LT A+sf Affirmed A+sf Newgate Funding Plc Series 2007-2 Class A3 XS0304280059 LT AAAsf Affirmed AAAsf Class Bb XS0304284630 LT AAsf Affirmed AAsf Class Cb XS0304285959 LT A-sf Affirmed A-sf Class Db XS0304286254 LT BBB-sf Affirmed BBB-sf Class E XS0304280489 LT BB+sf Affirmed BB+sf Class F XS0304281024 LT B+sf Affirmed B+sf Class M XS0304280133 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY All three transactions are securitisations of mixed pools containing mainly residential non-conforming owner-occupied (OO) mortgage loans with few residential buy-to-let (BTL) mortgage loans. KEY RATING DRIVERS Transition to Alternative Reference Rate: The rating action follows the notes' successful transition to an alternative reference rate before end-March 2024, when the Financial Conduct Authority plans to stop the publication of the three-month GBP Libor. A notice to noteholders was published in February 2024 by the issuer following consent from noteholders to transition to compounded daily SONIA. The RWN and the previously Negative Outlooks of various tranches had reflected the risk that the interest rate on the notes could have become fixed if the notes did not make that transition. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by adverse changes in market conditions and the economic environment. Weakening economic performance is strongly correlated with increases in delinquencies and defaults that could reduce credit enhancement (CE) available to the notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and, potentially, upgrades. 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 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 transactions 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. ESG CONSIDERATIONS Newgate Funding Plc Series 2007-1, Newgate Funding Plc Series 2007-2 and Newgate Funding Plc Series 2007-3 each has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to a material concentration of interest-only loans, which has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors. Newgate Funding Plc Series 2007-1, Newgate Funding Plc Series 2007-2 and Newgate Funding Plc Series 2007-3 each has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to mortgage pools with limited affordability checks and self-certified income, which has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors. 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. UK PRINTING: Set to Go Into Administration ------------------------------------------ Business Sale reports that a Derbyshire-headquartered flag printing and branding business is poised to enter administration. UK Printing Company has filed a notice of intention (NOI) to appoint administrators via Yorkshire firm MD Law, Business Sale relates. The NOI will protect the business, which is based in Clowne, near Chesterfield, from creditor action for a period of around two weeks, Business Sale states. The move comes at a time of significant distress in the UK printing industry, with several high-profile companies having fallen into administration over recent months, Business Sale notes. Many companies in the sector have faced issues including falling demand, soaring energy, labour and raw materials costs and pressure from creditors, Business Sale relays. According to Business Sale, while the circumstances surrounding UK Printing Company's difficulties have not been disclosed, its most recent accounts at Companies House, covering the year ending September 30 2022, showed that the firm owed just under GBP672,000 to creditors -- although this was down from nearly GBP727,000 a year earlier. At the time, the company's fixed assets were valued at GBP856,209 and current assets at GBP492,285, with net assets amounting to almost GBP363,000, Business Sale states. Founded in 2013, UK Printing Company produces a wide range of branding solutions for indoor and outdoor use and has worked with an array of companies, including Audi, Coca-Cola, Cancer Research UK and JCB. In addition to its core offering, the company also produces a diverse range of other products, including pet products, backpacks and seating. VERY GROUP: Fitch Affirms 'B-' LongTerm IDR, Outlook Negative ------------------------------------------------------------- Fitch Ratings has affirmed The Very Group Limited's (TVG) Long-Term Issuer Default Ratings (IDR) at 'B-' with a Negative Outlook. Fitch has also affirmed the senior secured ratings at 'B-' with a Recovery Rating of 'RR4'. Fitch has removed the IDR and senior secured rating from Rating Watch Negative (RWN). The removal from RWN follows recent developments, including the renewal of securitisation and receiving new funding from Carlyle and IMI, which support the company's operations and demonstrate trust in its business model. This leads Fitch to believe that the financial stress that the company's shareholders are experiencing is likely to be addressed in a less disruptive fashion than Fitch previously considered when Fitch placed the ratings on RWN. In Fitch's view, there is still uncertainty around TVG's ownership structure in the near term. However, Fitch expects that TVG will be able to retain funding to continue lending to consumers and run its retail business in the short to medium term. The Negative Outlook reflects that deleveraging is likely to be delayed until the financial year ending June 2026 (FY26), which could make it more difficult for TVG to address its senior secured debt maturity in August 2026. Fitch expects the deleveraging trajectory to be affected by a slower retail margin recovery, a higher debt balance due to consumer lending growth, and higher interest rates continuing to burden TVG's operating and credit metrics in FY24-FY25. The Negative Outlook also factors in the uncertainty around the financial policies with potentially evolving ownership composition. KEY RATING DRIVERS Delayed Deleveraging: Fitch expects EBITDA leverage to remain elevated at 8.5x at end-FY24, but to trend toward 8.0x in FY25 in a normalised consumer environment, when profitability recovery in the retail segment is likely to mitigate a potential profit decline at the company's lending unit, Shop Direct Finance Company Limited (SDFCL) due to provisioning needs. TVG's Fitch-adjusted group EBITDA margin dropped to 11.6% in FY23 from 12.4% in FY22, due to the company's investment in low prices to contain cost pass-through to customers, changes in category mix, and promotional activities driving down gross margin. Fitch expects group EBITDA margin to rebound to above 12.0% in FY24, driven by revenue growth at SDFCL from a further increase in the annual percentage interest rate charged (to 44.9% from 42.9%) and lower administrative expenses as a percentage of revenue. Mixed Trading Performance: Fitch expects FY24 group revenues to be slightly higher than FY23, as increasing debtor book revenue at SDFCL and marginally higher retail sales counteract a managed decline under the Littlewoods brand. Fitch anticipates continued strong retail sales growth in categories such as gaming and toys to offset decline in home and fashion/sports. In Fitch's view, TVG benefits from being a multi-category retailer with relatively low price-points and its flexible payment solutions. TVG's lean cost structure and online-based business model, which is supported by its automated fulfilment centre, Skygate, should continue to deliver distribution costs efficiencies. Weak FCF: Fitch expects free cash flow (FCF) at the group level to remain neutral to negative in FY24, driven by heightened interest cost, increased lending balance and higher spend on its IT transformation project, which is now reported as an operating cost following the IFRIC guidance for the treatment of software as a service. FCF is likely to turn positive from FY25 when retail profitability should improve in a better consumer environment and lending growth at SDFCL slows. Normalising Impaired Loan Levels: Fitch projects that customer payment rates for SDFCL's debtor book will continue reverting to historical trends following unusually heightened levels during the pandemic. The impaired loan ratio (impaired loans/gross loans) at SDFCL rose to 11.2% as of end-FY23 (10.9% at end-FY22, 9.8% at end-FY21), even with higher write-off levels. While the impaired loan ratio in 1HFY24 was flat year on year, Fitch expects it to continue to grow and trend toward pre-pandemic levels in FY25, which is likely to increase provisioning and soften SDFCL's profitability. Improving Financial Services Capitalisation: SDFCL's capitalisation, measured in terms of gross debt/tangible equity, improved further to 8.2x at FY23 (11.6x at FY22) as its equity increases with the accumulation of retained earnings. Fitch expects a modest improvement in capitalisation in FY24. However, enhancement thereafter will be subject to the company keeping asset quality and credit provisioning under control. Retail and SDFCL Synergies: SDFCL provides consumer financing as a complementary core offering to TVG's online general merchandise retail operations. Around 90% of sales are made on credit. Profitability stemming from revolving credit provided to retail customers allows SDFCL to help pay operations, IT and marketing costs, while supporting retail sales volume growth. Fitch believes financing for online purchases is proving particularly attractive to consumers at a time of economic uncertainty. Improving Governance and Group Structure: The rating also factors in the group's complexity and reporting transparency that is weaker than peers. TVG's ownership structure is concentrated, with its single ultimate owner, the Barclay family, seeking to address financial difficulties, including large debt at its parent, Shop Direct Holdings Limited. There is a regular management fee payment to the parent of around GBP7million per year. TVG is working on improving the board composition and effectiveness, including having added two non-executive directors (from Carlyle and IMI) and is in the process of appointing an independent chairman. DERIVATION SUMMARY Fitch assess TVG's rating using its Ratings Navigator for Non-Food Retailers. At the same time, Fitch consolidates its financial services business and assess it as per the relevant parameters in its Non-Bank Financial Institutions Criteria, such as asset quality and capitalisation. Non-food retail remains one of the most disrupted sectors, even before the pandemic, due to changing consumer preferences, technology, digitalisation and data analytics, accelerating brand and product obsolescence, environmental considerations and the changing face of UK high streets. TVG stands out as the UK's second-largest pure digital retailer with a complementary consumer finance proposition that is commensurate with a 'BB' business profile. This is balanced by an aggressive financial structure, with EBITDAR leverage at 7.5x-8.5x over the rating horizon. TVG is rated at the same level as Douglas GmbH (B-/Stable), whose business profile is also commensurate with the 'BB' rating category as Europe's largest beauty retailer, with demonstrated strong online and omni-channel capabilities. Similar to TVG, Douglas's rating is constrained by an aggressive financial structure with EBITDAR leverage of around 8x and lower financial flexibility based on projected tight EBITDAR fixed-charge coverage of around 1.5x. Pure online beauty retailer THG PLC (B+/Negative) is rated two notches above TVG, mainly due to its stronger business profile, including its higher geographical diversification than TVG, which is only exposed to one country. THG also has a more conservative financial policy but with EBITDA leverage projected to remain above 5.5x, with a solid liquidity profile. However, the Negative Outlook reflects heightened execution risks as it seeks to improve profit margins and FCF amid a weakened consumer environment in most markets, stiff competition, and higher costs in 2023-2024, which are putting pressure on profits. KEY ASSUMPTIONS - Sales to rebound in FY24 by 2.5% before slowing to approximately 2% per year growth in the following two years as retail trading performance and consumer lending normalise - Group EBITDA margin to improve to above 12% in FY24 from 11.6% in FY22, supported by higher interest income and operating-efficiency initiatives, before gradually rebounding to 13% by FY26 - Group working-capital outflow of around 3% of sales in FY24; then marginally negative to FY26 - Annual capex of around GBP44 million in FY24-FY25 before increasing to around GBP50 million in FY26 - Debtor book growth of 3% for FY24, 1.8%-2% per year for FY25-FY26 - Asset quality normalises gradually with bad debt charges returning to the pre-pandemic level of around 7.5% in FY25 (FY23: 5.9%). RECOVERY ANALYSIS Fitch assumes TVG would be considered a going-concern (GC) in bankruptcy and that it would be reorganised rather than liquidated. In Fitch's bespoke GC recovery analysis, it considered an estimated post-restructuring EBITDA available to creditors of GBP90 million. Fitch expects SDFCL to be restructured in a default in tandem with the retail operations given its strategic integration with TVG. Post restructuring, Fitch expects cash flows generated from SDFCL to first repay the interest payments of the GBP1.4 billion non-recourse securitisation financing, which sits outside the restricted group. Therefore, when Fitch calculates GC EBITDA, Fitch deducts the interest expense related to SDFCL from consolidated EBITDA. As SDFCL sits in the restricted group but the cash is fungible between SDFCL and TVG, Fitch expects creditors of the restricted group would have claim to the remaining profits after interest payments of the securitisation. Fitch has used a distressed enterprise value (EV)/EBITDA multiple of 4.5x. This reflects TVG's exposure to rapid online non-food retail sales growth and a leading position in the UK, underpinned by high brand awareness, combined with the consumer lending business that is subject to regulatory risks and constrained by below-average asset quality. For the debt waterfall analysis, Fitch assumes the super senior revolving credit facility (RCF) of GBP100 million, ranking ahead of TVG's GBP575 million senior secured notes, as well as the GBP50 million RCF and the new funding of GBP125 million, ranking pari passu with the senior secured notes and to be fully drawn. After deducting 10% for administrative claims, Fitch's principal waterfall analysis generates a ranked recovery for noteholders in the 'RR4' band, indicating a senior secured instrument rating aligned with the IDR. This results in a waterfall generated recovery computation output percentage of 35% based on current metrics and assumptions. These assumptions relate to the underlying business, excluding the uncertain circumstances outside the restricted group. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Group consolidated adjusted gross debt/operating EBITDAR remaining above 8.0x - Lack of credible refinance solutions of the RCFs (maturing February 2026) and senior secured debt (August 2026) in the next 12 months - Negative group consolidated FCF requiring a permanently drawn RCF leading to diminishing liquidity headroom - Further deterioration in SDFCL's capital position, with gross debt/tangible equity above 15.0x on a sustained basis - EBITDAR fixed charge coverage tightening towards 1.4x on a sustained basis Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Fitch could revise the Outlook to Stable if: - Visibility that group consolidated adjusted gross debt/operating EBITDAR is decreasing below 8.0x in the next 12-18months - Credible refinance solutions of the RCFs (maturing February 2026) and senior secured debt (August 2026) 12-18 months ahead of its maturity - Projected positive group consolidated FCF - Confidence that SDFCL's capital position may maintain, with gross debt/tangible equity below 15.0x on a sustained basis - Visibility of EBITDAR fixed charge coverage improving above 1.4x Fitch could revise the Outlook to Positive or upgrade the rating if: - Group consolidated total adjusted debt/operating EBITDAR below 7.0x (6.5x net of cash) on a sustained basis - Credible refinance solutions of the RCFs (maturing February 2026) and senior secured debt (August 2026) 12-18 months ahead of maturity - EBITDAR fixed charge coverage above 2.0x on a sustained basis - Positive group consolidated FCF margin in the low-to-mid single digits - Improving capitalisation and manageable impairments at SDFCL, with gross debt/tangible equity below 10.0x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: TVG had cash on balance sheet of around GBP39 million, with GBP99 million outstanding under the RCF as of end-2023. Higher interest costs and working capital needs drove up liquidity consumption in the first half of FY24, which is mitigated by the new funding availability of GBP125million from Carlyle and IMI, maturing in 2026. As TVG's operating performance improves, Fitch expects FCF to turn positive from FY25, leading to higher available liquidity. Fitch restricts GBP20million of cash and cash equivalents for operational requirements. The company refinanced its RCF and senior secured notes in 2021, with maturities in February 2026 and August 2026, respectively. ISSUER PROFILE TVG is the UK's second-largest pure digital retailer, as well as one of the largest unsecured lenders in the UK with a complementary consumer finance offering. ESG CONSIDERATIONS TVG has an ESG Relevance Score of '4' for Group Structure due to group complexities, transparency of reporting that is weaker than peers and a history of material related-party transactions, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. TVG has an ESG Relevance Score of '4' for Governance Structure due to ownership concentration and a history of sub-optimal board composition, 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- The Very Group Funding plc senior secured LT B- Affirmed RR4 B- The Very Group Limited LT IDR B- Affirmed B- ********* 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. 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