/raid1/www/Hosts/bankrupt/TCREUR_Public/240322.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, March 22, 2024, Vol. 25, No. 60
Headlines
G E R M A N Y
ALSTRIA OFFICE-REIT: S&P Cuts ICR to 'BB' Property Devaluations
CBR SERVICE: S&P Raises Long-term Issuer Credit Rating to 'B+'
CT INVESTMENT: Moody's Rates New EUR470MM Sr. Secured Notes 'B2'
FLENDER INTERNATIONAL: Fitch Affirms 'B' IDR, Outlook Now Stable
I R E L A N D
ARES EUROPEAN XVIII: S&P Assigns Prelim B- (sf) Rating to F Notes
I T A L Y
ITALMATCH CHEMICALS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
K A Z A K H S T A N
NURBANK JSC: S&P Affirms 'B-/B' ICRs, Alters Outlook to Positive
L U X E M B O U R G
A.B. ASSET: Moody's Ups Rating on $400.8MM Series 2 Notes From Ba2
RADAR BIDCO: Moody's Gives B2 CFR, Rates New 1st Lien Term Loan B2
N E T H E R L A N D S
ASR NEDERLAND: S&P Assigns 'BB+' Rating on Restricted Tier 1 Notes
S P A I N
LORCA TELECOM: S&P Assigns Prelim 'BB+' Rating to New Secured Debt
S W E D E N
SAMHALLSBYGGNADSBOLAGET: S&P Places 'CCC+' LT ICR on Watch Neg.
S W I T Z E R L A N D
SIG GROUP: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
U N I T E D K I N G D O M
ASTON MARTIN: Fitch Assigns 'B-(EXP)' LongTerm IDR, Outlook Stable
BIG BOG: Enters Administration, Halts Operations
CLUB LEGENDS: Collapses Into Administration
ESKEN: Enters Administration After Rescue Plan Fails
GROSVENOR SQUARE 2023-1: Fitch Affirms 'CCsf' Rating on Cl. G Notes
HEATHROW FINANCE: Fitch Assigns 'BB+' Rating to Sr. Secured Notes
HIRETEST LIMITED: Goes Into Administration
JDL SUBCONTRACTING: Goes Into Administration
PEXION GROUP: Administrators Secure Six Rescue Deals
X X X X X X X X
[*] BOOK REVIEW: The Luckiest Guy in the World
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G E R M A N Y
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ALSTRIA OFFICE-REIT: S&P Cuts ICR to 'BB' Property Devaluations
---------------------------------------------------------------
S&P Global Ratings lowered its issuer credit ratings on Alstria
Office REIT-AG (Alstria) to 'BB' from 'BB+' and the issue rating on
the company's senior unsecured bonds to 'BB+' from 'BBB-'. The
recovery rating remains at '2'.
The negative outlook reflects that Alstria's debt metrics might not
recover in 2024 or that liquidity could deteriorate in 2025 if debt
maturities are not addressed in a timely manner.
S&P said, "Our downgrade captures the greater-than-anticipated
property devaluation Alstria reported for 2023 that weakened the
company´s credit metrics. In its recent publication of 2023
financial statements, Alstria reported a property devaluation of
around EUR770 million or around 16% on a like-for-like basis,
versus our expectations of around 5%. This led to a pronounced
increase of S&P Global Ratings-adjusted debt-to-debt plus equity
ratio to about 66%, surpassing the 60% threshold for our 'BB+'
rating. Our calculation includes our estimate of approximately
EUR800 million of debt at Alexandrite Lax Lux Holdings S.a.r.l.,
Alstria's parent. In addition, Alstria's EBITDA interest coverage
dropped to 1.0x (including around EUR80 million of interest expense
related to its holding company debt), compared with the
approximately 1.3x we had anticipated for 2023 and from the 1.7x
the company reported in 2022. Considering the ongoing slow
transaction market and potential further pressure on valuations, as
well as our expectations that Alstria's shareholders will not
support the company with equity in the near term, we expect the
company's credit metrics will stay in line with our 'BB' issuer
credit rating. We forecast that debt to debt plus equity will
remain at about 65% in 2024, including another mid-single-digit
devaluation, and that EBITDA interest coverage will improve
slightly toward 1.3x-1.4x, following our understanding of more
favorable refinancing conditions of the holding company's debt and
Alstria's increased hedging ratio to 86% in 2023 from 65% in 2022.
We project that Alstria's debt to EBITDA will stay high, at about
20.0x over 2024-2026 (compared with 21.3x in 2023).
"Although Alstria has limited refinancing needs over the next 12
months, its 2025 bond maturities could pose a risk. The company
reported about EUR267 million of short-term debt maturities, mainly
related to two mortgage loans. We understand that about EUR107
million has been extended and that the company is currently in
negotiations with its banks to refinance the remaining EUR150
million. With about EUR110 million of available unrestricted cash
as well as its undrawn revolving credit facility of EUR200 million,
Alstria enjoys a solid liquidity position for 2024. However, in our
liquidity analysis from third-quarter 2024 on, we will factor in
the company's senior unsecured bond with an outstanding amount of
EUR353.4 million, due September 2025, representing about 16% of its
gross balance sheet debt. Credit market conditions for real estate
companies have deteriorated over the past year due to rising
interest rates and weakening trading conditions, both in equity and
debt capital markets. Failure to secure sufficient funding to meet
this sizable debt maturity on time could harm Alstria's liquidity
and would likely lead us to lower the rating. We note that, at
end-2023, Alstria's weighted-average debt maturity (WAM) stood at
3.3 years, close to our threshold of a minimum of three years. That
said, we understand that pro forma the refinancing of its 2024
maturities, its WAM will improve to about 3.5years. We expect
Alstria will keep WAM comfortably above three years.
"The property devaluations resulted in tighter financial covenants.
We understand that Alstria's headroom under some of its financial
covenants, mainly related to loan to value (LTV), has decreased
below 10%. Following the strong property devaluation in 2023, LTV
levels for its covenants under mortgage financing have exceeded
60%, sometimes 70%, with covenants ranging between 65% and 75%. For
its unsecured financing, comparable LTV covenant is set at 60.0%
with reporting of 56.4% at year-end 2023. We understand that the
company does not plan to raise further debt, nor does it intend to
pay non-mandatory dividends, and the next external property
valuation will not be done before year-end. As such, we expect no
breach of any financial covenants throughout the year. That said,
the risk of a covenant breach has increased. We understand that all
of Alstria's financial covenants are soft covenants and do not lead
to any default scenario under its debt documentations. A breach of
covenants could however entail further cash restrictions and
limitations on the usage of operating income for its properties,
burdening the company´s liquidity position.
"We expect Alstria's operating performance to remain stable,
benefiting from inflation-linked rental contracts and a relatively
high exposure to public tenants, despite a slight drop in
occupancy. We assume positive annual like-for-like rental income
growth of 1%-3% for the next few years and a small contraction in
occupancy levels to about 90% in 2024 from 92% at year-end 2023,
given that we conservatively assume some leases will not be
extended at expiry. The company enjoys a good weighted-average
lease term of more than five years and exposure to public tenants,
with stable and predictable long-term cash flow. Alstria has a
longstanding position in Germany's office market and a good track
record of attracting and retaining long-term tenants.
"The negative outlook reflects the risk that Alstria's credit
metrics, as adjusted by S&P Global Ratings, may not recover in 2024
and that liquidity could deteriorate if 2025 debt maturities are
not addressed in a timely manner.
"We forecast debt to EBITDA will remain high at about 20x for the
next 12 months and that S&P Global Ratings-adjusted ratio of
debt-to-debt plus equity will be close to 65%. We expect a slight
recovery in its EBITDA interest coverage ratio to about 1.3x-1.4x
over the same period."
S&P could lower the rating if:
-- The company does not sustain debt-to-debt plus equity close to
65%;
-- EBITDA interest coverage does not recover to 1.3x or above; or
-- Debt to annualized EBITDA materially exceeds our base-case
projections.
S&P said, "We would also consider taking a negative rating action
if liquidity deteriorates or if a more aggressive financial policy
is introduced. We might also consider a negative rating action if
key performance ratios deteriorate considerably."
S&P could revise its outlook to stable if:
-- Debt to debt plus equity falls below 65%;
-- EBITDA interest coverage ratio improves comfortably above 1.3x;
and
-- Debt to annualized EBITDA remains within S&P's base-case
projections.
S&P would also view positively an early refinancing of near-term
debt maturities while maintain an average debt maturity of
comfortably above three years.
CBR SERVICE: S&P Raises Long-term Issuer Credit Rating to 'B+'
--------------------------------------------------------------
S&P Global Ratings raised to 'B+' from 'B' its long-term issuer
credit rating on German fashion company CBR Service GmbH and rated
the proposed senior secured notes at 'B+', in line with its rating
on the company. S&P revised the recovery rating on the secured
notes to '3' (implying recovery prospects of 30%-50%, with a
rounded estimate of 50%).
The stable outlook indicates that CBR is expected to maintain its
prudent financial policy and is unlikely to significantly increase
leverage. Under S&P base case, S&P expects operating performance to
remain resilient in 2024 with total sales of EUR665 million-EUR675
million; adjusted margins remaining at 23%-25%; and annual FOCF of
about EUR60 million.
The upgrade reflects CBR's robust operating results since 2020 and
its resilient performance during 2023.CBR's revenue had already
recovered to the pre-pandemic level by June 2022, and its compound
annual growth rate (CAGR) for organic sales over 2021-2023 was
about 11.4%. In S&P's view, this is supported by the group's
brands, which are positively perceived in the German market for
their value-for-money proposition. Sales from the wholesale
channel, which accounted for about 62% of total sales in 2023, are
forecast to be broadly stable. In addition, the company's strategic
decision to expand in the direct-to-consumer (DTC) channel has been
successful. Sales from retail (including outlet) and e-commerce
have increased at an estimated CAGR of about 13.8% over 2020-2023
and this channel comprised about 38% of total sales in 2023, up
from 27% in 2019. The DTC channel offers higher gross margins,
which supports profitability improvements. Coupled with disciplined
cost control and normalizing supply-chain activities, this enabled
adjusted EBITDA margins to reach 24.5% in 2023, from 21.8% in the
previous year.
S&P said, "In 2024, we forecast that CBR will post broadly stable
revenue growth and EBITDA margins, but continue to generate
positive FOCF. We anticipate that it will maintain momentum in the
e-commerce space, where it has implemented a new online platform
and is expanding into different digital marketplaces. This, coupled
with low-single-digit growth in the physical retail channel, is
expected to be offset by a slight drop in revenue in the wholesale
network. Our base-case scenario assumes broadly stable EBITDA
margins as costs see moderate inflation, offset by ongoing cost
initiatives and frequent, timely negotiations with suppliers. CBR's
resilient profitability and asset-light operations are expected to
enable it to generate FOCF of over EUR60 million in both 2024 and
2025. Capital expenditure (capex) accelerated in 2023, when it
upgraded its IT infrastructure--we anticipate that it will be EUR15
million-EUR20 million in 2024, declining moderately to EUR13
million-EUR18 million in 2025.
"We anticipate that CBR will maintain its prudent financial policy,
and that leverage will be flat, at 3.0x-3.2x.In 2023, our adjusted
measure of CBR's debt to EBITDA stood at 3.1x, down from 3.6x
during the previous year. The reduction in leverage was mainly
driven by improved profitability achieved through successful
cost-cutting initiatives and a positive channel mix. In our view,
the risk that the company will increase leverage significantly is
low, given its prudent approach to capital allocation and
discretionary spending. CBR's financial policies are generally
conservative compared with most private equity owned-entities. For
example, Alteri Investors, which has been CBR's majority
shareholder since 2018, accelerated the reduction in the company's
debt by converting the EUR114 million shareholder loan and its
accrued interest into common equity in 2022. Historically, cash
dividend payments have only been funded from internally generated
cash flows--the company reduced its dividend payout to zero in
2021, during the pandemic. Although we do not rule out additional
shareholder distribution in future, we expect the company to ensure
leverage remains comfortably below 5.0x. Finally, we see as
positive that the group's net leverage since 2021 (according to the
company's calculations) has remained below 3.0x.
"The company plans to refinance its capital structure by issuing
EUR470 million in senior secured notes maturing in 2030 and a new
EUR50 million super senior RCF maturing in 2029. The proposed notes
will be issued by CT Investment GmbH, the group financing
subsidiary, and guaranteed by the parent, CBR Service GmbH.
Although the proposed transaction will increase cash interest
payments, we expect it to improve the debt maturity profile and
reduce near-term refinancing risk. The refinancing will have a
neutral effect on adjusted leverage; we forecast that adjusted debt
to EBITDA for 2024 will be about 3.0x-3.2x, broadly in line with
2023. We include the EUR470 million of proposed senior secured
notes in adjusted debt, as well as EUR40 million of lease liability
and EUR5 million-EUR6 million of asset retirement obligations. In
line with our methodology, we do not net cash and cash equivalents
from the reported gross debt. We assume the higher interest rate on
the new notes will slightly reduce CBR's EBITDA interest coverage
to 4.5x-5.5x in 2024 from 6.2x in 2023.
"The stable outlook indicates that CBR is expected to maintain its
prudent financial policy. Combined with resilient operating
performance, we anticipate that adjusted debt to EBITDA will be
3.0x-3.2x over 2024-2025. The outlook is supported by the company's
successful product positioning, and consumer perceptions that its
products have a good value-for-money proposition. It is also
underpinned by CBR's agility in adjusting its cost base and
investments, which we expect will lead to an adjusted EBITDA margin
of 23%-25% over the next couple of years.
"We could lower the rating if we expected CBR's adjusted leverage
to increase to 5.0x. This could occur if, for example, financial
policy becomes more aggressive than anticipated, leading to higher
discretionary spending and weaker credit metrics, or the company
faces unexpected material shift in demand or significant
operational setbacks.
"We could raise the rating if CBR expanded the scale of its
operations and continued to improve diversification by product
category and geography, while maintaining its profitability. An
upgrade would also depend on leverage remaining below 4.0x, coupled
with a clear commitment from its owners to maintain it at this
level, and our expectation that the existing private equity owner
will relinquish its control over the medium term. In addition, it
would depend on CBR maintaining an adequate liquidity position."
CT INVESTMENT: Moody's Rates New EUR470MM Sr. Secured Notes 'B2'
----------------------------------------------------------------
Moody's Rating has assigned a B2 instrument rating to the proposed
EUR470 million backed senior secured notes due 2030 to be issued by
CT Investment GmbH, a subsidiary of CBR Service GmbH (CBR or the
company). The outlook is positive.
Proceeds of the issuance of the senior secured notes, together with
cash on balance sheet, are expected to be used to repay the
company's existing EUR470 million backed senior secured notes due
2026 issued by CT Investment GmbH and to pay transaction costs.
RATINGS RATIONALE
The proposed senior secured notes are rated at the same level as
CBR's B2 Corporate Family Rating (CFR), reflecting the size of
CBR's other liabilities, including its trade payables and operating
leases; the existence of CBR's EUR50 million super-senior revolving
credit facility (RCF); and the upstream guarantees provided on the
senior secured notes and super-senior RCF.
Although the proposed four year extension of CBR's debt maturities
and the leverage neutral nature of the proposed refinancing are
credit positives, Moody's considers that a successful refinancing
and no releveraging of CBR's capital structure were already
factored into the positive outlook change from stable in December
2023.
CBR's financial performance since the pandemic has been solid, with
revenue fully recovering by June 2022 and company-adjusted EBITDA
reaching 2019 levels in 2023. As a result, Moody's-adjusted
leverage has improved to 3.2x as of December 31, 2023 while
Moody's-adjusted (EBITDA less capex) / interest has risen to 4.4x
in 2023. CBR's liquidity remains good, supported by EUR34 million
of cash on balance sheet pro forma for the refinancing, access to
the fully undrawn RCF and expectations of strong Moody's-adjusted
FCF generation prior to dividend payments, which Moody's views as
discretionary.
Going forward, Moody's expects limited growth in CBR's revenue and
profitability, which means Moody's-adjusted leverage will remain
broadly flat at around 3.4x over the next 12-18 months while
Moody's-adjusted (EBITDA less capex) / interest will slip to around
3.7x, due to higher interest costs following the refinancing. These
metrics are strong for the B2 rating category. Although
Moody's-adjusted FCF / debt is forecast to remain close to zero,
this reflects Moody's assumption of EUR60-80 million of annual
dividend payments, which is consistent with over EUR400 million of
dividends paid by the company since 2018.
CBR's rating is also supported by the company's asset-light
business model; relatively high margins; good logistics processes
and strong online business; and good liquidity.
Concurrently, the B2 CFR is constrained by the company's modest
scale and high degree of geographic concentration; exposure to the
highly competitive apparel market; limited, albeit slowly
improving, sales channel diversification; the cyclical nature of
the apparel industry; and exposure to changing consumer preferences
in the global fashion industry.
RATING OUTLOOK
The positive outlook reflects Moody's view that CBR's revenue and
profitability will remain broadly stable over the next 12-18 months
such that its financial metrics will remain strong for the B2
rating category. The positive outlook also incorporates Moody's
expectations that CBR will continue to generate significant
positive cash flow before dividend payments and that any cash
dividends paid to shareholders will be funded by cash flow, with no
material releveraging transactions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The ratings could be upgraded if CBR demonstrates good operational
execution with at least stable revenue and EBITDA; Moody's-adjusted
leverage remains well below 4.0x; Moody's-adjusted (EBITDA less
capex) / interest is maintained at around 3.0x; and the company
generates positive Moody's-adjusted FCF. Upward rating pressure
would also require further track record of prudent leverage profile
and predictable financial policies and no material releveraging
transactions, as well as the company maintaining a good liquidity
profile.
Conversely, the outlook could be stabilized if the company's
performance and credit metrics deteriorate and are no longer
consistent with Moody's expectations that underpin the positive
outlook.
Negative rating pressure could materialize if the company's
operating performance deteriorates as a result of, for instance, a
decline in like-for-like sales or a material decrease in profit
margins or Moody's-adjusted leverage rises to above 5.0x;
Moody's-adjusted (EBITDA less capex) / interest expense falls below
2.0x, both on a sustainable basis. Negative pressure could also
develop if CBR were unable to maintain good liquidity or its
financial policy became more aggressive.
The principal methodology used in this rating was Retail and
Apparel published in November 2023.
COMPANY PROFILE
Headquartered in Isernhagen, Germany, with revenue of EUR671
million and company-adjusted EBITDA (pre-IFRS 16) of EUR151 million
in 2023, CBR is one of the leading German apparel companies. The
company operates under three independent brands: StreetOne (casual,
fashionable clothing), Cecil (sporty, less figure accentuating
clothing) and Street One Men (casual, masculine clothing).
FLENDER INTERNATIONAL: Fitch Affirms 'B' IDR, Outlook Now Stable
----------------------------------------------------------------
Fitch Ratings has revised Flender International GmbH's Outlook to
Stable from Negative, while affirming the German gearboxes and
generators manufacturer's Long-Term Issuer Default Rating (IDR) at
'B'. Fitch has also downgraded Flender's senior secured term loan's
rating to 'B' from 'B+' and revised its Recovery Rating to 'RR4'
from 'RR3' due to the company's higher usage of non-recourse
factoring.
The Outlook revision and rating affirmation reflect its forecast
improvement of free cash flow (FCF) generation from FY24 (year-end
September), supported by sustainable EBITDA margins and lower capex
after the company reported better-than-expected operating margins
in FY23. Lower inflationary pressure and better profitability on
contracts should support Flender's cash flow generation and
deleveraging capacity over its forecast horizon to FY27.
KEY RATING DRIVERS
Sustainable Operating Profitability: Fitch forecasts sustainable
Fitch-defined EBITDA margins at 10.5%-11.5% during FY24-FY27. These
are slightly above their FY22-FY23 levels, supported by lower
inflation and better margins on contracts. This is also aided by
expected gradual improvement of profitability at Flender's key
customers, large wind turbine producers, which will allow Flender
to win contracts with better margins. A weaker order intake in the
industrial segment might weigh on EBITDA and EBIT margins but Fitch
expects this to be offset by a recovery in orders in the wind
segment.
Better FCF Generation: While FCF generation was under pressure
during FY22 and FY23 Fitch forecasts it to start to recovering from
FY24, one year earlier than its prior forecast. Fitch expects
marginally positive FCF to be underpinned by sustainable EBITDA
generation, normalised working-capital (WC) volatility and lower
capex versus FY22-FY23 following the completion of a large
investment programme in FY24, which is primarily focused on the
construction of plants in India and China. Fitch does not expect
dividend payments over the rating horizon, which further supports
Flender's deleveraging capacity.
Temporarily High Leverage: EBITDA leverage rose to 6.5x at FYE23
from 5.9x at FYE22, but was better than Fitch expected previously
and Fitch now expects it to be at 6.3x in FY24, and 6.0x from FY26,
within their negative rating sensitivity. Its EBITDA leverage
calculation incorporates usage of non-recourse factoring, which
increased to about EUR190 million at FYE23 from about EUR80 million
at FYE22 and Fitch expects the group will continue to use it
through the forecast horizon.
Solid Market Position: Flender has leading positions in its niche
markets for gearboxes and generators. Technological capabilities
and long-term cooperation with major wind original equipment
manufacturers (OEMs) provide moderate barriers to entry. Gearboxes
are a critical component of wind turbines, and reliability is very
important due to the difficulty of access and cost increases
resulting from downtime. Nevertheless, in-house OEM production and
Chinese producers remain a major competitive threat for suppliers
in the long term.
Limited Business Profile: Flender is small in size versus other
Fitch-rated industrial peers, and has narrow product
diversification as a gearbox and generator manufacturer versus
large industrial companies. It is primarily focused on the wind
industry (about 55% of revenue in FY23), which is mitigated by
exposure to the industrial segment (45% of revenue) with
diversified end-markets. The group has a concentrated customer base
focusing on major wind OEMs due to the nature of the industry,
which however is not a key credit weakness.
The business profile limitations are mitigated by good geographical
diversification that compares well with higher-rated peers'. About
48% of revenue in FY23 was generated in Germany and the rest of
Europe, 33% in Asia and 14% in North and South America.
Less Cyclical Service Revenue: Fitch views positively the presence
of aftermarket and service revenue as a source of cash flow
generation, as this typically provides industrial companies with
more profitable and less cyclical earnings. About 26% of Flender's
revenue in FY23 was attributed to service revenue.
DERIVATION SUMMARY
Flender compares well with other high-yield diversified industrials
rated by Fitch. Like Ammega Group B.V. (B-/Stable), INNIO Group
Holding GmbH (B/Positive), TK Elevator Holdco GmbH (B/Negative) and
ams-OSRAM AG (BB-/Stable), Flender has good global geographical
diversification. Nevertheless, its business profile, like INNIO, is
limited by its narrow product range, and due to its primary focus
on one core end-market of wind power. Limited end-markets and
product diversification, which is a function of the wind industry,
is also typical of Siemens Gamesa Renewable Energy S.A. and Vestas
Wind Systems A/S, key customers of Flender.
Flender's EBITDA margin is lower than those reported by Ammega,
INNIO, ams-OSRAM and TK Elevator. Similar to Ammega, ams-OSRAM, TK
Elevator and Ahlstrom, Flender's FCF margin was volatile over the
last two years and weaker than sustainable positive FCF margins
reported by INNIO. Fitch forecasts Flender's FCF to improve to
marginally positive levels from FY24.
Flender's EBITDA leverage of 6.5x at FYE23 was lower than that of
TK Elevator (8.1x at end-September 2023), although TK Elevator is
almost 4x times bigger by revenue and has a larger share of service
revenue, which provides more resilient cash flow generation.
Flender's leverage is comparable with Ahlstrom's (6.0x at end-2022)
but is higher than ams-OSRAM's (4.8x at end-2022).
KEY ASSUMPTIONS
- Low single-digit revenue increase in FY24-FY27
- Slight increase in EBITDA margins in FY24 and FY25 to about 11%,
due to better profitability on contracts and lower cost inflation
- No material changes in working capital through the rating
horizon
- Capex of about EUR102 million in FY24 and about EUR100 million
p.a. in FY25-FY27
- No material M&As
- No dividend payments
RECOVERY ANALYSIS
Key Recovery Rating Assumptions
- The recovery analysis assumes that Flender would be considered a
going concern (GC) in bankruptcy and that it would be reorganised
rather than liquidated
- Its GC value available for creditor claims is estimated at about
EUR1 billion, assuming GC EBITDA of EUR200 million. GC EBITDA
incorporates a loss of a major customer, deterioration in demand
and a reduced order intake. The assumption also reflects corrective
measures taken in reorganisation to offset the adverse conditions
that trigger default
- Fitch assumes a 10% administrative claim
- Fitch applies an enterprise value (EV) multiple of 5.0x EBITDA to
the GC EBITDA to calculate a post-reorganisation EV. The multiple
is based on Flender's strong market position globally, good
geographical diversification, long-term cooperation with customers
and sound supplier diversification. It also factors in expected
sustainable positive, albeit marginal in FY24, FCF generation after
the completion of its large capex programme in FY23 and FY24.
However, the EV multiple reflects concentrated customer
diversification and a limited range of products
- Fitch deducts about EUR165 million from the EV, due to Flender's
high use of non-recourse factoring facilities in FY23 adjusted for
a discount, in line with Fitch's criteria
- Fitch estimates the total amount of senior debt claims at EUR1.5
billion, which includes an EUR1.3 billion senior secured term loan
B, an EUR205 million senior secured revolving credit facility (RCF)
and EUR2 million of ancillary facilities
- The allocation of value in the liability waterfall results in
recovery corresponding to 'RR4'/47% for first-lien secured debt
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA leverage below 6.0x
- FCF margin sustained above 1%
- Increased product and end-market diversification
- Increase of services to above 25% of total revenues
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA leverage above 7.5x
- Negative FCF margin on a sustained basis
- EBITDA interest coverage below 2.0x
- Aggressive shareholder-friendly policies, or acquisitions leading
to a further increase in leverage
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: At December-2023, Flender reported
Fitch-defined readily available cash of EUR108 million. Flender has
no material scheduled debt repayments until 2028. Expected
marginally positive FCF generation through the rating horizon
should support its liquidity position. Fitch-defined short-term
debt at end-1QFY24 comprised drawn ancillary facilities and
non-recourse factoring utilisation.
An available undrawn RCF of EUR205 million, maturing in September
2027, further supports Flender's liquidity.
Flender's sources of funding are concentrated and consist of a term
loan B of EUR1.3 billion due in March 2028.
ISSUER PROFILE
Flender is a market leader in drive technology with a comprehensive
product and service portfolio of gearboxes, couplings and
generators for a broad range of industries, with a strong position
in wind. It has a global sales network with a footprint in 33
countries, including 12 major production and assembly facilities,
with a significant footprint in low-cost countries such as China
and India.
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
----------- ------ -------- -----
Flender International
GmbH LT IDR B Affirmed B
senior secured LT B Downgrade RR4 B+
=============
I R E L A N D
=============
ARES EUROPEAN XVIII: S&P Assigns Prelim B- (sf) Rating to F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Ares
European CLO XVIII DAC's class X, A, B-1, B-2, C, D, E, and F
European cash flow CLO notes. At closing, the issuer will issue
unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.5 years after
closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings' weighted-average rating factor 2,931.19
Default rate dispersion 391.35
Weighted-average life (years) 4.72
Obligor diversity measure 158.46
Industry diversity measure 23.44
Regional diversity measure 1.24
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Target 'AAA' weighted-average recovery (%) 37.43
Target Weighted-average spread (net of floors; %) 4.28
Target Weighted-average coupon (%) 4.24
Rating rationale
S&P said, "We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR440 million target par
amount, the covenanted weighted-average spread (3.98%), the
covenanted weighted-average coupon (5.00%), the covenanted
weighted-average recovery rate (36.43%) at the 'AAA' rating level
and actual weighted-average recovery rates calculated in line with
our CLO criteria for all other rating levels. We applied various
cash flow stress scenarios, using four different default patterns,
in conjunction with different interest rate stress scenarios for
each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote. The issuer is expected to be a special-purpose
entity that meets our criteria for bankruptcy remoteness.
"Until the end of the reinvestment period on Oct. 15, 2028, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1, B-2, C, D, and E notes could
withstand stresses commensurate with higher ratings than those
assigned. However, as the CLO will enter its reinvestment phase
from closing, during which the transaction's credit risk profile
could deteriorate, we have capped our assigned preliminary ratings
on these notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our assigned
preliminary ratings are commensurate with the available credit
enhancement for the class X, A, B-1, B-2, C, D, E, and F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class X, A, B-1,
B-2, C, D, and E notes based on four hypothetical scenarios.
"As our ratings analysis includes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and is managed by Ares Management Ltd.
Environmental, social, and governance credit factors
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
the production or trade of illegal drugs or narcotics, including
recreational cannabis; the development, production, maintenance of
weapons of mass destruction, including biological and chemical
weapons, anti-personnel land mines, cluster munitions, depleted
uranium, nuclear weapons, radiological weapons and white
phosphorus; manufacture or trade in pornographic materials or
content, or prostitution-related activities; payday lending; and
tobacco distribution or sale; electrical utility where carbon
intensity is high; sale or extraction of thermal coal or coal based
power generation, oil sands, fossil fuels from unconventional
sources; sale or production of civilian firearms. Accordingly,
since the exclusion of assets from these industries does not result
in material differences between the transaction and our ESG
benchmark for the sector, no specific adjustments have been made in
our rating analysis to account for any ESG-related risks or
opportunities."
Ratings
PRELIM. PRELIM. AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%)
X AAA (sf) 2.75 3mE + 0.50% N/A
A AAA (sf) 272.80 3mE + 1.47% 38.00
B-1 AA (sf) 31.70 3mE + 2.25% 27.59
B-2 AA (sf) 14.10 5.50% 27.59
C A (sf) 27.10 3mE + 2.65% 21.43
D BBB- (sf) 29.20 3mE + 4.00% 14.80
E BB- (sf) 20.90 3mE + 6.84% 10.05
F B- (sf) 14.50 3mE + 8.31% 6.75
Sub NR 33.15 N/A N/A
*The preliminary ratings assigned to the class X, A, B-1, and B-2
notes address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
3mE--Three-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
ITALMATCH CHEMICALS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Italmatch Chemicals S.p.A.'s Long-Term
Issuer Default Rating (IDR) at 'B' with a Stable Outlook. It also
affirmed its senior secured rating at 'B'. The Recovery Rating is
'RR4'.
The affirmation and Stable Outlook reflect its view that
Italmatch's high EBITDA gross leverage, estimated at 7.4x in 2023
and forecast at 6.7x in 2024, will return to below 6x by 2025. This
assumes a recovery in demand across end-markets and continuing high
contribution margins supported by its specialised and innovative
product offering. This also incorporates contributions from
acquisitions and reflects Italmatch's robust liquidity and
long-dated maturities.
KEY RATING DRIVERS
Resilient Margins Support Deleveraging: Fitch believes that
Italmatch's ability to defend its high unit margins will enable its
EBITDA to return above EUR125 million by 2025 despite a partial
recovery of volumes. This is key to ensuring a reduction in EBITDA
gross leverage to below 6x given current gross debt estimated at
about EUR750 million. Although Italmatch underperformed in 2023,
with estimated declines in volumes and EBITDA of 18% and 25%,
respectively, EBITDA margin has been resilient at 15%, supported by
fixed cost reductions. Volume recovery after a prolonged destocking
and new contracts and products will lift EBITDA margin to 16% in
2024 and 17% in 2026-2027.
Temporarily High leverage: Fitch forecasts EBITDA gross leverage to
improve to 6.7x in 2024 from an estimated 7.4x in 2023, which
remains high and above the rating's sensitivity. Fitch projects
EBITDA net leverage will be about 0.7x lower than EBITDA gross
leverage in 2024, as a sharp reduction in working capital helped
maintain a large cash cushion at end-2023. Italmatch can defer
growth projects to meet its net debt target of below 5x EBITDA in
the event of earnings underperformance.
Mixed Recovery Across Divisions: Fitch estimates a partial recovery
of volumes of 7% in 2024 as Fitch believes that destocking is
coming to an end, and based on new contracts and products in water
solutions or flame retardants. The performance products and
personal care division is likely to see the strongest volume
growth, after an estimated fall of more than 20% in 2023, but Fitch
anticipates that unit margins may be constrained by overcapacity in
this market. For lubricants additives, Fitch expects a
mid-single-digit improvement as industrial activity remains subdued
with no particular market driving a material recovery.
Diversified Specialty Company: Italmatch's differentiated product
offering underpins its long-term relationships with a variety of
large key customers, averaging between 15 and 20 years, and
allowing EBITDA margin to remain consistently above 14%. It
benefits from deep knowledge of phosphorus chemistries to address
different end-markets such as industrial water treatment and
desalination, geothermal and mining, plastics or lubricants
manufacturing, oil drilling and personal care ingredients. Its
industrial footprint is spread out between Europe, North America
and Asia with flexible plants capable of producing various product
ranges.
Disciplined M&A: Italmatch recently acquired Alcolina despite its
net leverage being above its target of 4x-5x due to adequate
valuation and synergies with its existing business. Fitch believes
that Italmatch will remain opportunistic but disciplined,
considering small bolt-on acquisitions, given that it has numerous
internal growth projects and possible greenfield or brownfield
investments. Fitch has incorporated some bolt-on acquisitions in
its forecasts, which will contribute about EUR15 million additional
EBITDA by 2027, bringing total EBITDA to EUR146 million.
Growth Prospects: Italmatch is well-positioned to benefit from
sustainability trends. In water solutions, its products support the
development of reverse osmosis water desalination, which addresses
water scarcity, geothermal energy, or precious metal recovery. It
also developed specialty flame retardants for photovoltaic
applications and lubricants additives used in wind turbines gear
oil application.
Middle East Opportunity: The entry of DUSSUR as a shareholder of
Italmatch in 2023 provides development opportunity in the Middle
East, a key market for additives used in desalination, oil and
mining applications. Italmatch already has a regional presence, but
could increase its penetration or consider greenfield projects. At
this stage, Fitch has not incorporated any such projects in its
forecasts.
Barriers to Entry: The products Italmatch offers are niche and have
few competitors. Fitch sees high barriers to entry in Italmatch's
niche markets, as the company specialises in products with
differentiated or bespoke properties, or which are key in the
manufacturing process of a final product. Italmatch works alongside
many of its customers to develop bespoke products to meet
customers' specifications, creating a longstanding relationship
with them.
DERIVATION SUMMARY
Compared with pure specialty chemical manufacturer Nouryon Holding
B.V. (B+/Stable), Italmatch is significantly smaller, less
diversified, has lower profit margins and more cash flow
volatility. Italmatch's leverage is also higher than Nouryon's.
Compared with Envalior Finance GmbH (B/Negative), Italmatch is
significantly smaller, less diversified with a similar end-market
exposure and is expected to have lower leverage. Italmatch is more
focused on specialty chemicals, which translates into lower cash
flow volatility.
Nobian Holding 2 B.V. (B/Stable) is a commodity producer with
larger scale, higher margins and lower leverage than Italmatch.
However, it has weaker geographical and end-market diversification,
as well as more sensitivity to fluctuations in prices of
commodities such as caustic soda, and of European energy.
Lune Holdings S.a r.l. (Kem One, B/Stable) is also a
vertically-integrated commodity producer. It is significantly less
leveraged than Italmatch but its diversification is weaker and its
cash flows are more volatile.
KEY ASSUMPTIONS
Rating Case Assumptions:
- Volumes to grow about 7% in 2024, 8% in 2025, 4% in 2026, and 3%
in 2027 after a fall of 18% in 2023
- Average selling price to fall about 7% in 2024, before remaining
broadly stable to 2027, after a 7% decline in 2023
- EBITDA margin recovering to 16%-17% in 2024-2027, from 15% in
2023, as volume growth and steady unit margins offset fixed cost
inflation
- Capex at about 5% of sales in 2023-2026, inclusive of growth
projects
- No dividends
- Bolt-on acquisitions of EUR20 million a year in 2025 and 2027
RECOVERY ANALYSIS
The recovery analysis assumes that Italmatch would be reorganised
as a going-concern (GC) in bankruptcy rather than liquidated.
Its GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganisation EBITDA level upon which Fitch bases the
enterprise valuation (EV). The GC EBITDA of EUR100 million reflects
a weak macro environment negatively affecting volumes in key
cyclical end-markets, a competitive environment driving prices
lower, and moderate corrective actions.
Fitch uses a multiple of 5x to estimate a GC EV for Italmatch
because of its focus on specialty chemicals that translates into
moderate volume and margin volatility. It also captures the
company's diversified business profile and modest scale.
Fitch assumes that non-recourse factoring would be replaced by
super senior debt in the event of financial distress, which is
deducted from the value available for creditor claims distribution.
Fitch further assumes Italmatch's revolving credit facility (RCF)
to be fully drawn and to rank super senior, along with debt at
Italmatch's unrestricted operating entities.
After deducting 10% for administrative claims, Fitch's analysis
resulted in a waterfall-generated recovery computation (WGRC) for
the senior secured instruments in the 'RR4' band, indicating a 'B'
instrument rating. The WGRC output percentage on current metrics
and assumptions is 39%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA gross leverage below 4x on a sustained basis
- EBITDA interest coverage above 3x on a sustained basis
- A material increase in scale through entry in new markets or
expansion of market share
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA gross leverage above 6x on a sustained basis
- EBITDA interest coverage below 1.5x on a sustained basis
- Weakening pricing power negatively affecting margins at times of
raw material cost inflation
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Italmatch held EUR114 million in cash at
end-September 2023 with its EUR107 million RCF undrawn. This
provides comfortable flexibility for growth projects or
acquisitions, given that the majority of its debt is due in 2028
with no mandatory amortisation. The RCF expires in October 2027.
ISSUER PROFILE
Italmatch is a producer of specialty chemicals used in various
applications such as water treatment, lubricants or flame
retardants, and is majority-owned by Bain Capital since 2018.
SUMMARY OF FINANCIAL ADJUSTMENTS
For 2022:
Fitch reclassified EUR5.5 million lease liabilities from financial
liabilities to other liabilities, and deducted EUR4.2 million
depreciation of right-of-use assets and EUR0.5 million
lease-related interest expense from EBITDA.
Fitch added factoring to accounts receivables and short-term
financial debt. Fitch also adjusted the change in working capital
by an outflow to reflect the change in factoring use.
Fitch added EUR6.5 million amortised issuance costs to financial
debt.
Fitch added back EUR6.6 million non-recurring costs to EBITDA.
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
----------- ------ -------- -----
Italmatch Chemicals
S.p.A. LT IDR B Affirmed B
senior secured LT B Affirmed RR4 B
===================
K A Z A K H S T A N
===================
NURBANK JSC: S&P Affirms 'B-/B' ICRs, Alters Outlook to Positive
----------------------------------------------------------------
S&P Global Ratings took the following rating actions on banks in
Kazakhstan:
-- S&P revised to positive from stable its outlook on Halyk Bank
JSC; raised the national scale rating to 'kzAA+' from 'kzAA'; and
affirmed the 'BB+/B' ratings.
-- S&P revised to positive from stable its outlook on Kaspi Bank
JSC; raised the national scale rating to 'kzAA-' from 'kzA+'; and
affirmed the 'BB/B' ratings.
-- S&P revised to positive from stable its outlook on Bank
CenterCredit JSC; raised the national scale rating to 'kzA' from
'kzA-'; and affirmed the 'BB-/B' ratings.
-- S&P revised to positive from stable its outlook on ForteBank
JSC; raised the national scale rating to 'kzA' from 'kzA-'; and
affirmed the 'BB-/B' ratings.
-- S&P revised to positive from stable its outlook on Nurbank JSC;
raised the national scale rating to 'kzBB' from 'kzBB-'; and
affirmed the 'B-/B' ratings.
Kazakhstan's gross external financing needs will stabilize, while
robust fiscal and external balance sheets provide adequate buffers
against potential external shocks, in our view. The economy
expanded by an estimated 5% year on year in 2023, supported by
strong activity in construction, mining, wholesale trade, and
information and communications. Over the next four years, we expect
growth will average 3.6% annually. A key factor will be the
expansion of the Tengiz oil field, which has been delayed to
mid-2025, but should considerably increase oil production once
completed. The continuing geopolitical uncertainty and lower oil
prices relative to 2022 are raising Kazakhstan's gross external
financing needs and fiscal deficits. S&P expects that slower
increases in government spending and ongoing economic reforms will
moderate the twin deficits over 2024-2027 compared with 2023.
Relations with Russia continue to be important for Kazakhstan.
Russia is still Kazakhstan's largest trading partner, though trade
with China has increased significantly. Russian imports now make up
about 27% of Kazakhstan's total imports, down from over 40% before
the Russia-Ukraine conflict, while exports to Russia make up about
12% of the total.
Kazakhstan's banking industry has recovered from a protracted
correction and credit risks are now under control. S&P said, "We
estimate that systemwide nonperforming loans (NPLs; defined as
Stage 3 under International Financial Reporting Standards) are
likely to remain broadly stable at about 8% in 2024 versus about
18% in 2020. In our base-case scenario, we forecast credit costs
will remain subdued in and beyond 2024, at 1.3%-1.5%% of average
loan books, which is still well below their historical average of
more than 3% through recent cycles. Meanwhile, the legacy stock of
NPLs has already been largely provisioned at the average level of
about 75%. We expect the recovery to continue and support banking
sector operating performance at least through 2024."
S&P said, "We forecast retail lending will expand up to 20% in
nominal terms in 2024 comparing with an average of 25%-30% in
2022-2023. The regulator has signaled that it will keep the
fast-growing retail segment under control, and we therefore
anticipate a tighter regulatory environment and a gradual cooling
of the housing market. We think that retail lending is likely to
peak, given base effects and limits on the ability of the household
sector to absorb substantially more debt.
"We acknowledge that banking regulators have taken several steps to
strengthen banking supervision. This includes conducting a
systemwide asset quality review in 2019, transition to supervisory
review and evaluation process (SREP) practices, and introducing a
number of measures (including variable risk weights for capital
adequacy ratios) to limit banks' risk appetites. However, we have
seen that the regulator tends to address problems on a case-by-case
basis. While we observe enhancements in financial oversight, we
still consider that Kazakhstan's banking regulator lacks
independence and can be subject to political interference." The
Kazakhstani banking system has largely resolved the interruption of
Russian banking activities in 2022 in an orderly manner through
market-based solutions with regulatory support, which helped to
avoid a banking crisis and operational disruption. The Kazakhstani
regulator supported the banking sector in absorption of the
short-term effect of the shock amid a rapid realignment of market
structure.
Kazakhstani banks benefit from solid margins and have demonstrated
their capacity to generate earnings. This could help to buffer
against risks in an external operating environment that remains
uncertain and volatile. For full-year 2023, the sector reported a
Kazakhstani tenge (KZT) 2.2 trillion (about $4.9 billion) net
profit, which is almost 50% higher than 2022. We expect the sector
will demonstrate the same magnitude of earnings generation in 2024,
with average net interest margin fluctuating within 5%-6% and
return on average equity (ROAE) of 25%-30%.
Downside risks to S&P's base case include weaker regional economic
growth than expected, for example due to a gloomier global economic
outlook, or a steep rise in geopolitical risks. Rapid credit growth
in weaker segments, with stretched borrower repayment capacity may
also pressure asset quality evolution. S&P believes that the
Kazakhstani banking system's structural shortcomings and risks
remain reflected in the BICRA classification of group '8' (on a
scale from '1' to '10', '10' being the weakest score).
Halyk Bank JSC
S&P said, "We affirmed our 'BB+/B' long- and short-term issuer
credit ratings (ICRs) and raised the national scale rating to
'kzAA+' from 'kzAA'. The 'bb+' stand-alone credit profile (SACP) is
unchanged. We continue to see Halyk Bank as a highly systemically
important bank in Kazakhstan, as the largest by assets and
deposits. At the same time, our ratings don't incorporate any
notches of support from the state. This is because the gap between
the bank's intrinsic creditworthiness and the sovereign's
creditworthiness is too narrow to assign any notches of support."
Outlook
The positive outlook on Halyk Bank reflects S&P's expectation that,
within the next 12-18 months, it could raise the ratings if
industry risks further ease for banks operating in Kazakhstan.
Upside scenario: S&P could raise the ratings if it improves its
assessment of industry risks in Kazakhstan, while the bank also
maintains resilient asset quality metrics.
Downside scenario: S&P could consider an outlook revision to stable
if it considers that the industry risks in the country are unlikely
to diminish.
Kaspi Bank JSC
S&P said, "We affirmed our 'BB/B' long- and short-term ICRs, and
raised the national scale rating to 'kzAA-' from 'kzA+'. Our SACP
is unchanged at 'bb-'. We continue to see Kaspi as a highly
systemically important bank in Kazakhstan, as one of the largest by
assets and deposits. Therefore, our ratings incorporate one notch
of support from the state."
Outlook
The positive outlook on Kaspi reflects S&P's expectation that,
within the next 12-18 months, it could raise the ratings if
industry risks ease for banks operating in Kazakhstan, supported by
the group continuing to demonstrate solid financial performance.
Upside scenario: S&P could raise the ratings if it improves its
assessment of industry risks in Kazakhstan, while the group also
maintains resilient asset quality metrics and earnings capacity
that is superior to peers'.
Downside scenario: S&P said, "We could consider revising the
outlook to stable if we reverse our trend on industry risk in
Kazakhstan back to stable, or if we take a negative action on the
sovereign ratings, even if we continue to expect superior
performance versus peers or a stronger capital buffer such as our
RAC ratio remaining sustainably well above 10%."
Bank CenterCredit JSC (BCC)
S&P said, "We affirmed our 'BB-/B' long- and short term ICRs and
raised the national scale rating to 'kzA' from 'kzA-'. The 'b+'
SACP is unchanged. We believe BCC's importance for the financial
system has increased over recent years. BCC is now the
third-largest bank in Kazakhstan in terms of assets and loan book
and has market share above 10% in retail deposits. As a result we
expect stronger extraordinary support from the government in the
future, in case of need. Therefore, the long-term rating on BCC is
one notch higher than our assessment of its SACP, reflecting our
view of the bank's high systemic importance in Kazakhstan, and our
view of the Kazakhstani government as supportive of its banking
system."
Outlook
The positive outlook on BCC reflects S&P's expectation that, within
the next 12-18 months, it could raise the ratings if industry risks
ease for banks operating in Kazakhstan.
Upside scenario: S&P could raise the ratings within the next 12-18
months if it improve its assessment of industry risks in
Kazakhstan, while the bank also maintains resilient asset quality
metrics and sustainable capital buffers.
Downside scenario: S&P could consider revising the outlook to
stable if it reverses its trend on industry risk in Kazakhstan back
to stable.
S&P said, "We could also consider a downgrade or an outlook
revision to stable if we believe that rapid business expansion and
an aggressive dividend policy would weaken the bank's
capitalization, with a RAC ratio dropping sustainably below 5% or
if we were to observe unexpected substantial deterioration of major
asset quality metrics, although we consider this scenario less
likely."
ForteBank JSC
S&P said, "We affirmed our 'BB-/B' long- and short-term ICRs, and
we raised the national scale rating to 'kzA' from 'kzA-'. We also
revised the SACP to 'bb-' from 'b+' on the back of significant
asset quality improvement, balanced risk appetite, and good capital
buffers. We continue to see Forte as a bank with moderate systemic
importance in Kazakhstan, as one of the largest by assets and
deposits. At the same time, our ratings don't incorporate any
notches of support from the state. This is because the gap between
the bank's intrinsic creditworthiness and the sovereign's
creditworthiness is too narrow to assign any notches of support."
Outlook
The positive outlook on Forte Bank reflects S&P's expectation that,
within the next 12-18 months, it could raise the ratings if
industry risks ease for banks operating in Kazakhstan.
Upside scenario: S&P could raise the ratings if it improves its
assessment of industry risks in Kazakhstan, while the group also
maintains resilient asset quality metrics.
Downside scenario: S&P could consider revising the outlook to
stable if it reverses its trend on industry risk in Kazakhstan back
to stable. A downgrade would require a multi-notch deterioration in
the group's SACP, which S&P considers as unlikely over the outlook
horizon.
Nurbank JSC
S&P said, "We affirmed our 'B-/B' long- and short-term ICRs and
raised the national scale rating to 'kzBB' from 'kzBB-'. The 'b-'
SACP is unchanged. We expect that the bank's capital adequacy will
benefit from reduced economic risk, and its RAC ratio will
sustainably exceed 7.0% in 2024-2025 compared with our previous
expectation of 6.5%-6.8%. We therefore revised our capital and
earnings assessment to adequate from moderate. This assessment
revision is neutral for the rating, however."
Outlook
The positive outlook on Nurbank reflects S&P's expectation that,
within the next 12-18 months, there is one-in-three chance that the
ratings could be raised.
Upside scenario: S&P could raise the ratings within the next 12-18
months if it improves its assessment of industry risks in
Kazakhstan indicating the eased industry risks for domestic banks,
while Nurbank improves its key asset quality metrics to a level
that is close to the system average.
Downside scenario: S&P said, "We could consider revising the
outlook to stable if we reverse our trend on industry risk in
Kazakhstan back to stable or if we see a reversal of the improving
asset quality trend of the past three years and a material
persistent gap between Nurbank's major asset quality metrics
compared to the system average."
BICRA Score Snapshot
Kazakhstan
TO FROM
BICRA group 8 8
Economic risk 7 8
Economic resilience 4 (High risk) 4 (High risk)
Economic imbalances 4 (High risk) 4 (High risk)
Credit risk in the economy 5 (Very 6 (Extremely
high risk) high risk)
Trend Stable Stable
Industry risk 8 8
Institutional framework 6 (Extremely 6 (Extremely
high risk) high risk)
Competitive dynamics 4 (High risk) 4 (High risk)
Systemwide funding 5 (Very 5 (Very
high risk) high risk)
Trend Positive Stable
Banking Industry Country Risk Assessment (BICRA) economic risk and
industry risk scores are on a scale from 1 (lowest risk) to 10
(highest risk).
Ratings List
BANK CENTERCREDIT JSC
BANK CENTERCREDIT JSC
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
Issuer Credit Rating BB-/Positive/B BB-/Stable/B
UPGRADED
TO FROM
Issuer Credit Rating
Kazakhstan National Scale kzA/--/-- kzA-/--/--
FORTEBANK JSC
FORTEBANK JSC
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
Issuer Credit Rating BB-/Positive/B BB-/Stable/B
TO FROM
RATINGS AFFIRMED
Senior Unsecured BB- BB-
UPGRADED
TO FROM
Issuer Credit Rating
Kazakhstan National Scale kzA/--/-- kzA-/--/--
Senior Unsecured kzA kzA-
Subordinated kzBBB+ kzBBB
HALYK BANK JSC
HALYK BANK JSC
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
Issuer Credit Rating BB+/Positive/B BB+/Stable/B
UPGRADED
TO FROM
Issuer Credit Rating
Kazakhstan National Scale kzAA+/--/-- kzAA/--/--
KASPI BANK JSC
KASPI BANK JSC
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
Issuer Credit Rating BB/Positive/B BB/Stable/B
RATINGS AFFIRMED
TO FROM
Senior Unsecured BB BB
UPGRADED
TO FROM
Issuer Credit Rating
Kazakhstan National Scale kzAA-/--/-- kzA+/--/--
Senior Unsecured kzAA- kzA+
NURBANK JSC
NURBANK JSC
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
Issuer Credit Rating B-/Positive/B B-/Stable/B
UPGRADED
TO FROM
Issuer Credit Rating
Kazakhstan National Scale kzBB/--/-- kzBB-/--/--
===================
L U X E M B O U R G
===================
A.B. ASSET: Moody's Ups Rating on $400.8MM Series 2 Notes From Ba2
------------------------------------------------------------------
Moody's Ratings has upgraded the rating on the following notes
issued by A.B. Asset Finance Company S.A., Series 2 (the
"Issuer"):
Series 2 USD400,800,000 Notes due 2033, Upgraded to Baa3;
previously on Nov 26, 2020 Downgraded to Ba2
This transaction represents a repackaging of a loan portfolio
originated by ABSA Bank Limited. Under cash flow agreements, ABSA
Bank Limited unconditionally and irrevocably agrees to pay to the
Issuer the interest and principal amounts due under the notes, as
well as all fees and expenses incurred by the Issuer, and the
Issuer agrees to pay ABSA Bank Limited any interest and principal
received on the collateral.
RATINGS RATIONALE
Moody's explained that the rating action taken is the result of a
rating action on ABSA Bank Limited, which was upgraded to Baa3 from
Ba2 on March 6, 2024.
Under the cash flow agreements, payments received by the Issuer
from ABSA Bank Limited are used to make payments due under the
notes on a pass-through basis. Given the pass-through nature of the
transactions, the noteholders are fully exposed to the credit risk
of ABSA Bank Limited.
As a result, Moody's has used the long-term foreign currency bank
deposit rating of ABSA Bank Limited as the reference point for the
obligations of ABSA Bank Limited under the cash flow agreements.
In addition, noteholders benefit from a guarantee by ABSA Bank
Limited to the Issuer of any amount due in respect of the notes. No
benefit has been given to the guarantee since it is provided by the
same entity as the one under the cash flow agreements.
Methodology Underlying the Rating Action:
The principal methodology used in this rating was "Repackaged
Securities Methodology" published in June 2023.
Factors that would lead to an upgrade or downgrade of the rating:
This rating is essentially a pass-through of the rating of the
rating of ABSA Bank Limited. Noteholders are exposed to the credit
risk of ABSA Bank Limited and therefore the rating moves in
lock-step.
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, which could negatively impact the
ratings of the notes, as evidenced by 1) uncertainties of credit
conditions in the general economy and 2) more specifically, any
uncertainty associated with the underlying credits in the
transaction could have a direct impact on the repackaged
transaction.
RADAR BIDCO: Moody's Gives B2 CFR, Rates New 1st Lien Term Loan B2
------------------------------------------------------------------
Moody's Ratings has assigned a B2 corporate family rating and B2-PD
probability of default rating to airport logistics services
provider Radar Bidco SARL (Swissport or the company). Concurrently,
the rating agency has assigned B2 ratings to the company's proposed
EUR1.2 billion equivalent seven-year senior secured first lien term
loan B (split between EUR and USD tranches) and EUR250 million
senior secured first lien revolving credit facility (RCF) maturing
in 2030. The outlook assigned is stable.
The rating actions follow the launch of a refinancing transaction
whereby Swissport will borrow the new term loan B to mainly repay
its existing EUR600 million term loan B and distribute EUR505
million of cash to its shareholders.
"The new B2 CFR reflects Swissport's strengthening business profile
and good liquidity on the one hand, and relatively high
Moody's-adjusted leverage of 4.9x and low free cash flow generation
on the other hand" says Frederic Duranson, a Moody's Vice President
-- Senior Analyst and lead analyst for Swissport. "
RATINGS RATIONALE
The B2 CFR reflects (1) the company's leading market positions in
ground handling and cargo handling services for airlines and
freight forwarders; (2) a high degree of geographic and customer
diversification; (3) Moody's expectation of further recovery in
passenger airline traffic to and beyond pre-pandemic levels,
alongside increased outsourcing, leading to earnings growth and
deleveraging potential over the next 12-18 months; (4) solid
contractual protection from inflation in labour costs which
represent three quarters of operating expenses; (5) improved
reliability and enhancements in technology infrastructure; and (6)
good liquidity.
The CFR also reflects (1) the competitive market environment, with
exposure to fluctuations in flight volumes and cargo traffic, with
airline profitability influencing Swissport's pricing power; (2)
high employee turnover by cross-industry standards and tight labour
markets presenting a constant challenge in recruiting and retaining
staff, with risks on service levels; (3) degree of execution risk
on the value creation plan, creating uncertainty over uplift in
profitability over the next two to three years; (4) high pro forma
Moody's-adjusted gross debt/EBITDA of 4.9x at December 2023, with
the risk of releveraging transactions should exit plans not come to
fruition; and (5) low free cash flow generation, whose breakeven
point corresponds to a moderate leverage, and relatively low
interest cover to start with.
Moody's-adjusted EBITDA for Swissport was around EUR380 million in
2023, improving from below EUR300 million in 2022 and translating
into Moody's-adjusted gross debt/EBITDA of 4.9x at December 2023 on
a pro forma basis. Moody's expects deleveraging toward 4.0x by the
end of 2024, with the potential to reduce below 4.0x in 2025, all
driven by EBITDA growth.
The recovery in air traffic alongside strong trading conditions in
cargo led to strong double-digit percentage revenue growth in 2022
and 2023. Revenue is above pre-pandemic levels thanks to pricing
but EBITDA is approximately on par. Moody's expects that Swissport
will close the 70 bps margin gap in 2024. The rating agency
forecasts that pricing will contribute overwhelmingly to EBITDA
growth although it expects continued volume growth in ground
handling. Further, the annualisation effect of initiatives taken in
2023 to improve contract pricing and reduce fixed costs will
deliver EUR23 million incremental savings in 2024. As a result,
Moody's-adjusted EBITDA will reach at least EUR440 million this
year, with the potential to move to EUR500 million next year.
Capital expenditure of at least EUR200 million (including lease
repayments) and interest paid of around EUR155 million initially
will represent the main drag on Swissport's free cash flow (FCF)
generation. With other recurring uses of cash in the range of EUR70
million to EUR90 million, any material FCF generation will be
reliant on sustainable EBITDA growth beyond Moody's forecasts for
2024. The pace of improvement in cash generation will also depend
on how fast base interest rates reduce.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Swissport's CIS-4 indicates that ESG considerations have a
discernible impact on the current rating, which is lower than it
would have been if ESG risks did not exist. The company's credit
impact score principally reflects governance factors, including
Swissport's concentrated ownership by distressed debt and
alternative investment funds, with a history of debt-funded
dividend returns. However, Moody's views the owners' financial
strategy as moderately aggressive given leverage is below
pre-pandemic levels and the cash balance comfortably exceeds
ongoing operating needs.
Swissport has environmental exposure to carbon transition risks
because the aviation industry it is part of could be subject to
additional regulation including taxation to discourage or limit air
travel. These risks also have a social manifestation should there
be increased societal pressures to accelerate this transition.
Social risks also pertain to the handling of current or prospective
workforce's personal data and the relatively high employee
turnover, which may lead to service level underperformance or
disruption from industrial action.
LIQUIDITY
Swissport has good liquidity, supported by pro forma cash on
balance sheet at closing of EUR289 million as well as a EUR250
million RCF upsized from the current EUR200 million and which
Moody's expects to remain undrawn. In addition, the rating agency
forecasts modestly positive FCF generation. The RCF is subject to a
5.75x springing senior secured net leverage covenant if utilisation
exceeds 40% of commitments and for which Moody's forecasts ample
headroom should it be tested.
STRUCTURAL CONSIDERATIONS
The B2 ratings on the senior secured term loan B and pari
passu-ranking RCF, in line with the CFR, reflect the first-lien
only capital structure, also including smaller debt instruments
worth EUR127 million in aggregate, borrowed by operating
companies.
COVENANTS
Moody's has reviewed the marketing draft terms for the new credit
facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of consolidated EBITDA
(determined in accordance with the agreement) of the guarantor
group. Excluded entities are incorporated in jurisdictions other
than the Switzerland, England and Wales, United States of America,
the Netherlands, Luxembourg, Ireland and any other jurisdiction in
which any borrower is incorporated. Each material subsidiary will
be required to provide security over shares, bank accounts and
receivables, with US borrowers pledging substantially all of the US
borrower's assets.
Pari passu debt is permitted up to an undisclosed senior secured
net leverage ratio. Restricted payments are permitted at or lower
an undisclosed consolidated total net leverage is or if funded from
the available amount.
Adjustments to consolidated EBITDA include run-rate cost savings
and synergies, capped at 25% of consolidated EBITDA within a 24
months realisation period.
The proposed terms, and the final terms may be materially
different.
RATIONALE FOR THE STABLE OUTLOOK
The outlook is stable and reflects Moody's expectation that
Swissport will maintain high operational reliability and contract
renewal rates and continue to grow revenue and profit in the next
couple of years. Moody's expects it will lead to good deleveraging
on a gross debt basis toward 4.0x in the next 12 to 18 months and
at least modestly positive Moody's-adjusted free cash flow. The
stable outlook also incorporates the rating agency's expectation
that Swissport will maintain good liquidity, including a stable to
growing cash balance, and Moody's assumes the absence of any
debt-funded acquisitions or shareholder distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if:
-- Swissport maintains solid operational execution, including high
reliability, contract renewals and labour management, leading to
revenue and organic EBITDA growth in mid-single-digit percentage
and,
-- Moody's-adjusted leverage decreases below 4.0x on a permanent
basis and,
-- Moody's-adjusted FCF/debt is sustainably above 5% while
liquidity remains good and,
-- Moody's-adjusted EBITA/Interest expense reaches at least 2.5x
on a sustainable basis and,
-- There are no shareholder distributions or debt-funded
acquisitions.
Conversely, the ratings could be downgraded if:
-- There is evidence of reliability or other operational issues
leading to significant contract losses or EBITDA stalling or
declining or,
-- Moody's-adjusted gross debt/EBITDA is sustainably above 5.5x
or,
-- FCF is negative or the cash position deteriorates below EUR200
million on average over the year, or
-- Moody's-adjusted EBITA/Interest expense is not at least 1.5x on
a sustainable basis.
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Swissport provides ground handling and cargo handling services to
airlines, freight forwarders and other customers at over 300
airports in 44 countries across the world. In 2023, the company
generated revenue of EUR3.4 billion and EBITDA before exceptional
items of EUR403 million. Following its debt restructuring in 2021,
Swissport has been owned by former lenders including Strategic
Value Partners and Ares Management.
=====================
N E T H E R L A N D S
=====================
ASR NEDERLAND: S&P Assigns 'BB+' Rating on Restricted Tier 1 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' issue rating to the
restricted Tier 1 (RT1) perpetual subordinated notes that
Netherlands-based ASR Nederland N.V. (BBB+/Stable/--) plans to
issue. The issue rating is subject to our review of the notes'
final terms and conditions.
S&P expects to classify the proposed notes, which will include a
write-down feature, as having intermediate equity content under our
hybrid capital criteria. This classification is subject to the
notes being eligible for regulatory solvency treatment and the
group's hybrid capital not exceeding the total amount that is
eligible for regulatory solvency treatment.
The rating on the RT1 notes is three notches below S&P's long-term
rating on ASR Nederland. In rating these notes, it deducts:
-- One notch to reflect the notes' subordination to ASR
Nederland's senior creditors;
-- One notch to reflect the payment risk arising from the
mandatory and optional coupon cancellation.
-- Interest cancellation is mandatory in the event of a breach of
either the solvency capital requirement (SCR) or the minimum
capital requirement under Solvency II; and
-- One notch to reflect the risk of a potential write-down of
principal.
S&P understands that the notes will be eligible as RT1 notes under
Solvency II. The notes will be written-down if:
-- The amount of own funds eligible to cover the SCR is equal to
or less than 75% of the SCR;
-- The amount of own funds eligible to cover the minimum capital
requirement (MCR) is equal to or less than the MCR; or
-- The amount of own funds eligible for the SCR is less than 100%
of the SCR for three months.
ASR Nederland's SCR coverage remained solid at 176% at year-end
2023. S&P will monitor the group's SCR coverage and capital plans
to assess if the rating on ASR Nederland adequately captures the
payment risk associated with its hybrid instruments. An unexpected
deterioration in the group's regulatory solvency position that is
not accompanied by a change in the rating, or increased sensitivity
to stress, could lead S&P to lower the issue rating on the notes by
widening the notching between the issue rating and the issuer
credit rating to reflect the heightened payment risk.
S&P said, "Furthermore, we understand that the RT1 notes are
callable after December 2031 and on each interest payment date
thereafter, subject to the conditions for redemption, including
approval from the insurance regulator. Following certain external
events, such as tax, rating, or regulatory events linked to
Solvency II, we understand that ASR Nederland has the option to
redeem or substitute the notes at any time, subject to certain
conditions (including regulatory approval)."
The coupon is fixed for until June 2032 (perpetual 8.25-year),
which marks the first reset date. It resets at the first reset date
and every reset date thereafter (five-year intervals) to the
five-year mid-swap rate, plus a margin, with no step up, paying
annually in arrears.
S&P said, "We understand that the group may use the proceeds from
the RT1 notes for general corporate purposes such as the
refinancing of existing debt, including callable capital
securities. With the issuance of the new debt, we will remove the
intermediate equity content from the amount of any debt that might
be refinanced. We consider that the issuance will have limited
effect on ASR's financial flexibility metrics. Its financial
leverage is less than 30% and fixed-charge coverage is above 5x."
=========
S P A I N
=========
LORCA TELECOM: S&P Assigns Prelim 'BB+' Rating to New Secured Debt
------------------------------------------------------------------
S&P Global Ratings retained its 'B' long-term issuer credit rating
on Lorca Telecom's (MasMovil) parent Lorca Telecom Bidco SAU, its
'B' rating on its existing senior secured debt, and its 'CCC+'
rating on its existing unsecured notes remain on CreditWatch
positive, where S&P placed them on Sept. 26, 2022. S&P also
assigned a preliminary 'BB+' issue rating to the proposed new
senior secured debt, based on its forward-looking view of the joint
venture's credit profile and recovery prospects.
The proposed joint venture (JV) between Spanish telecom operator
MasMovil and the Spanish operations of Orange S.A. has received
approval from European and local regulators, subject to compliance
with a remedy package.
Ahead of the expected closing of the merger over the next few
weeks, the group has announced its future capital structure, which
includes MasMovil's existing debt facilities and a new EUR6 billion
senior secured debt package underwritten by a group of banks.
The positive CreditWatch status reflects S&P's expectation that it
will raise the ratings on MasMovil by three notches after creation
of the JV, based on the conservative financial policy target and
expected support from Orange S.A. Improved recovery prospects could
prompt S&P to also raise the ratings on the existing senior secured
debt by four notches.
MasMovil and Orange Spain have secured regulatory approval for a
50-50 joint venture that will consolidate the group as a leading
telecom operator in Spain. Regulatory approval was subject to
compliance with a remedy package that includes the transfer by
mid-2025 of certain mid- and high-band spectrum assets to Digi
(which will be Spain's fourth-largest operator post merger). The
group has also committed to offering Digi the option to enter a
national roaming agreement until September 2025, which would become
effective in 2026, when Digi's current agreement with Telefonica
expires. S&P anticipates the remedy package will not have an
immediate material impact on the competitive dynamics in the
Spanish market, as it will take effect from 2026 and might not
allow Digi to significantly change its current market position.
This is because Digi will remain largely dependent on wholesale
agreements with infrastructure owners like Telefonica or
Orange-MasMovil, due to its asset-light nature and lack of
ownership of low-band spectrum.
MasMovil has secured EUR6 billion of financing, fully underwritten
by a group of banks, which will allow it to distribute the
appropriate amounts to Orange and MasMovil, reflecting the
different levels of debt they are contributing to the combined
entity. Closing of the merger is expected over the next few weeks,
upon which S&P expects to resolve the CreditWatch status.
S&P said, "Leverage will be high at closing, but we see sound
deleveraging prospects over the next two years. We forecast the JV
will have S&P Global Ratings-adjusted pro forma debt to EBITDA of
about 5.5x at closing, but we expect swift deleveraging,
underpinned by our expectation of improving free cash flow, debt
amortization, and a strong commitment to reach company-adjusted
debt to EBITDA of 3.5x over the medium term. We forecast S&P Global
Ratings-adjusted debt to EBITDA will fall toward 5.2x in 2024 on a
pro forma basis, and toward 4.5x in 2025.
"Ownership support from Orange S.A. will benefit the combined
entity. We believe that Orange S.A. remains committed to its
operations in Spain. We also believe that Orange S.A. is likely to
take control and consolidate the JV in the event of an IPO in the
future, which could facilitate the exit of the financial sponsors.
Although we acknowledge there is no such commitment from Orange
S.A. at this time, we base our opinion on Orange's right to take
control of the JV at the time of an IPO, as per the finalized
agreement. Additionally, we see reputational risk for Orange if it
were to walk away from the JV, given the planned use of the Orange
brand for the JV's operations.
"A stronger business will strengthen recovery prospects for senior
secured lenders. The JV will become a leading telecom operator in
Spain, with nationwide fiber to the home and mobile network
coverage. It will also be the largest player in customer shares in
fixed (41%) and mobile (43%), with more total subscribers than the
incumbent Telefonica. The JV is set to have segmented product
offerings at different price points and access to Orange's scale
and expertise. Furthermore, we think the JV's business will benefit
from being at an advanced stage in the investment cycle (within the
country and for the company). As a result, we believe this will
support a higher enterprise valuation at default, which could lead
us to raise the issue ratings on MasMovil's senior secured debt
above our long-term issuer ratings on the new group.
"The CreditWatch placement with positive implications reflects our
expectation that we will raise the ratings on MasMovil by three
notches after closing of the JV, based on the group's strengthened
business profile, its strong commitment to deleveraging, and the
expected support from Orange S.A. Improved recovery prospects could
prompt us to raise the ratings on the existing senior secured debt
by four notches."
===========
S W E D E N
===========
SAMHALLSBYGGNADSBOLAGET: S&P Places 'CCC+' LT ICR on Watch Neg.
---------------------------------------------------------------
S&P Global Ratings placed on CreditWatch with negative implications
its 'CCC+' long-term issuer credit rating on Swedish real estate
landlord Samhallsbyggnadsbolaget i Norden AB (SBB) and the issue
ratings on all its senior unsecured notes. In addition, S&P
affirmed its 'C' issue ratings on the company's subordinated hybrid
bonds and placed them on CreditWatch negative.
S&P said, "The CreditWatch negative placement indicates that we
could lower the rating on SBB to 'SD' (selective default) if debt
tranches are repurchased at values we consider fall short of the
original promise and if we consider this repurchase distressed in
nature. We expect to resolve the CreditWatch once the company has
announced the outcome of the tender offer.
"The CreditWatch negative placement reflects our view that the
tender offer could be tantamount to a default. On March 18, 2024,
SBB announced a tender offer via an unmodified Dutch auction on all
its euro-denominated outstanding hybrid and euro-denominated senior
unsecured bonds. We understand the offer is limited to a maximum
purchase amount of EUR250 million, mainly funded with net cash
proceeds of Swedish krona (SEK) 5.2 billion from the recent
transaction with Castlelake regarding SBB Infrastructure AB. We
understand the tender offer deadline will be March 22, 2024, and
the settlement date will be March 26, 2024. The offer is subject to
a minimum price for each debt tranche. The amount accepted for
purchase in each tranche, as well as the overall debt repurchased,
will be determined and can be changed at SBB's sole discretion.
"We may view purchases of certain tranches that are conducted at
substantial discounts to par as tantamount to a default. We will
consider whether the transactions will result in investors
receiving less than originally promised. We will also consider
whether a conventional default on the instruments subject to the
transaction is realistic over the near to medium term if the
repurchases do not take place. We may determine that a default has
occurred even though the tender offer involves a Dutch auction
process, where investors voluntarily choose the amount and price at
which they are willing, if at all, to buy.
"SBB's liquidity will remain weak following the transaction. This
is because SBB will continue facing significant debt maturities,
totaling about SEK10 billion over 2024-2025, and we believe its
access to capital market remains restricted. Asset sales remain the
most likely path to deleveraging and managing upcoming maturities
in the foreseeable future. Moreover, we will continue to view SBB's
capital structure as unsustainable until the company can
demonstrate a stable capital structure on a sustainable basis and
an improved liquidity position through access to diversified
funding sources or timely asset sales. Although SBB has been
successful to attract some funding through the sale of equity
stakes in several asset portfolios, such as the recent Brookfield
and Castlelake transaction, we believe equity sales remain
challenging and come with a high degree of uncertainty under the
current circumstances.
"We understand SBB will defer its current hybrid coupon payments,
which will likely be settled, considering the outstanding common
dividend payment that is expected for the second quarter of 2024.
SBB announced on Dec. 29, 2023, that it aims to strengthen its
liquidity by deferring the hybrid coupon payments due in January,
March, and April 2024. Coupon savings are estimated at EUR45
million. We expect the company will pay about SEK2 billion in
outstanding, and approved, common dividends for 2022 before its
next annual general meeting in the second quarter of 2024, and that
it will settle the deferred coupon amounts at the same time, in
line with the requirements in the hybrid bond documentation. That
said, we also believe there is a high likelihood that the company
will defer hybrid coupon payments over the next 12 months,
especially after the payment of the common dividend of SEK2.1
billion that is expected for the second quarter of 2024. Therefore,
we affirmed our 'C' issue ratings on the subordinated debt and
placed them on CreditWatch with negative implications.
"The CreditWatch negative placement reflects that we may view some
of the repurchases of tranches subject to the tender offer as
tantamount to a default. As part of the CreditWatch placement, we
will evaluate whether lenders of the tendered bonds will receive
less than originally promised and whether a conventional default in
the near to medium term is likely if the tender offer is not
accepted.
"We expect to resolve the CreditWatch once we have more clarity on
the final acceptance ratio per tranche, pricing, and tendered
amounts. We would likely lower the rating on SBB to 'SD' if the
final outcome of the tender offer on senior bonds is tantamount to
a default, according to our criteria. If SBB does not achieve
sufficient acceptance on its tender offer or if lenders receive a
tendered price that, under our criteria, is not distressed or falls
short of the original promise, we will likely affirm the 'CCC+'
rating on SBB. The latter is subject to the company's liquidity
position and the existence of specific default scenarios over the
next 12 months."
=====================
S W I T Z E R L A N D
=====================
SIG GROUP: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
-----------------------------------------------------------------
Moody's Ratings affirmed the corporate family rating of SIG Group
AG (SIG or the company) at Ba1 and the probability of default
rating at Ba1-PD. Concurrently, Moody's affirmed at Ba1 the senior
unsecured ratings of its EUR550 million Term Loan borrowed at
subsidiaries SIG Combibloc PurchaseCo S.a r.l. and SIG Combibloc US
Acquisition II Inc. and the EUR300 million senior unsecured
revolving bank credit facility borrowed at SIG Combibloc PurchaseCo
S.a r.l. and SIG Euro Holding GmbH. Further, Moody's affirmed at
Ba1 the backed senior unsecured ratings of SIG Combibloc PurchaseCo
S.a r.l.'s EUR550 million notes due 2025. The outlook on SIG Group
AG and SIG Combibloc PurchaseCo S.a r.l. was changed to positive
from stable.
RATINGS RATIONALE
The rating action reflects SIG's consistently strong performance
through market cycles since its IPO in 2018. The company has grown
its revenue reliably in the mid-single digit percent or above
(except in 2020) while maintaining very strong margins of over 25%
except in 2022 when it acquired Pactiv Evergreen Inc's (B1 stable)
Asia Pacific chilled carton operations (Evergreen Asia) and Scholle
IPN which had lower margins. Positively, the margins recovered in
2023 as the acquisitions were successfully integrated. While the
Evergreen Asia acquisition expanded SIG's geographic footprint in
Asia and gave the company access to the chilled carton business,
the acquisition of Scholle IPN broadened its portfolio with the
addition of a bag-in-a-box and a spouted pouch. This addition
allows SIG to service larger and smaller volume products,
respectively, while also offering SIG an entry into the
institutional market (such as quick service restaurants) and the
industrial market (such as transport of agricultural products), in
addition to its traditional retail placements. The diversification
of SIG's portfolio is a key factor underpinning the positive
momentum in its rating.
Also positively, SIG reduced debt by EUR217 million in 2023 from
cash on hand and operations. Together with the integration of
acquisitions closed in 2022, the debt reduction led to SIG's
Moody's adjusted leverage declining to 3.4x in 2023 from 4.9x in
2022. Moody's expects the company's leverage to reduce further to
3.1x in 2024 as the company continues to grow. In addition, SIG's
coverage is strong with Moody's adjusted EBITDA/interest measuring
at 6.0x in 2023 and expected to rise to 7.1x in 2024.
Counterbalancing these positives, SIG generates limited free cash
flow owing primarily to its material capital investment programme.
While SIG's business generated robust operating cash flow with
FFO/debt of 23.1% in 2023, and its dividend was stable as measured
by RCF/debt of 16.5%, the company's free cash flow was a slightly
negative EUR13.4 million as a result of very large capital
expenditures. Moody's expects SIG to curtail its capital outlays
slightly in the coming years; however, the agency notes that
investment in the business is the engine of SIG's future growth and
cannot be materially reduced on a sustained basis.
SIG's Ba1 corporate family rating reflects the company's
significant scale as a top two operator globally in somewhat
concentrated markets, as well as its business model based on
providing SIG-manufactured filling machines to its customers and
making long-term contractual arrangements to supply packaging
materials. The rating also incorporates (i) the company's installed
base of 1,388 aseptic carton filling machines supplied under
long-term supply and service contracts; (ii) recent diversification
through acquisitions into chilled cartons through Evergreen Asia
and into bag-in-a-box and spouted pouches through Scholle IPN,
respectively; (iii) focus on less-discretionary and less-cyclical
food and beverage end markets; (iv) global footprint; and (v)
experienced management team.
The rating also takes into account (i) the company's relative
concentration of revenue in a single packaging substrate of aseptic
carton packaging systems; (ii) the risks from potential volatility
in prices of certain raw materials such as aluminium, which are not
automatically passed-through to customers, and the general pressure
from cost inflation; (iii) the more difficult growth environment in
the more mature European market.
LIQUIDITY
SIG had EUR281 million of cash on balance sheet at year-end 2023
after reducing its gross debt by EUR217 million. The company also
has an undrawn EUR300 million revolving credit facility maturing in
2025. SIG's EUR550 million term loan and EUR550 million notes also
mature in 2025. Moody's expects the company to refinance its
maturing obligations well ahead of their due dates.
STRUCTURAL CONSIDERATIONS
All of SIG's outstanding debt including EUR550 million notes due
2025, EUR300 million revolving credit facility due 2025, and a
EUR550 million term loan due 2025, is unsecured and pari passu.
Therefore, Moody's rating for SIG's revolving credit facility, term
loan and notes is Ba1.
ESG CONSIDERATIONS
Although ESG risks are not a rating driver, Moody's views SIG as
exposed to a number of risks, such as tightening environmental
regulations, offset by the company's good track record of meeting
these regulations which is likely to continue going forward. SIG
also faces varied consumer engagement with recycling which the
company is working to improve by increasing both consumer awareness
and recycling infrastructure. While SIG has a clearly stated
dividend policy and a net leverage target of 2.0x, the timing of
achieving this target is unclear.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Further positive rating movement would place SIG in the investment
grade category which would require a stronger balance sheet.
Specifically, Moody's would expect SIG to achieve a leverage of
3.25x (measured as debt/EBITDA) and FCF/debt sustainably improving
toward 10%. All metrics reflect Moody's standard adjustments.
Negative rating pressure could result from SIG's failure to
maintain Moody's-adjusted debt/EBITDA sustainably above 4.0x, a
weakening of the company's free cash flow such that its FCF/debt is
below 5%. More aggressive financial policies, evidenced for example
by debt-funded acquisitions, rising Moody's adjusted debt or more
shareholder-friendly actions, could also pressure the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers published in
December 2021.
CORPORATE PROFILE
Headquartered in Switzerland, SIG Group AG is the second-largest
manufacturer of aseptic carton packaging systems, supplying mostly
the liquid dairy (for example, milk, cream and plant-based milk
products) and non-carbonated soft drinks (for example, juice,
nectar and ice tea) end markets. The company's aseptic cartons can
also be used for liquid food products, such as soups and broths,
sauces, desserts and baby food. Aseptic carton packaging, most
prevalent in Europe and Asia, is designed to allow beverages or
liquid food to be stored for 12 months without refrigeration. The
company has been listed on the Swiss Stock Exchange since September
2018. In 2023, SIG reported EUR3.23 billion of revenue and EUR803
million of adjusted EBITDA.
===========================
U N I T E D K I N G D O M
===========================
ASTON MARTIN: Fitch Assigns 'B-(EXP)' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned Aston Martin Lagonda Global Holdings PLC
an expected Long-Term Issuer Default Rating of 'B-(EXP)' with a
Stable Outlook. Fitch has also assigned the proposed senior secured
notes, to be issued by Aston Martin's wholly owned subsidiary,
Aston Martin Capital Holdings Limited, a 'B(EXP)' expected rating,
with a Recovery Rating of 'RR3'. Final ratings are subject to the
completion of refinancing and final documentation confirming to
information already received.
The ratings reflect Aston Martin's strong brand value and
exclusivity, recognised high-end products and historical footprint
in the fast-growing luxury car segment, which mitigates a weak
financial profile. This is demonstrated by the company's solid
record of maintaining pricing power and brand appeal, despite a
weakened product pipeline until recently. In addition, Aston Martin
has supplier arrangements with Mercedes Benz Group (MBG; A/Stable;
powertrain) and Lucid Group Inc. (battery drivetrain), which could
ease the high investment requirement of the auto sector.
Fitch views Aston Martin's financial profile as weak, including
negative EBIT and free cash flow (FCF) in recent years as well as
high leverage. Nevertheless, Fitch forecasts that Aston Martin will
be cash-flow neutral within two years, driven by a new sports
line-up and lower investment needs, and assume the company will
largely deliver its business plan.
KEY RATING DRIVERS
Decreasing Cash Burn: Fitch expects Aston Martin to turn FCF
positive within the next two years, driven by a new sports model
line-up that supports profitability and a short-term reduction in
capex needs. The SUV segment's DBX model should support volume
growth, with good customer reception, and diversify model
concentration. Its forecast that Aston Martin will be cash-flow
neutral by 2025 supports the rating, but execution risk and
interest-rate sensitivity remain high.
Key Shareholder Support: Fitch believes partnerships with MBG and
Lucid will ease the substantial investment challenges that small
niche car manufacturers, like Aston Martin, often cannot absorb on
their balance sheet. The company has a strategic co-operation
agreement with MBG, which provides access to key electrical
components and powertrains, as well as access to Lucid's
technology, including battery systems. Equity support from Aston
Martin's shareholders, including Yew Tree Consortium, Saudi PIF,
MBG and Geely, has reached GBP1.9 billion since 2020. Fitch does
not assume additional cash injections in its rating case, but
believe they may be available if needed.
Leveraged Financial Profile: Historically high leverage constrains
Aston Martin's rating. Fitch calculates EBITDA gross leverage at
around 4.5x at end-2023, based on preliminary headline figures,
down from 8.0x at end-2022. Although high for auto manufacturers
and consumer goods companies, Fitch projects a gradual decline in
leverage over the next two to three years to 3.5x, a level more
consistent with the 'B' rating category median. Aston Martin has a
high capitalisation ratio that can drive higher volatility in
EBITDA, similar to small-sized niche peers.
Strong Brand Value: The Aston Martin brand carries substantial
value that extends beyond the automotive sector. This provides the
strong pricing power that comes with limited volume output and is
similar to that of McLaren Holdings Limited (MHL, B-/Rating Watch
Evolving) and Ferrari S.p.A. The brand's strength is mirrored in
Aston Martin's record of maintaining superior pricing power to that
of premium automakers, like BMW and MBG, and supports its steady
average selling price assumptions.
Nonetheless, despite the attributes of a luxury group, Aston Martin
remains subject to stringent sector regulations, such as safety and
fuel emissions, as well as high investment needs and fixed costs.
Limited Diversification: Aston Martin has limited product
diversification, with only a handful of models and Specials, which
continues to play a significant role in the company's performance
and demonstrates Aston Martin's unique ability to operate at the
highest end of the luxury segment. Fitch expects successful
deliveries of its DB12, Vantage and DBX models to make up the bulk
of EBITDA generation in 2024, with any production issues in one of
the models or changes in consumer preferences having a significant
impact on cash flow and the ratings.
The lack of product diversification is somewhat mitigated by Aston
Martin's strong brand recognition and technical engineering
expertise, which extends to its affiliated Formula 1 team. However,
it does not provide immunity to supply-chain disruptions, such as
since the Covid-19 pandemic. Geographic diversity is comparable
with that of higher-rated peers, with sales well spread over
Europe, the US and other regions. The group has some
foreign-currency risk, as its cost structure is biased to the UK,
but it has derived benefits from sterling weakening.
New Strategic Plan: Aston Martin aims to maintain a 40% gross
margin in 2024, supported by a new lineup. In 2023, the company
presented a plan to stabilise its business and boost volume and
profitability by renewing its sports car portfolio, starting with
the launch of its DB12 model in 2023 and Vantage model in early
2024. Fitch believes the plan makes strategic sense, but that it
could take longer to implement and carries execution risk,
especially on volume ramp up and deliveries. Pricing appears
appropriate and step-up investments have largely already taken
place.
Expanding Luxury Market: The market for hyper-luxury cars has
expanded rapidly in the past decade, as the number of millionaires
and billionaires has increased. Absolute sales of ultra-luxury
vehicles remain far below those of mass-market cars, but the sales
growth rate of vehicles with a six-figure price tag has far
outpaced that of the overall auto industry since the 2008-2009
global financial crisis, increasing by about 15%-25% a year since
2010, against 3%-5% for the sector. Fitch expects further growth in
view of the sheer number of potential customers compared with
annual sales of high-end vehicles with Aston Martin seeing strong
momentum in new customers to the brand at c.a. 60% in 2023.
Guarantor Group Unchanged: Fitch assumes guarantor coverage for the
proposed issuance will remain above 90% of EBITDA. This is above
the test threshold for the revolving credit facility. The proposed
senior notes will be secured by share capital issued by Aston
Martin Lagonda Group Limited, Aston Martin Lagonda Limited, Aston
Martin Capital Holdings Limited and Aston Martin Investments
Limited, and the capital stock granted by non-guarantor entity
(Aston Martin Holdings UK Ltd.), which is 100% owed by Aston Martin
over the guarantor subsidiaries.
DERIVATION SUMMARY
Next to McLaren Holdings Limited (B-/RWE), Aston Martin is the car
manufacturer with the highest leverage and weakest FCF generation
in Fitch's rated portfolio. Its leverage and cash generation also
compare unfavourably with peers in the luxury goods segment.
Nevertheless, Fitch expects FCF generation to turn positive within
the next two years, aligning more closely with its rating. Aston
Martin's brand compares strongly within the luxury sector and is in
line with brands like MHL and Ferrari. This drives its strong
pricing power, which surpasses that of higher-rated auto original
equipment manufacturers; MBG and BMW.
Aston Martin is also one of the smallest rated auto manufacturers.
Its business model is dependent on the manufacturing and sale of a
handful of models, which mirrors a business profile that is similar
to MHL. This dependency could drive higher cash flow volatility
compared with peers.
KEY ASSUMPTIONS
- Revenue trending toward GBP2 billion by 2027 from GBP1.6 billion
in 2023
- EBITDA margin reaching 24% in 2027 on a better portfolio mix and
production ramp-up (2023: 16%)
- Successful refinancing of GBP1.1 billion in senior secured notes
- Deposit-driven working capital unwind in 2024 and 2025, to
moderate thereafter
- Annual capex of around GBP300 million, down from GBP397 million
in 2023
- No dividend distributions or capital injections
RECOVERY ANALYSIS
The recovery analysis assumes that Aston Martin would be
reorganised as a going-concern in bankruptcy rather than
liquidated.
- Fitch assumes a 10% administrative claim.
- Fitch ranks the GBP1,140 billion senior secured notes as
subordinated in the application of proceeds to the new GBP170
million super senior revolving credit facility and the GBP40
million factoring facility.
- Fitch uses Fitch-adjusted EBITDA of EUR250 million to reflect its
view of a sustainable, post-reorganisation EBITDA on which Fitch
bases the enterprise valuation.
- Fitch uses a multiple of 4.0x to estimate the going concern
EBITDA to reflect the company's post-reorganisation enterprise
value. The multiple incorporates the issuer's brand value and
engineering expertise as a luxury auto manufacturer. The multiple
is broadly in line with that of niche original equipment
manufacturing peers, which have solid business profiles, but
continued negative FCF generation.
The allocation of value in the liability waterfall results in
recovery corresponding to 'RR3'/66% for the proposed senior secured
notes.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Successful execution of the business plan, as evidenced by
maintaining a FCF margin of above 0.5%
- EBITDA leverage sustainably below 2.5x
- EBIT margin of above 6%
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Continued negative FCF generation beyond 2025 that leads to
deteriorating liquidity
- EBITDA leverage of above 4.0x for a sustained period
LIQUIDITY AND DEBT STRUCTURE
Sound Liquidity Post-Refinancing: Fitch deems Aston Martin's
liquidity will be satisfactory for its rating upon completion of
its refinancing. Fitch expects its revolving credit facility to
increase to GBP170 million, from GBP90 million, adding a liquidity
buffer. This is also supported by its expectation of decelerating
cash outflow in 2024 to neutral cash flow generation, although this
is subject to execution risk. Production problems or model launch
deviations could cause transitory working capital swings and
consequently pressure liquidity. The group also taps inventory
financing facilities; utilisation as at end-2023 was GBP39.8
million of the available GBP40.0 million.
Extended Maturities: The first- and second-lien senior secured
notes, due 2025 and 2026, respectively, will be replaced with new
senior secured notes due 2029 or later, extending maturities by at
least four years. The revolving credit facility will also be
extended to 2029, from 2025. This will largely alleviate
refinancing risk and lower borrowing costs, as the current
second-lien notes are priced at 15%. The group does not have
near-term bulky debt due other than its GBP20 million-GBP30 million
bank loans that Fitch expects to be rolled over.
ISSUER PROFILE
Aston Martin Lagonda Global Holdings PLC is the ultimate holding
company of Aston Martin Investment Ltd and its fully owned
subsidiaries, including Aston Martin Lagonda Group Ltd and Aston
Martin Capital Holdings Ltd. Aston Martin is a world-renowned
manufacturer of luxury, high-performance sport cars and supercars,
with the brand dating back to 1913. It made its return to Formula 1
in 2022 via the sponsored Aston Martin Aramco Cognizant Formula One
Team.
AML has three product families: SUVs, sports/GT and specials. Its
model line-up comprises mostly internal combustion engine powered
vehicles, including DB12, Vantage, DBX and Valkyrie, with hybrid
and electrified versions on the rise.
DATE OF RELEVANT COMMITTEE
04 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
----------- ------ --------
Aston Martin Lagonda
Global Holdings PLC LT IDR B-(EXP) Expected Rating
Aston Martin Capital
Holdings Limited
senior secured LT B(EXP) Expected Rating RR3
BIG BOG: Enters Administration, Halts Operations
------------------------------------------------
Business Sale reports that a microbrewery, tap room and shop based
in Liverpool has fallen into administration and ceased trading.
Big Bog Brewing Company Limited was based at Venture Point West in
the suburb of Speke.
Originally established in 2011 in North Wales as Waunfawr (English
translation Big Bog), the company moved to Liverpool and rebranded
as Big Bog Brewing Company in 2016 in order to meet growing demand
and establish a foothold in the North West of England.
The multi-award-winning brewery operated the trading brand
Strawberry Fields Brewing and produced a wide range of beers,
including lagers, IPAs, ales and stouts, as well as an array of
spirits, including 46 flavoured gins. In addition to its taproom
and shop, the brewery also offered delivery.
However, during recent times, the company had begun to struggle
with rising costs for materials, distribution and utilities and
also saw its sales impacted by the UK's growing number of pub
closures, Business Sale relates.
As a result, the company appointed Neil Henry of Lines Henry as
administrator on March 19 2024 and ceased trading, Business Sale
discloses.
"All of this has meant that, despite producing a product that has
won many awards and accolades, the business could not continue and
has had to close," Business Sale quotes administrator Neil Henry as
saying.
Following its collapse, the company's assets will be sold and
interested parties have been advised to contact the administrator,
Business Sale notes.
In Big Bog Brewing Company's most recent accounts at Companies
House, for the year ending July 31, 2022, its total assets were
valued at slightly over GBP95,000, Business Sale states. However,
the company owed significant amounts to creditors at the time, with
its net liabilities amounting to just under GBP52,000, according to
Business Sale.
CLUB LEGENDS: Collapses Into Administration
-------------------------------------------
Business Sale reports that Club Legends Limited, a sports
photography business based in Burradon, Tyne and Wear, fell into
administration on March 13, with the Gazette posting the
appointment of Steven Ross and Allan Kelly of FRP Advisory as joint
administrators on March 15.
According to Business Sale, in its accounts for the year to
December 31, 2022, the company's fixed assets were valued at
GBP185,688 and current assets at GBP364,591, with net assets
amounting to GBP106,808 at the time.
ESKEN: Enters Administration After Rescue Plan Fails
----------------------------------------------------
August Graham at PA Media reports that the company behind Southend
Airport and former Eddie Stobart owner Esken has confirmed that it
fell into administration on March 21.
According to PA Media, Esken said that administrators from
AlixPartners had been appointed after it earlier in the day
revealed that a potential restructuring plan was no longer
"commercially viable."
But a deal which secures the future of London Southend Airport is
unlikely to be affected by the administration, the business said,
PA Media notes.
Two weeks ago, Esken reached an agreement to hand over the majority
stake in the airport to private equity investor Carlyle Global
Infrastructure Fund, PA Media recounts.
The deal was designed to settle the airport's GBP193.75 million
debt to Carlyle, PA Media states.
At the time, Esken said that it was trying to run a restructuring
plan which could take several months, PA Media recounts.
But on March 21, the business revealed that it would abandon this
plan and appoint administrators because of concerns about the way
that the law works in Guernsey, where Esken is registered, PA Media
relays.
"Further to the announcement on March 6, the company has concluded
(following detailed advice from advisers) that implementation of
the proposed restructuring plan in relation to the company has
ceased to be commercially viable," the company said.
It added: "Esken has therefore concluded that there is unacceptable
risk associated with the court process to achieve the proposed
outcome, which could also take considerable time to execute.
"Therefore, after detailed consideration of the company's current
financial situation, and absent any further viable proposals to
deliver a stable solution to the challenges faced by the company,
the board has now regrettably concluded that the company should be
placed into administration in order to protect the interests of
stakeholders."
It confirmed the appointment of AlixPartners later in the day, PA
Media notes.
GROSVENOR SQUARE 2023-1: Fitch Affirms 'CCsf' Rating on Cl. G Notes
-------------------------------------------------------------------
Fitch Ratings have affirmed Grosvenor Square RMBS 2023-1 plc's
(GSQ2023-1) notes with Stable Outlooks, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Grosvenor Square
RMBS 2023-1 PLC
Class A XS2594135084 LT AAAsf Affirmed AAAsf
Class B XS2594135324 LT AAsf Affirmed AAsf
Class C XS2594138005 LT A+sf Affirmed A+sf
Class D XS2594138260 LT BBB+sf Affirmed BBB+sf
Class E XS2594138690 LT BBsf Affirmed BBsf
Class F XS2594139078 LT B-sf Affirmed B-sf
Class G XS2594139235 LT CCsf Affirmed CCsf
XS2 XS2594140910 LT BB+sf Affirmed BB+sf
TRANSACTION SUMMARY
GSQ2023-1 is a refinancing of previous securitisations under
Kensington Mortgage Company Limited's Finsbury Square (FSQ) and
Gemgarto (GMT) RMBS shelf programmes. The loans in the pool are a
mix of seasoned owner occupied and buy-to-let loans primarily
originated by Kensington with a small proportion of loans
originated by other lenders namely southern pacific personal loans
limited and money partners limited. The collateral constituting the
GSQ2023-1 pool were previously included in the following
transactions: GMT 2018-1, FSQ 2018-2, FSQ 2019-1, FSQ 2019-2, FSQ
2019-3, FSQ 2020-1 and FSQ 2020-2.
KEY RATING DRIVERS
Asset Performance Deterioration: Total arrears in the GSQ 2023-1
pool stood at 14.1% as at December 2023, compared with 9.5% at
closing. This is one of the highest arrears positions among
Fitch-rated transactions, where the 'prime' assumptions under the
UK RMBS Rating Criteria are applied. The arrears include a high
level of loans concentrated in the late stage 90 days or more
arrears bucket, of approximately 11%.
Discussions with the servicer have indicated a material portion of
loans in arrears by more than 365 days are linked to vulnerable
borrowers. This makes timing of mortgage payments and the
repossession process uncertain, creating a drag on the transaction
cash flows while these assets remain outstanding. Fitch assessed
scenarios stressing modelled defaults and recovery rates to account
for this, as well future performance deterioration, and found the
ratings robust to such scenarios. This has driven the
affirmations.
CE Accumulation: The transaction has substantially deleveraged
since closing. Class A credit enhancement (CE) has increased by 5pp
to 18.5% by December 2023. This significant accumulation of CE has
made the structure more resilient to the current asset performance
deterioration the collateral pool is facing. The build-up in CE
supports the affirmations.
Further Prepayments Expected: A material proportion of the
fixed-rate assets in the pool are still scheduled to revert to
floating during 2024 and 2025. Fitch expects many of these loans to
remortgage or product switch rather than reverting to Kensington's
higher floating rates. As product switches cannot be retained in
the GSQ 2023-1 pool, Fitch therefore expects a further significant
build up in CE as prepayment levels will be driven by fixed-rate
reversions. Since closing, the annualised constant prepayment rate
(CPR) for the GSQ 2023-1 pool has averaged over 30% and Fitch
expects this to continue over the next two years.
Criteria Variation Removed: In its analysis of the transaction at
closing, Fitch applied a criteria variation to its high CPR
assumptions with a 25% CPR assumption in year 1 and 40% in year 2
across all rating scenarios. Fitch has removed this criteria
variation at this review and reverted to its standard criteria
assumptions, which apply a CPR stress ranging from 15% to 25% in
'Bsf' and 'AAAsf' scenarios, respectively. The removal of the
criteria variation is based on the significant deleveraging of the
structure since closing making it more resilient. Additionally, the
excess spread notes within the structure have paid down materially,
with the XS1 note fully redeemed and the XS2 note already amortised
by 19.5% of its original balance.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
conditions and economic environment. Weakening asset performance is
strongly correlated to increasing levels of delinquencies and
defaults that could reduce CE available to the notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes
susceptible to potential negative rating action depending on the
extent of the decline in recoveries. Fitch conducted sensitivity
analysis by applying a 15% increase in the weighted average (WA)
foreclosure frequency (FF)and a 15% decrease in the WA recovery
rate (RR). The results indicate downgrades of two notches for the
class B and C notes, three notches for the class D notes and up to
five notches for the class E 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 potential
upgrades. Fitch tested an additional rating sensitivity scenario by
applying a decrease in the FF of 15% and an increase in the RR of
15%. The results indicate a two-notch upgrade for the class B
notes, three notches for the class C and D notes and up to four
notches for the class E notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Grosvenor Square RMBS 2023-1 PLC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
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.
HEATHROW FINANCE: Fitch Assigns 'BB+' Rating to Sr. Secured Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Heathrow Finance plc's (Holdco)
benchmark size GBP350 million senior secured notes (HY notes) a
long-term rating of 'BB+(EXP)' with Stable Outlook.
The new notes' rating is in line with that of Heathrow Finance's
outstanding notes, as they constitute direct, unconditional,
unsubordinated and secured obligations of the issuer and rank
equally among themselves. The notes are structurally subordinated
to Heathrow Funding Limited's (Opco) class A and class B bonds
(rated 'A-' and 'BBB', respectively).
The assignment of a final rating is subject to the receipt of final
documentation conforming to information already received by Fitch.
RATING RATIONALE
Fitch notches the HY notes' rating down from the consolidated group
profile, which includes Holdco, Opco and Opco's subsidiaries.
Holdco's full ownership of and dependency on the group, underlined
by the one-way cross-default provision with the group as well as
Holdco's covenants tested at the consolidated level, drive the
consolidated approach.
Fitch assesses the group's consolidated rating at 'BBB' and apply a
two-notch downward adjustment to arrive at Holdco's HY notes' 'BB+'
rating. The two-notch difference reflects the ring-fencing
structure in place at Opco, which may restrict distributions to
Holdco level, but also the existing buffer against the lock up
levels, as well as the security available to HY noteholders and the
high liquidity buffer available at Heathrow Finance plc.
For an overview of Heathrow 's credit profile, including key rating
drivers, see 'Fitch Revises Outlook on Heathrow Funding and
Heathrow Finance Notes to Stable; Affirms Ratings' dated 4 April
2023.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Projected Fitch net debt/EBITDA above 10.0x on a sustained basis at
consolidated group level or standalone liquidity at Holdco level at
below 24 months of debt service (principal and interest).
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Projected Fitch net debt/EBITDA below 9.0x on a sustained basis at
consolidated group level and standalone liquidity at Holdco level
at above 24 months of debt service (principal and interest).
TRANSACTION SUMMARY
The transaction is a placement of notes at Heathrow Finance plc for
refinancing purposes. Notes are secured by a pledge over the shares
of Heathrow (SP) Limited, which owns operational companies. The
notes are structurally subordinated to Heathrow Funding Limited's
bonds.
Summary of Financial Adjustments
Finance and operating leases are removed from financial
liabilities. Lease expenses are captured as an operating expense,
reducing EBITDA.
DATE OF RELEVANT COMMITTEE
03 April 2023
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
----------- ------
Heathrow Finance plc
Heathrow Finance
plc/Airport Revenues
- Subordinate/2 LT
GBP 350 mln bond/note LT BB+ New Rating
HIRETEST LIMITED: Goes Into Administration
------------------------------------------
Business Sale reports that Hiretest Limited, a specialist
groundworks contractor based in Watford, fell into administration
on March 11 after filing a Notice of Intention (NOI) to appoint
administrators earlier in the month.
Neil Bennett and Dane O'Hara of Leonard Curtis have been appointed
as joint administrators, Business Sale relates.
The company had been operating for more than 30 years and
specialised in reinforced concrete frame construction, in addition
to groundworks. As reported by industry publication Construction
Enquirer at the time the NOI was filed, the company did a
significant amount of work with Readie Construction, which fell
into administration in February 2024, Business Sale notes.
In Hiretest's most recent accounts at Companies House, the company
reported turnover of just over GBP28 million for the period from
December 1, 2020 to May 31, 2022, compared to GBP16.8 million for
the year covered by its previous accounts, Business Sale
discloses.
According to Business Sale, at the time, the company stated that
the period had been "dominated by the pandemic, the effects of
Brexit and inflation of labour, fuel and materials costs" which had
"combined to produce a difficult trading period", with one major
fixed price contract entered into prior to COVID-19 being
"especially badly affected."
As a result, the company's post-tax profits fell from GBP268,478 to
GBP23,157, Business Sale relays. At the time, its net assets were
valued at GBP3.2 million, Business Sale states.
JDL SUBCONTRACTING: Goes Into Administration
--------------------------------------------
Business Sale reports that a mechanical and electrical (M&E)
subcontractor based in York has fallen into administration.
JDL Subcontracting Ltd specialised in delivering large commercial
electrical contracts, primarily within the construction industry.
The business, which was originally named, and still traded as, JDL
Electrical, Plumbing & Heating, had been operating for around 17
years. Since being formed, the business split into two divisions:
JDL MEP, which covered commercial projects up to GBP1 million and a
small works department, providing plumbing, heating and electrical
services for the domestic market.
The company had two offices and employed more than 40 staff across
its two divisions, but had recently experienced a major downturn in
work, which exacerbated its existing debt burden.
On March 12, the company posted a notice of intention to appoint
administrators (NOI) and said that it had ceased trading, Business
Sale relates.
According to Business Sale, a statement from the company read:
"Unfortunately, it is with great sadness that, JDL Electrical,
Plumbing & Heating Ltd ceased trading."
"We will be unable to complete any outstanding works and would
recommend that you seek an alternative contractor to complete these
works."
Lee Lockwood and Gareth Harris of RSM Restructuring Advisory were
subsequently appointed as joint administrators on March 20,
Business Sale discloses.
"The business has closed due to a significant downturn in work,
combined with a historic debt burden, which was built up to keep
the company trading during the COVID pandemic," Business Sale
quotes joint administrator and RSM UK partner Lee Lockwood as
saying.
In its accounts for the year ending September 30 2022, the
company's fixed assets were valued at GBP508,793 and current assets
at slightly under GBP1 million, Business Sale states. However, the
company's debt burden was significant in the wake of the COVID-19
pandemic and, at that time its net liabilities amounted to
GBP76,873, Business Sale notes.
PEXION GROUP: Administrators Secure Six Rescue Deals
----------------------------------------------------
Business Sale reports that administrators have secured a number of
rescue deals after a Lancashire-headquartered group of
manufacturing and engineering businesses fell into administration.
Richard Harrison and Howard Smith from Interpath Advisory were
appointed as joint administrators to 14 companies in the Pexion
Group on March 19, with Harrison and Interpath's Stuart Irwin
appointed joint administrators of another subsidiary, Nitronica
Limited, the same day, Business Sale relates.
Pexion Group specialises in the design, development and manufacture
of high-specification precision, additive, subtractive, electronic
and fabricated components and sub-assemblies for a range of
high-tech industries, including the medical, automotive, aerospace
and general industrial sectors.
Over recent months, the group, which is comprised of parent company
Pexion Limited and 14 subsidiaries, had come under mounting
financial pressure from suppliers as a result of challenging
trading conditions, putting pressure on its liquidity position,
Business Sale discloses. Directors undertook a review of the
group's sale and restructuring options, but a solvent solution
could not be found, resulting in the appointment of administrators,
Business Sale states.
Immediately following their appointment, the joint administrators
secured six separate transactions to rescue 13 of Pexion Group's
operating subsidiaries, according to Business Sale. Overall, the
deals have saved 430 jobs at the group's sites across the UK,
Business Sale notes.
A company owned by Baaj Capital LLP has acquired Chorley-based
parent company Pexion Ltd, as well as Rictor Engineering Ltd (based
in Denton), Alan Gordon Engineering Ltd (based in Chorley), Paragon
Precision Ltd (based in Hull), SKN Electronics Limited (based in
Birmingham), HT Tooling Solutions Ltd (based in Manchester), Elite
Tooling Solutions Ltd (also based in Manchester) and Oxton
Engineering Ltd (based in Birkenhead), Business Sale discloses.
Amcomri Group Ltd has acquired Knaresborough-based Claro Precision
Engineering Limited and Hitchin-based Drurys Engineering Limited,
Business Sale relays. Nitronica Ltd, based in Ballynahinch,
Northern Ireland, has been sold to Hinchtech Ltd and Simtek EMS
Ltd, based in Margate to Westwood EMS Ltd., Business Sale notes.
Geometric Manufacturing Ltd has acquired Tewkesbury-based Precision
Engineering Pieces Ltd and Bryden Venture Engineering Limited has
acquired Clitheroe-based Clitheroe Light Engineering Ltd.,
according to Business Sale.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The Luckiest Guy in the World
----------------------------------------------
Author: Boone Pickens
Publisher: Beard Books
Paperback: US$34.95
Review by Gail Owens Hoelscher
Buy a copy for yourself and one for a colleague on-line at:
http://www.beardbooks.com/beardbooks/the_luckiest_guy_in_the_world.html
"This is the story of a man who turned a $2,500 investment into
America's largest independent oil company in thirty years and along
the way discovered that something is terribly wrong with corporate
America. Mesa Petroleum is the company, and I'm the man." Thus
begins the autobiography of Boone Pickens, who prefers to be
referred to without his first initial, "T."
Mr. Pickens' autobiography was originally published in 1987, at the
end of the rollercoaster years when he was one of the most famous
(or infamous, depending on your point of view) and most-feared
corporate raiders during a decade known for corporate raiding. For
the 2000 Beard Books edition, Pickens wrote an additional five
chapters about the subsequent, equally tumultuous, 13 years, during
which time he suffered corporate raiders of his own, recapitalized,
and retired, only to see his beloved company merge with Pioneer.
One of his few laments is being remembered mainly for the
high-profile years, rather than for the company he built from
virtually nothing.
Of the takeover attempts, he says:
"I saw undervalued assets in the public marketplace. My game plan
with Gul, Phillips, and Unocal wasn't to take on Big Oil. Hell,
that wasn't my role. My role was to make money for the stockholders
of Mesa. I just saw that Big Oil's management had done a lousy job
for their stockholders."
He would prefer to be known as a champion of the shareholder rights
movement, which prompted big corporations to become more responsive
to the needs and demands of their stockholders. He founded the
United Shareholders Association, a group that successfully lobbied
for changes in corporate governance. In a memorable interview in
the May/June 1986 Harvard Business Review, Pickens said, "Chief
executives, who themselves own few shares of their companies, have
no more feeling for the average stockholder than they do for
baboons in Africa."
Boone Pickens was born in 1928 in Holdenville, Oklahoma. His
grandfather was Methodist missionary to the Indians there; his
father was a lawyer and small player in the oil business. People in
Holdenville worked hard and used such expressions as "Root hog or
die," meaning "Get in and compete or fail."
The family later moved to Amarillo, Texas, where Pickens went to
Texas A&M for one year, but graduated from Oklahoma State
University in 1951 with a degree in geology. He worked at Phillips
Petroleum for three years, and then, despite growing family
obligations, struck out on his own. His wife's uncle told him,
"Boone, you don't have a chance. You don't know anything."
This book is a wonderful read. Pickens pulls no punches, and is as
hard on himself as anyone else. He talks about proxy fights,
Texas-Oklahoma football games, his three marriages, poker, takeover
strategies, and unfair duck hunting practices, all in the same easy
tone. You feel like he's sitting right there in the room with
you.
Pickens ends the introduction to this story with this:
"How I got from a little town in Eastern Oklahoma to the towers of
Wall Street is an exciting, unlikely, sometimes painful story. And,
if you're young and restless, I'm hoping you'll make a journey
similar to mine."
Root hog or die!
Thomas Boone Pickens Jr. -- https://boonepickens.com/ -- was an
American business magnate and financier. Among his lengthy
accolades, Time magazine has identified him one of it 100 most
influential people, Financial World named him CEO of the Decade in
1989 and Oil and Gas Investor identified him as one of the "100
Most Influential People of the Petroleum Century." He was born in
May 1928. He died September 11, 2019.
*********
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
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Information contained herein is obtained from sources believed to
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