/raid1/www/Hosts/bankrupt/TCREUR_Public/240405.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, April 5, 2024, Vol. 25, No. 70
Headlines
B E L G I U M
ONTEX GROUP: S&P Alters Outlook to Stable, Affirms 'B' ICR
D E N M A R K
TDC NET A/S: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
I R E L A N D
BBAM EUROPEAN IV: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
BOSPHORUS CLO IV: Moody's Affirms B1 Rating on EUR10.5MM F Notes
ROUNDSTONE SECURITIES 2: Fitch Assigns 'B+sf' Rating on Cl. F Notes
SOUND POINT 10: Fitch Assigns 'B-sf' Final Rating to Class F Notes
TORO EUROPEAN 9: S&P Assigns B- (sf) Rating to Class F Notes
TRINITAS EURO 1: Moody's Affirms B2 Rating on EUR9.5MM Cl. F Notes
L U X E M B O U R G
INTELSAT JACKSON: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
N E T H E R L A N D S
CREDIT EUROPE: Fitch Affirms 'BB-' LongTerm IDR, Outlook Positive
GLOBAL UNIVERSITY: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
MAGELLAN DUTCH: Moody's Cuts CFR & Senior Secured Term Loan to B3
SPINNAKER DEBTCO: Moody's Assigns B3 CFR, Rates New Sr Sec. Debt B3
R O M A N I A
[*] ROMANIA: Number of Insolvent Cos. Up 13.5% in Jan-Feb 2024
R U S S I A
KAPITAL SUGURTA: Fitch Assigns 'B' IFS Rating, Outlook Stable
S P A I N
HIPOCAT 11: Fitch Hikes Class B Notes Rating From 'CCsf'
S W E D E N
ANTICIMEX INC: S&P Rates $400MM First-Lien Term Loan Add-on 'B'
KLARNA HOLDING: S&P Affirms 'BB+/B' Issuer Credit Ratings
S W I T Z E R L A N D
SUNSHINE LUXEMBOURG: Moody's Upgrades CFR to Ba2, Outlook Stable
T U R K E Y
SASA POLYESTER: Fitch Affirms 'B' LongTerm IDR, Outlook Negative
TURKIYE WEALTH: Fitch Hikes LongTerm IDR to 'B+', Outlook Positive
YAPI VE KREDI: Fitch Puts Final 'CCC' Rating to AT1 Capital Notes
U N I T E D K I N G D O M
888 HOLDINGS: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable
BIDVEST GROUP (UK): Fitch Affirms 'BB' Sr. Unsec. Notes Rating
BUSINESS MORTGAGE 4: Fitch Affirms 'B-sf' Rating on Class B Notes
CARLTON FOREST: Collapses Into Administration
COM GROUP: Bought Out of Administration, 20+ Jobs Saved
KTWO SALES: Financial Difficulties Prompt Administration
LONDON CARDS NO.2: S&P Assigns Prelim 'CCC' Rating to Cl. X Notes
NOBLE CORP: S&P Upgrades ICR to 'BB-' on Strong Credit Metrics
S&J EUROPEAN: Goes Into Administration
SELINA HOSPITALITY: Five Proposals Passed at Shareholder Meeting
THAMES WATER: Fate Hinges on Two Chinese State-Backed Banks
X X X X X X X X
[*] BOOK REVIEW: The First Junk Bond
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B E L G I U M
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ONTEX GROUP: S&P Alters Outlook to Stable, Affirms 'B' ICR
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S&P Global Ratings revised its outlook on Ontex Group N.V. to
stable from negative and affirmed its 'B' issuer credit rating. S&P
also affirmed its 'B' issue rating on the EUR580 senior unsecured
notes due 2026 with a '3' (65%) recovery rating.
The stable outlook reflects S&P's view that volume growth and cost
discipline will support Ontex's S&P Global Ratings-adjusted EBITDA
margin growing to 9.0%-10.0% in 2024 and 10.5%-11.5% in 2025,
leading to a gradual improvement in free operating cash flow (FOCF)
generation and further deleveraging toward 4.0x in 2024 and
3.0x-3.5x in 2025.
S&P said, "Ontex's operating performance for 2023 outperformed our
base case and led to stronger-than-expected deleveraging, with S&P
Global Ratings adjusted debt to EBITDA of about 4.5x; we expect
deleveraging to continue. For fiscal 2023 (ending Dec. 31) the
company posted sales of about EUR2.34 billion, up about 10%
year-on-year on a like-for-like basis. Average annualized sales
prices were up 9%, despite some reductions in the retail channel in
the second half of 2023. The company's health care division (about
20% of total sales 2023) saw a positive price revision. Prices in
this business are generally slower to adapt to inflation due to
longer terms of agreement (up to three years). Ontex's 2023 S&P
Global Ratings-adjusted EBITDA margin increased to about 8.4%, up
from 4.6% the previous year, on continuous cost savings, input
costs normalizing from 2022 peaks, and sustained high prices. As a
result, S&P Global Ratings-adjusted leverage was about 4.5x at
year-end 2023, below our original expectation of about 5.0x. We
have revised our base case and now expect S&P Global
Ratings-adjusted net leverage to approach 4.0x in 2024 on improved
EBITDA and positive cash flow generation.
"For 2024 we expect annual reported revenues to be negatively
impacted by a change in company's perimeter in emerging markets. We
forecast group revenues (including discontinued operations) of
EUR2.15 billion-EUR2.20 billion in 2024, a 7.5%-8.0% decline from
2023 reflecting some disposals (Mexico, Pakistan, and Algeria). In
2023 the company completed the disposal of its Mexican operations
with a cash-in of EUR265 million, of which EUR40 million will be
received in the next four years. Cash proceeds were used to fully
repay a EUR220 million term loan due in June 2024. In third-quarter
2023, Ontex signed a nonbinding agreement for the sale of its
operations in Pakistan and Algeria. The company announced
completion of the Algeria divestments on April 2, 2024, for total
gross proceeds of EUR25 million. We expect the closing of the
disposal of Pakistan to happen in first-half 2024 and we anticipate
limited net cash proceeds.
"We also understand that the company will sell its other emerging
market operations, in Brazil and Turkey. While we do not have
sufficient clarity regarding the proceeds from these remaining
disposals, in our view the exclusion of emerging markets EBITDA
(about EUR22 million in 2023) will not materially affect its credit
ratios.
"We expect positive growth in North America will lead to 1%-2%
growth in core market revenues; cost savings should support
profitability expansion to 9%-10% in 2024.Overall, we think the
group's growth prospects are supportive given its nondiscretionary
product offering and focus on its private-label segment--which is
taking some market share as it appeals to more cost-conscious
consumers. We forecast core sales from North America and Europe
(10% and 67% of total sales in 2023) to increase 1%-2%
year-on-year, primarily driven by North America growing revenues by
an estimated 30%-40% year-on-year. This growth will stem mainly
from new contract gains and U.S. retailers expanding their private
label offerings. According to Euromonitor, the private label market
in North America remains materially underpenetrated with a share of
only 20%-25% in the retail adult incontinence, nappies, diapers,
and pants segments, compared to about 40% in Europe. In Europe, we
believe competition will remain challenging and we anticipate
retailers will increasingly negotiate with manufacturers on lower
pricing."
Ontex's EBITDA margin should expand to 9.0%-10.0% in 2024, from
8.4% in 2023, as it streamlines operations and inflation continues
to moderate. To support its margins, its cost transformation
program should generate EUR75 million-EUR85 million in savings for
full-year 2024. Savings will primarily come from procurement
activities, simplified operations, product engineering that uses
fewer raw materials, and reduced scrap volumes at plants.
S&P said, "Our 'B' rating factors in Ontex's limited track record
of positive FOCF generation and S&P Global Ratings expectation of
high nonrecurring costs. The company has a limited track record of
positive cash flow generation. During 2022 and 2023 annual reported
FOCF was minus EUR84.4 million and then positive EUR13 million,
respectively. For 2024 we anticipate Ontex will post positive FOCF
(including EUR20 million-EUR25 million additional factoring usage)
of EUR25 million-EUR30 million. Excluding the factoring
contribution, we estimate FOCF will be moderately positive. The
cash flow conversion will be supported by improved profitability
and better working capital management following stock-keeping unit
rationalization. However, we forecast annual capex to peak at
5.5%-6.0% of total sales in 2024 and 5.0%-5.5% in 2025 (up from
about 4.0% in 2023) mainly driven by ongoing capacity expansion in
North America and investments in Europe. We expect Ontex to incur
further material nonrecurring costs in 2024, linked to
restructuring and the change in perimeter. We expect these to be at
or slightly above EUR50 million, before declining significantly in
2025. In line with our methodology, we include these costs in the
S&P Global Ratings-adjusted EBITDA and operating cash flow.
"We foresee an improvement in the company's liquidity driven by
higher headroom under the existing covenant test on EUR243 million
revolving credit facility (RCF) maturing in 2025.We assess Ontex's
liquidity as adequate, based on our expectation of improved
headroom under its maintenance covenant. According to the covenant
test, Ontex's maximum leverage ratio should not exceed 3.60x in
June 2024 and 3.25x in December 2024, from 4.25x at year-end 2023.
In the past the company faced limited headroom, which it addressed
via cost-control and cash-management initiatives (postponing some
investment spending) as well as support from its main lenders,
including a covenant waiver in 2022. At year-end 2023 cash and cash
equivalents were about EUR168 million, while the RCF was undrawn
for EUR155 million. We do not expect any further drawing in the
short and medium terms.
"The stable outlook reflects our view that volume growth and cost
discipline will support Ontex's S&P Global Ratings-adjusted EBITDA
margin growing to 9.0%-10.0% in 2024 and 10.5%-11.5% in 2025,
leading to a gradual improvement in FOCF generation, and further
deleveraging toward 4.0x in 2024 and 3.5x in 2025.
"We could take a negative rating action if Ontex fails to generate
sustainably positive FOCF, with S&P Global Ratings-adjusted
leverage increasing materially above our base case. This could
happen amid stronger competition in Europe, higher-than-anticipated
one-off costs, and higher discretionary spending. We could also
consider a downgrade if we see a material reduction in the
maintenance covenant headroom.
"We could raise the rating on Ontex if it established a track
record of positive recurring annual FOCF, leading to FOCF to debt
of sustainably above 5%. Under this scenario, we would expect
adjusted leverage to remain well below 5x over the rating horizon.
This could happen if Ontex successfully executed its restructuring
plan, coupled with successful expansion in North America."
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D E N M A R K
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TDC NET A/S: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed TDC NET A/S's Long-Term Issuer Default
Rating (IDR) at 'BB' with a Stable Outlook. Fitch has also affirmed
TDC NET's senior secured notes rating at 'BBB-' with a Recovery
Rating of 'RR2'.
The affirmation follows the update of TDC NET's business plan, with
an intensified roll-out and fibre activation plan, supporting the
company's market position in its core concession areas, reducing
new entry risk in the Copenhagen area. However, rating headroom is
now exhausted, with financial flexibility and the capital structure
under additional pressure from an intensified capex programme, and
Fitch-forecast free cash flow (FCF) and cash from operations
(CFO)-capex/total debt remaining negative through 2028.
The Stable Outlook reflects Fitch's expectations of continued
steady operating performance so that the company will remain within
the stated sensitivities for the 'BB' IDR over the next two years.
It also reflects DKK1.85 billion of cash as of end-2023 to
part-fund the fibre roll-out, and the levers available to the
company to manage its capital structure within its targeted
financial policy.
KEY RATING DRIVERS
Fibre Roll-Out Strengthens Business Profile: Intensified fibre
roll-out and activation capex in TDC NET's key concession area,
Copenhagen, will strengthen the company's competitive position and
reduce the likelihood of new entrants. Fibre penetration in the
Copenhagen area is low at just above 50% of homes (as per 2023),
compared with regions where Norlys and Fibia have significant
market power, such as Jutland and Zeeland, where fibre penetration
is closer to 85%.
Capital Structure Weakly Positioned at 'BB': While EBITDA leverage
- forecast at 6.0x in 2024-2028 - remains within the sensitivities
for the 'BB' IDR, Fitch forecasts cash flow leverage (defined as
CFO-capex/total debt) will remain negative through 2028 owing to
large capex and increasing cash interest. Negative FCF in 2024-2026
will be funded by cash that was left on the balance sheet at
end-2023.
Financial Flexibility, Exhausted Rating Headroom: Higher interest
rates have raised TDC NET's underlying funding costs, and
significantly eroded its cash flow in its forecasts. This weighs on
FCF, which is already under pressure from high capex related to its
fibre rollout and maintenance capex.
The intensity of the fibre roll-out and fibre activation programme
reduces in 2027-2028. However, this will be offset by increasing
interest rates as the interest rate swap portfolio, executed at low
rates in 2022, matures over 2026-2029. Consequently, Fitch expects
the FCF margin to remain negative at between -2% and -3% by 2028.
With gradually increasing cash interest, Fitch forecasts
Fitch-defined EBITDA interest coverage to fall below 3.0x in 2028
from 3.9x in 2023.
Levers to Manage Capital Structure: Fitch forecasts reducing
financial flexibility across 2024-2028, with continued negative
cash flow leverage and Fitch-defined EBITDA interest cover
potentially reaching the thresholds for the 'BB' rating by 2028.
This could drive negative rating action at least 18-24 months
before a forecast event. However, Fitch understands that the
company has levers to manage its capital structure within its
targeted financial policy. Fitch will continue to benchmark cash
flow leverage, FCF generation and interest cover metrics as the
company executes on its business plan.
Strong Market Positions: TDC NET has leading market positions in
Denmark in both the mobile- and broadband segments, with subscriber
shares of about 40% and 44% (high and low-speed broadband),
respectively. This is underpinned by the number one position of its
anchor customer, Nuuday, in these two segments. TDC NET operates an
open access model in fixed broadband, with around 70% of 2023
revenue from Nuuday. Fitch expects network-quality leadership and a
focus on further improvements to allow TDC NET to protect its
market share in the long term.
Limited Mobile Commercial Risk: Fitch believes that a major part of
TDC NET's mobile revenue is protected from commercial risk. The
majority of mobile revenue relies on flat-fee, long-term agreements
with Nuuday based on network capacity usage. The dependence on
Nuuday as an anchor tenant is currently contained by limited
alternative network providers and finite spectrum availability. The
only viable alternative, TT network (the network joint venture of
Telenor and Telia, soon to be acquired by Norly), does not have the
necessary capacity or spectrum for a third mobile operator,
especially one as large as Nuuday.
Less Fixed-Line Visibility: Fixed-network revenue has less
visibility due to competition from alternative network providers,
predominantly in fibre. The Danish broadband market is regional,
with extensive fibre rollouts by utilities on a regional basis,
outside of TDC NET's key concession area in the Copenhagen region.
TDC NET's main competitive areas are those where its high-speed
broadband overlaps with utilities' fibre networks. The company says
less than 10% of its fibre has been overbuilt by competitors'
fibre, but Fitch expects that a relatively large share of the
company's coax network is overbuilt by competitors' fibre in the
regional parts outside TDC NET's key concession area. Its strategy
to overbuild with fibre primarily its own infrastructure, and in
particular coax cable, should make a rollout by competitors of
duplicating networks in TDC NET's key concession areas economically
unjustifiable.
Increased Broadband Price Flexibility: TDC NET is appointed as
having significant market power by regulators for high-speed
services in the Copenhagen region, as well as three other areas
across Denmark. In the remaining deregulated regions, primarily the
western part of Denmark, the company will be able to compete with
coax on both price and network connection speed. TDC NET's
low-speed products will continue to be nationally regulated.
Parent-Subsidiary Linkage: Fitch rates TDC NET on a standalone
basis under its Parent and Subsidiary Linkage (PSL) Rating
Criteria, where Fitch has taken the 'stronger subsidiary and weaker
parent' approach. Fitch assesses legal ringfencing as 'insulated'
as the long-dated established financing platform is explicitly
designed to support the subsidiary's profile. Fitch assesses the
likelihood of a change-of-control event in TDC NET's term-debt
documentation (not present in the common terms) by acceleration of
share pledges in DK Tele as low. Access and control are assessed as
'porous', as the company has high autonomy over funding and
liquidity while the parent ultimately controls the board.
DERIVATION SUMMARY
Fitch primarily compares TDC NET's operating profile with that of
Fitch-rated telecom infrastructure peers.
Czech Republic-based telecom infrastructure company CETIN a.s.
(Parent CETIN Group N.V.; BBB/Rating Watch Negative) is one of TDC
NET's closest peers. The companies have similar operating profiles
in the mobile segment, but TDC NET has a stronger competitive
position in fixed line. TDC NET benefits from a more mature market
with limited infrastructure overlap, unlike CETIN. It therefore has
lower investment risk of fibre rollout, as it primarily targets
building out its own infrastructure, rolling out fibre where it
already has coax or copper.
Fitch views TDC NET's overall operating profile as stronger than
that of CETIN due to TDC NET's significant EBITDA contribution from
its stronger broadband segment. However, CETIN has a stricter
financial policy with stronger FCF and significantly lower
leverage, which contributes to the rating differential.
In the fixed line segment, Fitch compares TDC NET with the
Australian fibre wholesales NBN Co Limited (AA+/Stable). NBN's
rating benefits from its dominant market position in the wholesale
local-access broadband segment and its growing revenue base. These
strong structural business characteristics justify higher leverage
tolerance for the same rating. Nevertheless, TDC NET and CETIN are
more diversified than NBN in technology terms due to strong
positions in the mobile segment, leaving them less exposed to
technology risk, such as fixed technology being replaced by 5G.
European tower companies Cellnex Telecom S.A. (BBB-/Stable) and
Infrastrutture Wireless Italiane S.p.A. (INWIT; BBB-/Stable) have
stronger operating profiles than TDC NET and CETIN. They benefit
from high visibility and stability of rental income based on
passive infrastructure and indexation-linked contracts (in many
cases with energy cost pass-through), greater visibility over capex
returns and lower risk of technology obsolescence. TDC NET's
ownership of active infrastructure and spectrum in the mobile
segment, with dependence on take-up rates in broadband, makes its
risk profile closer to that of integrated telecoms, leading to
tighter leverage thresholds compared with Cellnex and INWIT.
TDC NET and its peer group have a higher debt capacity than
integrated telecoms and asset-light operators. They benefit from
stronger earning visibility due to long-term contracts with
operators in the mobile segment, and are mainly indifferent as to
the service companies with which they work. The retail arm of
integrated telecoms typically carries the commercial risk related
to volume, price and competition. There is stiff competition in the
fixed-line segment, and less revenue visibility owing to reliance
on broadband take-up rates.
KEY ASSUMPTIONS
Fitch's Key Assumptions within Its Rating Case for the Issuer
- Largely neutral to slightly positive revenue growth in 2024-2028
- Fitch-defined EBITDA margin (including recurring cost saving
charges, or 'special items' of DKK50 million per year) to remain
around 64.8% across 2024-2028
- Capex to decline towards 40% of revenue in 2028 from 53.9% in
2024
- Working-capital inflow of around DKK65 million in 2024, and
thereafter outflows at about 1.0% of revenue in 2025-2028
- DKK400 million of debt repayment in 2024, funded by cash on
balance
- DKK200 million of RCF drawings in 2027 and 2028 respectively to
fund cash outflows
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA net leverage below 5.2x on a sustained basis
- Sustainable competitive positions in both the mobile and
fixed-line segments
- Sustained low-to-mid single-digit cash flow from operations (CFO)
less capex/total debt
- EBITDA interest coverage sustained at above 4x
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA net leverage above 6.2x on a sustained basis
- Lower-than-expected take-up rates for broadband as well as
deterioration in Nuuday's market position, resulting in pressure on
the fixed-line segment
- Intensified competition with utility companies or alternative
providers in high-speed broadband
- Expectations of sustained negative CFO less capex/total debt or
negative FCF beyond the fibre-rollout programme, or reliance on
additional debt incurrence to fund negative FCF
- EBITDA interest coverage structurally below 3x
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: TDC NET had DKK1.85 billion of cash on
balance at end-2023. Its undrawn EUR350 million (DKK2.6 billion)
revolving credit facility (RCF) remains available to cover
intra-year working capital swings. In addition, it has undrawn
dedicated liquidity facilities including a EUR155 million debt
service reserve (DSR) liquidity facility covering at least 12
months of scheduled debt service and a EUR75 million operating and
capex reserve (OCR) facility covering at least 10% of the coming 12
months of scheduled opex and capex.
Owing to large capex and fibre rollout with significant interest
payments, Fitch forecasts negative FCF over the next five years, to
be funded by cash on balance as per end-2023 and additional RCF
drawings in 2027-2028.
Debt Structure: The company's capital structure consists of EUR1.5
billion of senior secured notes (matures in 2028, 2030 and 2031),
EUR1.55 billion of term loan facilities (TFA and TFB; maturing in
2025 and 2027 respectively), and EUR340 million equivalent of
bilateral facilities (excluding the RCF and the DSR and OCR
facilities).
The DSR and OCR facilities rank super senior to the senior secured
notes, term loans and bilateral facilities. All of the company's
senior secured debt is governed under common terms including
triggering events locking up distributions as well a financial
maintenance covenants.
Fitch expects a well spread maturity profile and at least 80%
hedged interest rate exposure in line with the secured debt
documentation. There are links between holdco debt in DK Tele and
TDC NET's debt structures, as enforced share pledges under DK
Tele's debt could lead to a mandatory prepayment under TDC NET's
term loans (not present under the common terms).
ISSUER PROFILE
TDC NET is the network company of the TDC Group and owns the mobile
network, copper network and the majority of cable network in
Denmark covering 48% of Danish households in the fixed broadband
market.
It is ultimately controlled by Macquarie Infrastructure and Real
Assets (50%) and three Danish pension funds (PFA, PKA and ATP).
Criteria Variation
Fitch rates the senior secured debt two notches above TDC NET's IDR
of 'BB' at 'BBB-'/'RR2'. This treatment constitutes a criteria
variation from Fitch's Corporates Recovery Ratings and Instrument
Ratings Criteria under which the potential notching up for the
senior secured debt of 'BB' rated corporates in Europe is
constrained to only one notch, alongside Recovery Rating being
capped at 'RR2' (except for asset-backed loan facilities and
super-senior RCFs).
The deviation reflects its expectation of strong recovery prospects
for the senior secured debt, due to high-value collateral, strong
underlying infrastructure business characteristics and
credit-protection mechanisms, with dedicated facilities preventing
liquidity risk and reducing refinancing risks.
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
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TDC NET A/S LT IDR BB Affirmed BB
senior secured LT BBB- Affirmed RR2 BBB-
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I R E L A N D
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BBAM EUROPEAN IV: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
------------------------------------------------------------------
Fitch Ratings has assigned BBAM European CLO IV DAC final ratings,
as detailed below.
Entity/Debt Rating
----------- ------
BBAM European
CLO IV DAC
A Loan LT NRsf New Rating
A Notes XS2719261625 LT NRsf New Rating
B-1 XS2719261898 LT AAsf New Rating
B-2 XS2719261971 LT AAsf New Rating
C XS2719262193 LT Asf New Rating
D XS2719262276 LT BBB-sf New Rating
E XS2719262359 LT BB-sf New Rating
F XS2719262433 LT B-sf New Rating
Subordinated Notes
XS2719262516 LT NRsf New Rating
X XS2756379041 LT AAAsf New Rating
TRANSACTION SUMMARY
BBAM European CLO IV DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds were used to fund a portfolio with a target par of EUR375
million. The portfolio is actively managed by RBC Global Asset
Management (UK) Limited. The CLO has a 4.6-year reinvestment period
and an 8.5-year weighted average life test (WAL), with an option to
extend the WAL by one year after closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch considers the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor of the identified portfolio is
24.5.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 64.3%.
Diversified Asset Portfolio (Positive): The transaction also
includes various other concentration limits, including the maximum
exposure to the three largest Fitch-defined industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has four matrices:
two effective at closing with fixed-rate limits of 10% and 1.5%,
and two one year post-closing (or two years if the WAL steps up one
year post closing) with fixed-rate limits of 1.5% and 10%. All four
matrices are based on a top-10 obligor concentration limit of 20%.
The closing matrices correspond to an 8.5-year WAL test while the
forward matrices correspond to a 7.5 year WAL test.
The switch to the forward matrices is subject to the aggregate
collateral balance (defaults at Fitch collateral value) being at
least at the target par. The transaction has reinvestment criteria
governing the reinvestment similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash-flow Modelling (Positive): The WAL used for the transaction's
stress portfolio analysis is 12 months less than the WAL covenant
at the issue date (subject to a floor of six years), to account for
the strict reinvestment conditions envisaged by the transaction
after its reinvestment period. These include, among others, passing
the coverage tests and the Fitch 'CCC' bucket limitation test post
reinvestment, as well as a WAL covenant that progressively steps
down over time, both before and after the end of the reinvestment
period. Fitch believes these conditions would reduce the effective
risk horizon of the portfolio during the stress period.
ESG Scores: Fitch does not provide ESG relevance scores for BBAM
European CLO IV DAC. In cases where Fitch does not provide ESG
relevance scores in connection with the credit rating of a
transaction, programme, instrument or issuer, Fitch will disclose
in the key rating drivers any ESG factor which has a significant
impact on the rating on an individual basis. For more information
on Fitch's ESG Relevance Scores, visit the Fitch Ratings ESG
Relevance Scores page.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to downgrades of one notch for
the class B and D notes, to below 'B-sf' for the class F notes and
have no impact on the class A, C and E notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B to F notes have a rating
cushion of two notches. The class A notes have no rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would lead to downgrades of up to
four notches for the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to four notches, except for
the 'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, meaning the notes
are able to withstand larger-than-expected losses for the
transaction's remaining life. After the end of the reinvestment
period, upgrades may occur on stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
BBAM European CLO IV DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
BOSPHORUS CLO IV: Moody's Affirms B1 Rating on EUR10.5MM F Notes
----------------------------------------------------------------
Moody's Ratings has upgraded the ratings on the following notes
issued by Bosphorus CLO IV Designated Activity Company:
EUR25,700,000 Class C Secured Deferrable Floating Rate Notes due
2030, Upgraded to Aa1 (sf); previously on Mar 29, 2022 Upgraded to
Aa3 (sf)
EUR21,000,000 Class D Secured Deferrable Floating Rate Notes due
2030, Upgraded to A2 (sf); previously on Mar 29, 2022 Upgraded to
Baa1 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR246,000,000 (Current outstanding amount EUR113,291,112) Class A
Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously
on Mar 29, 2022 Affirmed Aaa (sf)
EUR31,550,000 Class B-1 Secured Floating Rate Notes due 2030,
Affirmed Aaa (sf); previously on Mar 29, 2022 Upgraded to Aaa (sf)
EUR10,000,000 Class B-2 Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Mar 29, 2022 Upgraded to Aaa (sf)
EUR26,900,000 Class E Secured Deferrable Floating Rate Notes due
2030, Affirmed Ba2 (sf); previously on Mar 29, 2022 Affirmed Ba2
(sf)
EUR10,500,000 Class F Secured Deferrable Floating Rate Notes due
2030, Affirmed B1 (sf); previously on Mar 29, 2022 Upgraded to B1
(sf)
Bosphorus CLO IV Designated Activity Company, issued in May 2018,
is a collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio was
originally managed by Commerzbank AG, London Branch and since
December 2021 it is managed by Cross Ocean Adviser LLP. The
transaction's reinvestment period ended in June 2022.
RATINGS RATIONALE
The rating upgrades on the Class C and Class D notes are primarily
a result of the deleveraging of the Class A notes following
amortisation of the underlying portfolio since the last review in
July 2023.
The affirmations on the ratings on the Class A, Class B-1, Class
B-2, Class E and Class F notes are primarily a result of the
expected losses on the notes remaining consistent with their
current rating levels, after taking into account the CLO's latest
portfolio, its relevant structural features and its actual
over-collateralisation ratios.
The Class A notes have paid down by approximately EUR83.84 million
(34.08%) since the last review in July 2023 and EUR132.71million
(53.95%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the trustee report dated March 2024 [1] the
Class A/B, Class C, Class D, Class E and Class F OC ratios are
reported at 162.11%, 141.34%, 127.94%, 114.09% and 109.46% compared
to June 2023 [2] levels of 140.67%, 128.26%, 119.63%, 110.14% and
106.83%, respectively. Moody's notes that the March 2024 and the
June 2023 principal payments are not reflected in the reported OC
ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile and
higher spread levels than it had assumed at the last review in July
2023.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR260.45m
Defaulted Securities: EUR3.0m
Diversity Score: 44
Weighted Average Rating Factor (WARF): 3000
Weighted Average Life (WAL): 3.55 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.76%
Weighted Average Coupon (WAC): 3.83%
Weighted Average Recovery Rate (WARR): 44.62%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
ROUNDSTONE SECURITIES 2: Fitch Assigns 'B+sf' Rating on Cl. F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Roundstone Securities No.2 DAC (RS No.2)
final ratings, as detailed below.
Entity/Debt Rating Prior
----------- ----- -----
Roundstone Securities
No.2 DAC
A XS2779836308 LT AAAsf New Rating AAA(EXP)sf
B XS2779836480 LT AAsf New Rating AA(EXP)sf
C XS2779836647 LT Asf New Rating A(EXP)sf
D XS2779836993 LT BBBsf New Rating BBB(EXP)sf
E XS2779837025 LT BBsf New Rating BB(EXP)sf
F XS2779837298 LT B+sf New Rating B+(EXP)sf
R XS2779837702 LT NRsf New Rating NR(EXP)sf
Z XS2779837371 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
RS No.2 is a securitisation of first-lien Irish residential owner
occupied (OO; 78%) and buy-to-let (BTL; 22%) mortgage assets
originated prior to 2010 by Bank of Scotland Ireland. The pool was
previously securitised in Roundstone No.1 DAC, which was not rated
by Fitch.
KEY RATING DRIVERS
Restructured Loan Portfolio: The portfolio contains a material
proportion of loans that are subject to forbearance and
restructuring arrangements (19%) as well as a worse-than-the sector
historical performance. This led Fitch to apply an originator
adjustment of 1.2x to capture a potential performance variation not
already captured in the 'Bsf' weighted average (WA) foreclosure
frequency (FF). As a result of applying higher 'Bsf' FF
assumptions, lower stress multiples were applied to ensure FF
assumptions at higher rating levels are not overstated and remain
stable throughout the life of the transaction.
The borrowers in the pool have an average pay rate of around 110%
of the monthly payment due since October 2017. Borrowers that have
undergone a restructuring have exhibited a more volatile pay rate
month-on-month, but the average pay rate over this period is around
113%.
High IO Exposure: The pool contains around 62% (by current balance)
of interest-only (IO), split between 41% OO and 21% BTL loans.
Fitch sees a material risk of prolonged forbearance for OO
borrowers and non-paying BTL IO borrowers if bullet payments are
not met at loan maturity. Fitch believes this is most likely to
materialise for older borrowers with higher loan-to-value (LTV)
ratios, and Fitch has therefore assumed no yield from IO loans with
an indexed current- LTV greater than 60% and to borrowers aged 60
years or older at loan maturity.
Unhedged ECB Base Rate Exposure: Close to 100% of the pool tracks
the ECB base rate with a WA margin of around 1.1%. There will be no
swap in place to hedge the mismatch between the ECB base
rate-linked assets and Euribor-linked notes, exposing the
transaction to basis risk. Fitch has therefore applied its basis
risk assumptions for this exposure in line with its European RMBS
Rating Criteria.
Class F Notes Below MIR: The transaction's rising arrears trend
implies collateral performance may worsen and excess spread be
further depressed. Fitch accounted for this in its analysis by
assuming an increased front-loading of defaults of borrowers
currently in arrears by one month and more. Fitch has therefore
assigned the class F notes' rating at one notch below its
model-implied rating (MIR).
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 the economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
(CE) available to the notes
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain notes susceptible to
negative rating action depending on the extent of the decline in
recoveries. Fitch found that a 15% increase in the WAFF and a 15%
decrease in the WA recovery rate (RR) indicate downgrades of four
notches for the class C and E notes and three notches for the
remaining 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 upgrades. Fitch
found a decrease in the WAFF of 15% and an increase in the WARR of
15% indicate upgrades of one notch for the class B notes, up to two
notches for the class C notes, up to three notches for the class D
and E notes and up to four notches for the class F 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
Roundstone Securities No.2 DAC
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.
DATE OF RELEVANT COMMITTEE
19 March 2024
SOUND POINT 10: Fitch Assigns 'B-sf' Final Rating to Class F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Sound Point Euro CLO 10 Funding DAC
final ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Sound Point Euro
CLO 10 Funding DAC
A XS2751619771 LT AAAsf New Rating AAA(EXP)sf
B XS2751619938 LT AAsf New Rating AA(EXP)sf
C XS2751620431 LT Asf New Rating A(EXP)sf
D XS2751620605 LT BBB-sf New Rating BBB-(EXP)sf
E XS2751620860 LT BB-sf New Rating BB-(EXP)sf
F XS2751620944 LT B-sf New Rating B-(EXP)sf
Subordianted Notes
XS2751621249 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Sound Point Euro CLO 10 Funding DAC is a securitisation of mainly
senior secured obligations (at least 90%) with a component of
senior unsecured, mezzanine, second-lien loans and high-yield
bonds. Note proceeds have been used to fund a portfolio with a
target par of EUR450 million. The portfolio is actively managed by
Sound Point CLO C-MOA, LLC. The CLO has a 5.1-year reinvestment
period and an 8.1-year weighted average life test (WAL) at closing,
which can be extended by one year, at any time, from one year after
closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch considers the
average credit quality of obligors at 'B'/'B-' category. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 25.6.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate of the identified portfolio is
61.9%.
Diversified Asset Portfolio (Positive): The transaction has a
concentration limit for the 10 largest obligors of 20%. The
transaction also includes various concentration limits, including
the maximum exposure to the three largest Fitch-defined industries
in the portfolio at 40%. These covenants ensure the asset portfolio
will not be exposed to excessive concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year, to 9.1 years, on the step-up date, which can be one
year after closing at the earliest. The WAL extension is at the
option of the manager but subject to conditions, including the
collateral quality tests and the reinvestment target par, with
defaulted assets at their collateral value.
Portfolio Management (Neutral): The transaction has a 5.1-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
The transaction includes six Fitch matrices. Two effective at
closing corresponding to an 8.1-year WAL and two effective at
closing corresponding to a 9.1-year WAL. For each WAL there can be
two different fixed rate asset limits (7.5% and 12.5%). Another two
matrices are effective two years after closing, corresponding to a
7.1-year WAL with a target par condition at EUR450 million and
EUR447.5 million, respectively.
Cash Flow Modelling (Neutral): The WAL used for the transaction's
stress portfolio analysis is 12 months less than the WAL covenant
at the issue date, to account for the strict reinvestment
conditions envisaged by the transaction after its reinvestment
period. These include, among others, passing the coverage tests,
the Fitch WARF and the Fitch 'CCC' bucket limitation test post
reinvestment, as well as a WAL covenants that progressively step
down over time, both before and after the end of the reinvestment
period. Fitch believes these conditions would reduce the effective
risk horizon of the portfolio during the stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A notes
and would lead to downgrades of one notch for the class B to E
notes and to below 'B-sf' for the class F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Owing to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B to F notes show a rating
cushion of up to three notches. The class A notes display no rating
cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase in the mean RDR
across all ratings, and a 25% decrease in the RRR across all the
ratings of the Fitch-stressed portfolio, would lead to downgrades
of up to four notches for the class A to D notes and to below
'B-sf' for the class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction in the mean RDR across all ratings and a 25%
increase in the RRR across all the ratings of the Fitch-stressed
portfolio would lead to an upgrade of up to three notches for the
rated notes, except for the 'AAAsf' rated notes, which are at the
highest level on Fitch's scale and cannot be upgraded.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the remaining life of
the transaction. After the end of the reinvestment period, upgrades
may occur on stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread to cover
losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Sound Point Euro
CLO 10 Funding DAC. In cases where Fitch does not provide ESG
relevance scores in connection with the credit rating of a
transaction, programme, instrument or issuer, Fitch will disclose
in the key rating drivers any ESG factor which has a significant
impact on the rating on an individual basis.
TORO EUROPEAN 9: S&P Assigns B- (sf) Rating to Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned its ratings to Toro European CLO 9
DAC's class A to F European cash flow CLO notes. At closing, the
issuer also issued 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 permanently switch to semiannual payments.
The portfolio's reinvestment period ends approximately 4.6 years
after closing, and its non-call period ends 2.1 years after
closing.
The 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 is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,756.93
Default rate dispersion 601.76
Weighted-average life (years) 4.49
Weighted-average life (years) extended
to cover the length of the reinvestment period 4.55
Obligor diversity measure 119.87
Industry diversity measure 20.26
Regional diversity measure 1.29
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.25
Target 'AAA' weighted-average recovery (%) 38.36
Target weighted-average spread (net of floors; %) 4.37
Target weighted-average coupon (%) 4.59
Rationale
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. The portfolio is well-diversified as of the closing date,
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."
The issuer expects to purchase around 20% of the effective date
portfolio from a secured special-purpose vehicle (SPV) selling
institution. These assets are subject to participations. The
transaction documents require that the issuer and the secured SPV
use commercially reasonable efforts to elevate the participations
by transferring to the issuer the legal and beneficial interests in
such assets as soon as reasonably practicable. No further
participations may be entered into from the closing date.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the covenanted weighted-average spread (4.15%),
the covenanted weighted-average coupon (4.50%), and the covenanted
weighted-average recovery rates at all rating levels, as indicated
by the collateral manager. We applied various cash flow stress
scenarios, using four different default patterns, in conjunction
with different interest rate stress scenarios for each liability
rating category.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to F notes benefits from
break-even default rate and scenario default rate cushions that we
would typically consider commensurate with higher ratings than
those assigned. However, as the CLO is still in its reinvestment
phase, during which the transaction's credit risk profile could
deteriorate, we have capped our ratings assigned to the notes. The
class A notes can withstand stresses commensurate with the assigned
ratings.
"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.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote. The issuer is a special-purpose entity that meets our
criteria for bankruptcy remoteness.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to 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 A to E notes
based on four hypothetical scenarios.
"As our ratings analysis makes 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 it will be managed by Chenavari
Credit Partners LLP.
Ratings
AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT
(%)
A AAA (sf) 240.00 3mE +1.65% 40.00
B AA (sf) 48.00 3mE +2.50% 28.00
C A (sf) 26.00 3mE +3.35% 21.50
D BBB- (sf) 28.00 3mE +4.50% 14.50
E BB- (sf) 18.00 3mE +6.98% 10.00
F B- (sf) 12.00 3mE +8.46% 7.00
Sub NR 37.50 N/A N/A
*The ratings assigned to the class A and B notes address timely
interest and ultimate principal payments. The ratings assigned to
the class C to 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.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
TRINITAS EURO 1: Moody's Affirms B2 Rating on EUR9.5MM Cl. F Notes
------------------------------------------------------------------
Moody's Ratings has upgraded the ratings on the following notes
issued by Trinitas EURO CLO 1 Designated Activity Company:
EUR35,000,000 Class B Senior Secured Floating Rate Notes due 2032,
Upgraded to Aa1 (sf); previously on Nov 6, 2019 Definitive Rating
Assigned Aa2 (sf)
EUR21,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to A1 (sf); previously on Nov 6, 2019
Definitive Rating Assigned A2 (sf)
EUR24,500,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to Baa2 (sf); previously on Nov 6, 2019
Definitive Rating Assigned Baa3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR217,000,000 Class A Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Nov 6, 2019 Definitive
Rating Assigned Aaa (sf)
EUR17,500,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Nov 6, 2019
Definitive Rating Assigned Ba2 (sf)
EUR9,500,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2032, Affirmed B2 (sf); previously on Nov 6, 2019 Definitive
Rating Assigned B2 (sf)
Trinitas EURO CLO 1 Designated Activity Company, issued in November
2019, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by WhiteStar Asset Management LLC. The
transaction's reinvestment period will end in April 2024.
RATINGS RATIONALE
The rating upgrades on the Class B, C and D notes are primarily a
result of the benefit of the shorter period of time remaining
before the end of the reinvestment period in April 2024.
The affirmations of the ratings on the Class A, E and F notes are
primarily a result of the expected losses on the notes remaining
consistent with their current rating levels, after taking into
account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralisation ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile than it
had previously assumed.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR350.05m
Defaulted Securities: none
Diversity Score: 63
Weighted Average Rating Factor (WARF): 2812
Weighted Average Life (WAL): 4.15 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.90%
Weighted Average Coupon (WAC): 4.76%
Weighted Average Recovery Rate (WARR): 44.51%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
-- Portfolio amortisation: Once reaching the end of the
reinvestment period in April 2024, the main source of uncertainty
in this transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
===================
L U X E M B O U R G
===================
INTELSAT JACKSON: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has upgraded the Long-Term Issuer Default Ratings
(IDRs) of Intelsat S.A. and Intelsat Jackson Holdings S.A.
(collectively, Intelsat) to 'BB-'. The Rating Outlook is Stable.
Fitch has also affirmed Intelsat Jackson Holdings' $500 million
super priority revolving facility at 'BB+'/'RR1' and $3 billion
senior notes at 'BB+'/'RR2'. The recovery rating for the senior
notes is lowered to 'RR2' from 'RR1' based on the notching
framework under Fitch's Corporates Recovery Rating and Instrument
Rating criteria.
The upgrade reflects a significant decline in EBITDA leverage to
the mid-3x range from close to 6x in FY22, following a material
debt reduction in 2023. Fitch expects EBITDA leverage to sustain
below 3.5x over the rating horizon in line with management's
commitment to sustain net leverage below 3.0x.
The rating also reflects Intelsat's leading scale, increased
financial flexibility and elimination of execution risk around
C-Band clearing efforts and receipt of accelerated relocation
payments and related reimbursements. Concerns include secular
pressure on legacy revenues and increased low earth orbit
competition.
KEY RATING DRIVERS
Scale and Contractual Revenue Benefits: Intelsat is one of the
largest fixed satellite service (FSS) operators, with a fleet of 57
satellites providing service on a global basis. The company's
revenue is derived from customers in media, mobility, network
services and government. Intelsat's backlog, which provides some
insight into future revenues, was $4.4 billion at Dec. 31, 2023.
Deleveraging Ahead of Schedule: The rating upgrade incorporates the
company's commitment to maintain net leverage below 3x and
achievement of this target in late 2023 (ahead of schedule) when it
received $3.7 billion in accelerated relocation payments (ARPs)
associated with Phase II of clearing its C-Band spectrum, and used
the proceeds to repay then outstanding approximately $2.8 billion
of the term loan in full.
The receipt of ARPs and related reimbursements (additional $1.2
billion) eliminated the earlier execution risk of major U.S.
wireless carriers acquiring C-Band spectrum not fulfilling their
obligation to make clearing payments, and receipt of all payments.
Intelsat received the $1.2 billion of ARPs associated with Phase I
of the clearing plan in December 2021 and January 2022.
The FCC's final order for the C-Band auction provided for ARPs to
all C-band operators of up to $9.7 billion, of which Intelsat
received $4.87 billion, in two tranches in 2022 (approximately $1.2
billion was received) and 2023 (approximately $3.7 billion was
received ahead of schedule). The order also provided for cost
reimbursements of approx. $1.7 billion ($1.2 billion received to
date).
Increased Financial Flexibility: The company's financial
flexibility is enhanced materially due to significant debt
reduction, lower leverage and increased cash levels. Fitch has not
assumed further debt reduction, and expects EBITDA leverage near
mid-3x; however, net leverage is expected to be significantly lower
given strong liquidity with over $1 billion of cash levels and full
availability of the revolver over its rating horizon. (CFO-Capex)/
Debt is projected to average in the low to mid-single digits over
the rating forecast.
Stable Revenue and EBITDA Profile: Intelsat has experienced secular
pressure on certain revenue streams, particularly the media and
network business, while the government business has been relatively
stable. Fitch expects the mobility business, particularly the
commercial aviation business, to be a significant driver of growth,
potentially offsetting pressures in other areas of the business.
The company posted two years of organic revenue growth in 2022 and
2023.
EBITDA margins have declined over the last few years given the
addition of the commercial aviation (CA) business (acquisition of
Gogo's CA business in Dec 2020) and expansion of managed services
in the product portfolio. The opportunity to expand margins from
current levels will arise as Intelsat consolidates capacity onto
its own satellites, including new software defined satellites.
Manageable Satellite Launch Program: Intelsat's post emergence
business plan incorporates additional satellites beyond the seven
satellites that were needed for C-Band clearing. The company
successfully launched eight GEO satellites over the 10 months
beginning from late 2022 and concluding in Aug 2023. Certain
satellites are nearing the end of their life cycle, and by the
middle of the decade, Intelsat is planning to launch four advanced
software defined satellites that will have greater throughput and
flexibility, thus over time leading to a smaller satellite fleet.
Increased LEO Competition: Several low earth orbit (LEO)
constellations are being deployed, adding a significant amount of
capacity to the satellite industry, and LEO constellations in
particular will have the advantage of lower latency, which could
prove attractive in certain applications. Fitch expects the company
to be collaborative with LEO providers in its bid to focus on
multi-orbit solutions. For example, the company recently announced
an expanded partnership with Eutelsat's OneWeb LEO constellation.
Modest Revenue Concentration: Intelsat's 10 largest customers
provided slightly more than 40% of its revenues for the YE Dec. 31,
2023. No single customer accounted for more than 11% of revenue in
the same period.
DERIVATION SUMMARY
Intelsat's rating reflects the company's leading scale and
geographic reach; and a capital-intensive business model, with
significant barriers to entry due to the limited number of orbital
slots and the material costs associated with constructing and
launching a satellite fleet. The mobility line of business is an
avenue for growth, and the government business is stable with high
rates of renewal. The media and network businesses are exposed to
secular pressures.
In the satellite services business, as a provider of communications
infrastructure, Intelsat's peers are Eutelsat Communications
(Eutelsat; BB-/Negative), Viasat Inc. (Viasat; BB-/Negative),
Iridium Communications Inc. (Iridium; BB/Stable) and Telesat Canada
(Telesat). Eutelsat and Telesat are the most directly comparable
companies, given that they, along with Intelsat, are three of the
top four global fixed satellite services providers. Iridium is
smaller in scale, has a stronger revenue growth profile and has
similar EBITDA leverage as Intelsat.
Fitch expects Eutelsat's net leverage to approximate 4x in FY24
(ending in June) and up to 4.5x over the medium term. The company's
medium-term target is to reduce net debt/EBITDA
(company-definition) to 3x. Fitch expects Viasat's leverage to
gradually decline to mid-4x by FY26 (ending in March). Unlike
Intelsat, Eutelsat and Telesat, Viasat provides services directly
to consumers in its satellite services segment, is vertically
integrated as a satellite services provider/manufacturer and has
other business lines.
KEY ASSUMPTIONS
- Revenues grow modestly in the forecast period, with growth
projected to be flat to up slightly in 2024, and during the
forecast period. Growth is aided by the continued expansion in the
mobility line of business, including commercial aviation;
- EBITDA margins averaging in low-40% range over 2024-2027;
- Capital spending is expected to aggregate in $1.8 billion-$1.9
billion range over 2024-2027;
- $450M of remaining C-Band reimbursements will be received in
2024;
- $100 million of annual shareholder repurchases over 2024-2027;
the company currently has a share repurchase program of $200
million over a three-year period. No dividends are assumed over the
forecast.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- EBITDA leverage sustained below 3x, combined with revenue and
EBITDA growth;
-(CFO-Capex)/Debt sustained above 7.5%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- EBITDA leverage sustained above 4.5x, with the higher leverage
stemming from weaknesses in sales/EBITDA, debt-funded shareholder
returns, or a significant increase in capex, leading to increased
debt issuance;
- (CFO-Capex)/Debt sustained below 3%.
LIQUIDITY AND DEBT STRUCTURE
Robust Liquidity: Intelsat's liquidity is supported by high cash
balances and a fully available $500 million, super priority
first-lien senior secured revolver. Additional liquidity has been
provided by ARPs and reimbursements for C-Band clearing costs
received in 2022 and 2023. Intelsat received $3.7 billion of ARPs
in 2023; a part of which was utilized to fully pay down the term
loan. The company has also received a total of $1.2 billion of
reimbursements payments to date, and expects an additional
$450-$500 million in 2024. With the repayment of term loan, there
is no significant maturity during its forecast period of
2024-2027.
Capital Structure: The company emerged with a five-year, $500
million super-priority first-lien RCF (S+275) maturing in February
2027, a seven-year, $3.19 billion first-lien term loan B (S+425)
maturing in February 2029 and $3 billion of eight-year, 6.5%
first-lien notes due in 2030. The term loan was repaid in full in
4Q23, as discussed above.
Maturities: The RCF (undrawn) matures in 2027. The nearest maturity
of the outstanding debt is in 2030 when the senior notes are due.
ISSUER PROFILE
Intelsat provides service through a global fleet of 57 satellites
and 66 teleports, and is the largest FSS operator in the world,
covering 99% of the world's populated regions.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
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
----------- ------ -------- -----
Intelsat Jackson
Holdings S.A. LT IDR BB- Upgrade B+
senior secured LT BB+ Affirmed RR2 BB
super senior LT BB+ Affirmed RR1 BB+
Intelsat S.A. LT IDR BB- Upgrade B+
=====================
N E T H E R L A N D S
=====================
CREDIT EUROPE: Fitch Affirms 'BB-' LongTerm IDR, Outlook Positive
-----------------------------------------------------------------
Fitch Ratings has affirmed Credit Europe Bank N.V.'s (CEB)
Long-Term Issuer Default Rating (IDR) at 'BB-' and its Viability
Rating (VR) at 'bb-'. The Outlook on the Long-Term IDR is
Positive.
Fitch has also assigned Credit Europe Group N.V. (CEG) a Long-Term
IDR of 'BB-' and a VR of 'bb-'. The Outlook on the Long-Term IDR is
Positive.
CEG is the full owner and holding company of CEB, the group's main
operating company and core bank. The ratings of CEG and CEB are
equalised as Fitch believes that the risk of default of the two
entities is substantially the same. Fitch believes the holding
company will not build up significant double leverage beyond 120%,
and because capital and liquidity are managed centrally with a high
degree of fungibility. Fitch assesses CEB and CEG on the basis of
CEB's consolidated accounts, as CEB is the operating entity and its
balance sheet represents more than 99% of the group's.
KEY RATING DRIVERS
Prudent Balance-Sheet Management: CEB's niche franchise in
commodity trade finance remains a rating strength, despite its
limited diversification. Since 2018, CEB has been de-risking its
balance sheet by materially reducing its volume of impaired loans
and exposure to some emerging countries, which, along with higher
interest rates, improved the bank's profitability. This has fed
through to increased internal capital generation, ultimately
supporting CEB's improved capitalisation.
CEB's VR is one notch below the 'bb' implied VR, driven by the
business profile score, which Fitch assesses at 'bb-'. The Positive
Outlook reflects CEB's ongoing business profile strengthening and
better asset quality, which should support structural operating
profitability improvement
Higher Trade Volumes Expected in 2024: Fitch expects trade volumes
to grow faster than the global economy in 2024, supported by a
lower rate of inflation, leading to an early exit from
contractionary monetary policies. The decreasing rates should also
fuel credit demand from 2H24. CEB plans to leverage on this
favourable environment, supporting strong loan growth in 2024.
Niche Trade Finance Bank: CEB has a niche commodity-trade-finance
and corporate franchise with diversification into the retail
segment in Romania. Fitch expects the bank to continue benefiting
from the higher interest rates, while the revenue's volatility
decreases alongside its exposure to emerging countries. As the bank
delivers its growth strategy with a controlled risk appetite and
cost optimisation materialises on restructuring and reorganisation
plans, this should support the strengthening of the business
profile.
Accelerated De-Risking Strategy: The bank has adopted a more
conservative risk approach over the past five years by reducing its
exposure to cyclical sectors, countries affected by high volatility
(e.g. Turkiye), or significant geopolitical developments (e.g.
Russia and Ukraine). These measures led to a significant decline in
CEB's non-performing assets (NPA) ratio and minimum capital
requirements. Fitch now expects the bank to maintain an NPA ratio
below 2% over the coming years.
Reduced NPAs; Improved Coverage: CEB has recently demonstrated
satisfactory balance sheet management, although exposure to
emerging markets add potential volatility to asset quality. The NPA
ratio declined to 1.4% at end-2023 (from 7.2% at end-2020), helped
by tightened underwriting policies, balance sheet de-risking and
lending geared towards developed markets. The bank also materially
improved its coverage of NPA.
Improved Profitability: CEB's core profitability has materially
improved in 2022 and 2023, thanks to the increase in net interest
income and lower loan impairment charges. Fitch expects the bank to
maintain an operating profit/risk-weighted assets (RWAs) ratio of
above 2% in 2024 due to persisting high interest rates, significant
trade volumes, loan growth, good control over costs and NPA, and
remain around those levels in 2025.
Capital Buffers Improving: CEB's common equity Tier 1 (CET1) ratio
has consistently exceeded 15% over the past five years and capital
encumbrance has materially decreased, falling below 5%. Although
the bank's capital size remains modest in nominal terms, its
capital buffers also materially increased since July 2023,
following the local regulator's decision to reduce its minimum
capital requirements.
Moderately Stable Deposit Franchise: CEB is mainly funded through
granular retail deposits, which are collected online mostly in
Germany, and to a lesser extent the Netherlands and Romania. Almost
all household deposits benefit from deposit-guarantee schemes in
all three countries, contributing to funding stability. Corporate
and interbank deposits are originated from CEB's trade-finance and
corporate-banking operations. The bank has a significant liquidity
buffer, largely made of central banks deposits and a low risk
sovereign bond portfolio, and the short-term nature of its balance
sheet supports its capacity to meet its commitments.
CEG's IDRs Equalised to CEB's: CEG is the parent holding company of
CEB, the group's main operating company and core bank. The ratings
of CEG and CEB are equalised, as Fitch believes that the risk of
default of the two entities is substantially the same.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings would be downgraded if the macroeconomic environment
weakens more than Fitch expects, leading to a material
asset-quality deterioration (with an NPA ratio increasing over 6%),
a weaker operating profitability (operating profit falling below 1%
of RWAs on a sustained basis) or capital position (CET1 ratio
sustainably below 13%).
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The ratings could be upgraded on broader business and revenue
diversification, with a record of operating profit above 1.5% of
RWAs through the cycle including a lower interest rate environment
and growth prospects. A tested access to wholesale funding would
also be rating positive. In addition, an upgrade would require a
stable risk profile and asset quality, while capital level remains
materially above 13%.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
CEB's Tier 2 subordinated debt is rated two notches below the
bank's VR, reflecting poor recovery prospects for this type of
debt.
No Government Support: CEB and CEG's Government Support Ratings
(GSR) of 'ns' reflect Fitch's view that although external
extraordinary sovereign support is possible, it cannot be relied
on, both at bank- and holding company level. Senior creditors can
no longer expect to receive full extraordinary support from the
sovereign in the event the bank becomes non-viable. This is because
the EU's Bank Recovery and Resolution Directive and the Single
Resolution Mechanism for eurozone banks provide a framework for
resolving banks that requires senior creditors participating in
losses, if necessary, instead of, or ahead of, a bank receiving
sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The subordinated debt rating is primarily sensitive to a downgrade
of the VR, from which it is notched. The rating is also sensitive
to an adverse change in the notes' notching, which could arise if
Fitch changes its assessment of their non-performance relative to
the risk captured in the VR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The subordinated debt rating is primarily sensitive to an upgrade
of the VR.
An upgrade of the GSR would be contingent on a positive change in
the sovereign's propensity to support the bank. Fitch believes this
is highly unlikely.
VR ADJUSTMENTS
The operating environment score of 'bbb' is below the
category-implied score of 'aa' due to the following adjustment
reason: international operations (negative).
The capitalisation & leverage score of 'bb' is below the
category-implied score of 'bbb' due to the following adjustment
reason: size of the capital base (negative).
The funding & liquidity score of 'bb' is below the category-implied
score of 'bbb' due to the following adjustment reason: non-deposit
funding (negative).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
neither due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation on the relevance and
materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Credit Europe
Bank N.V. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Viability bb- Affirmed bb-
Government Support ns Affirmed ns
Subordinated LT B Affirmed B
Credit Europe
Group N.V. LT IDR BB- New Rating
ST IDR B New Rating
Viability bb- New Rating
Government Support ns New Rating
GLOBAL UNIVERSITY: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Global University Systems Holding B.V.'s
(GUSH) Long-Term Issuer Default Rating at 'B' with a Stable Outlook
and its senior secured rating at 'B+' with a Recovery Rating of
'RR3'. Fitch has also affirmed Markermeer Finance B.V.'s
multi-tranche EUR1 billion senior secured term loan B (TLB),
guaranteed by GUSH, at 'B+'/'RR3'.
The affirmation reflects GUSH's continuing high EBITDAR leverage
for the rating at 6.9x for the financial year to May 2023 (FY23),
albeit lower on a net debt basis at 4.3x. The rating also reflects
its view of moderate execution risks as well as potential cash
outlays related to management's ambitious growth strategy. The
strategy involves a significant increase in its student population
across existing institutions and the offering of more online
content, while utilising existing campus facilities, but does not
rule out acquisitions.
The rating is supported by GUSH's strong diversification across
under- and post-graduate university/higher education courses,
different disciplines and geographies, and an operating platform
that has swiftly adapted to online tuition. The group also has high
financial flexibility with an end-November 2023 cash balance of
around GBP500million, no major debt maturities until January 2027
and strong free cash flow (FCF) capacity.
KEY RATING DRIVERS
Recurring, Diverse Income Streams: GUSH benefits from a varied
income stream stemming from its geographically diverse, single- or
multi-year course offering, spanning vocational and professional
tuition. Some courses are for two or more years, resulting in some
inelasticity in its revenue profile. Recurring diverse revenue,
combined with low capex requirements, are positive for FCF
generation. However, higher interest costs, alongside potential
dividend payouts, could reduce FCF generation over FY24-FY26.
Varied Profitability at Portfolio Level: Fitch expects solid
profits at GUSH's well-established entities in the UK and Canada
(University Canada West and Arden University - together accounting
for more than 75% of EBITDA) to FY26, as well as at the more
recently acquired India unit, which benefits from strong enrolment
growth. However, Fitch expects permanently reduced profit margins
at the University of Law (ULaw) due to a student mix shift to
cheaper programmes following the introduction of solicitor's
qualifying exam. Fitch anticipates R3 and the German entities,
which are slowly recovering from the pandemic, to improve
profitability in FY24. Overall, Fitch believes that group
profitability remains healthy.
Canada Leading Group Growth: Fitch expects on average 7.5% revenue
growth between FY24 and FY26, driven by solid enrolment growth and
fee increases. Canada (approximately half of FY23 EBITDA) continues
to lead enrolment growth in FY24 and is likely to maintain
momentum, driven by the significant inflow of international
students.
Fitch anticipates revenue from recruitment services, with fewer
overseas students recruited for the US, to remain well below
pre-pandemic levels to FY26. Fitch expects the overall revenue
forecast to remain solid and GUSH to continue to benefit from the
uncorrelated performance of its portfolio institutions.
Sound Profitability Despite Cost Pressures: Fitch projects the
group's EBITDA margin will remain healthy in the medium term,
improving to around 21% (FY23: 19.0%) in FY26, based on higher
student volumes and growth in student fees. The FY23 EBITDA margin
was temporarily affected by Germany undergoing academic model
transition, higher marketing costs at R3 to address rising
competitive pressures, and the recent acquisition of FutureLearn.
Fitch expects the EBITDA margin to increase above 20% in FY24 as
Germany, R3 and FutureLearn improve profitability. Overall, Fitch
believes that cost inflation, particularly in staff wages, is
adequately managed through fee increases.
Moderate Execution Risks: Management plans to rapidly ramp up
student enrolment, by offering more online courses and tapping its
international recruitment & retention platform. Increasing volumes
within existing campus infrastructure and online experiences can
dilute the student experience and teaching standards, which Fitch
believes may risk diminishing GUSH's institutions' reputation for
quality. Dependence on overseas students could also make business
volumes vulnerable to governments' immigration policy.
Quality Crucial to Student Retention: Fitch believes that it is
crucial for GUSH to maintain necessary standards required by
regulatory bodies in order to retain students. GUSH's reputation
suffered at St. Patrick's College in London six years ago, prior to
the rating being initiated, when it failed to maintain standards
needed for accreditations with the Office for Students in the UK.
St. Patrick's College was in a managed decline mode afterwards and
is no longer a material trading entity for the group.
Leverage Profile Constrains Rating: Fitch expects EBIDAR leverage
to gradually fall to 5.6x (EBITDAR net leverage: 3.6x) in FY24 and
5.3x (net 3.4x) in FY25. To narrow the difference between gross and
net debt metrics, Fitch modelled the repayment of GUSH's currently
drawn GBP35 million revolving credit facility (RCF) in full in
FY24. GUSH's working-capital position is inherently negative, which
creates cash inflows during growth periods of increased turnover.
GUSH still has strong deleveraging capacity due to its positive
underlying FCF from business operations.
Continued Acquisition Appetite: Fitch's projections assume GUSH's
average GBP25 million-GBP50 million annual FCF plus some cash on
balance will be diverted to acquisitions. Cash could also be used
for new campus development in Canada, expanding capacity for this
high-growth asset. This would increase profitability, as Fitch
assumes that GUSH would apply its content and student growth
template.
DERIVATION SUMMARY
Compared with Fitch's credit opinions on private education
providers at the lower end of the 'B' rating category, GUSH
benefits from higher income diversification by geography and by
type of higher education offering covering multiple different
fields of study (business, accounting, law, medical, arts,
languages, industrial, under- and post-graduate) as well as format
(traditional campus or online learning options).
GUSH has a better rationale than peers for building up an education
group, supported by its recruitment & retention unit (a significant
cost for other higher-education groups seeking overseas students)
and exhibits greater content-sharing between some course modules.
GUSH had been using and developing online course platforms (through
Arden) before the pandemic necessitated it.
GUSH has wider breadth than the K-12 schools of Lernen Bidco
Limited (Cognita: B-/Positive) and GEMS Menasa (Cayman) Limited
(B/Positive). However, GUSH offers shorter education typically
lasting from three to four years (longer for part-time) whereas
retention will be higher for primary through secondary schools. As
GUSH has expanded, its reliance on international student enrolments
has grown. GUSH is recruiting international students for
third-party US universities and its Canada operations, while other
locations have served local students in its India, UK and Asia
locations.
GEMS and Cognita have capacity to fill, partly due to the pandemic
but primarily because of new-builds taking time to establish and
fill up. Cognita's management states that none of its acquisitions
have been loss-making when bought. GUSH only recently started to
undertake greenfield developments and has a history of buying some
unprofitable institutions, which for various reasons, have taken
time to improve often through increased enrolment and product
repositioning. Cognita and GEMS tend to conduct digestible-sized
bolt-on acquisitions, whereas some GUSH acquisitions have been
sizeable (recently India, Caribbean, and expansion in Canada). All
three rated entities are individual (Cognita: Joseph foundation) or
partly owned by private equity.
Compared with the twice as large but Dubai-concentrated GEMS, GUSH
had EBITDAR leverage at 6.9x (net 4.3x) for FY23, compared with
GEMS at 5.7x (net: 5.1x). GEMS has slightly higher group EBITDA
margins, with an estimated 27% for FY23, while GUSH's EBITDA margin
was around 19% for the same period.
KEY ASSUMPTIONS
- Revenue growth of around 15% in FY24, driven by double-digit
enrolment growth in divisions such as Canada and Arden, alongside
mid-single-digit annual fee increases. Revenue growth to slow to
mid-single digits in FY25-FY26, as enrolment slows after rapid
growth, alongside smaller annual fee increases in a normalised
inflationary environment
- For the recruitment & retention division, Fitch has
conservatively assumed that the recruitment & retention activity
and associated profitability remain well below pre-pandemic levels
- EBITDA margins for Canada remain above 30%, for UK and India in
the range of 20%-30%, and below 20% for other institutions. Fitch
projects the group's EBITDA margins to improve to around 21% in
FY26
- Acquisition spending of GBP25 million for FY24 and GBP50 million
per year for FY25-FY26 at an average 8x EBITDA multiple and 20%
EBITDA margin
- Annual capex projected on average at around 4.5% of revenues to
FY26
- Shareholder distribution of GBP25million per year to FY26
RECOVERY ANALYSIS
Its recovery analysis assumes that GUSH would be reorganised as a
going-concern (GC) in bankruptcy rather than liquidated given that
the value of the business lies in the strength of its institutions
and recruiting operating platform. Fitch-estimated GC value amounts
to GBP679 million.
Its GC EBITDA estimate of GBP113 million (unchanged from previous
review) represents a level at which the group would be generating
neutral-to-marginally positive FCF but likely to result in an
unsustainable capital structure. An enterprise value (EV)/EBITDA
multiple of 6x remains in line with peers' and reflects the
business's portfolio diversification, healthy cash-generation
capabilities and strong brands.
After deducting 10% for administrative claims, its waterfall
analysis generated a ranked recovery in the 'RR3' band, indicating
a 'B+' senior secured rating for the TLB, which ranks equally with
GUSH's GBP120 million revolving credit facility (RCF) and which
Fitch assumes will be fully drawn. This results in a
waterfall-generated recovery computation output percentage of 62%
based on current metrics and assumptions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Maintaining a strong reputational profile and a 30% group EBITDA
(after leases) margin with a positive cash flow contribution from
recruitment and retention, due to successful integration of
acquisitions with lower profit margins
- Lease-adjusted gross debt/EBITDAR below 5.0x on a sustained
basis. Fitch expects to see a convergence between gross debt and
net debt leverage ratios, reflecting greater clarity on capital
allocation
- EBITDAR fixed charge coverage above 2.5x on a sustained basis
- Sustained positive FCF after acquisitions
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- A weakening reputational profile and/or more aggressive
debt-funded acquisitions, which lead to lease-adjusted gross
debt/EBITDAR above 6.5x on a sustained basis
- EBITDAR fixed charge coverage below 2.0x on a sustained basis
- EBITDA margin below 20%
- FCF margin falling to low single digits
LIQUIDITY AND DEBT STRUCTURE
Significant Liquidity: GUSH has strong liquidity, which includes
over GBP500 million cash on balance sheet as of end-November 2023,
with GBP35 million drawn from its GBP120 million RCF.
Fitch expects the group to repay its RCF drawings over FY24 and
project that cash balances will average around GBP400 million to
FY27. There is some headroom in debt maturities with the group's
EUR1 billion TLB due in January 2027 and the RCF in July 2026.
ISSUER PROFILE
GUSH is a global, for-profit, privately owned, under- and
post-graduate university and higher education group.
Criteria Variation
Under Fitch's Corporate Rating Criteria Fitch uses the income
statement rent charge (depreciation of leased assets plus interest
on leased liabilities) as the basis of its rent-multiple adjustment
(capitalising to create a debt-equivalent) in Fitch's
lease-adjusted ratios. However, GUSH's accounting rent (GBP46.1
million) in its FY23 income statement is significantly higher than
the equivalent cash paid rent (GBP37.8 million), so Fitch has
applied an 8x debt multiple to 12 months-equivalent annual cash
rent when calculating the group's lease-adjusted debt.
There are various reasons for the difference in accounting rent
versus cash paid rent. GUSH has long-dated real estate leases,
which result in higher non-cash, straight-lined, depreciation
within accounting rent. In other Fitch-rated leveraged finance
portfolio examples, the difference between accounting and cash
rents is not significant enough to justify a switch to capitalised
cash rents.
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
----------- ------ -------- -----
Markermeer Finance
B.V.
senior secured LT B+ Affirmed RR3 B+
Global University
Systems Holding B.V. LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
MAGELLAN DUTCH: Moody's Cuts CFR & Senior Secured Term Loan to B3
-----------------------------------------------------------------
Moody's Ratings downgraded Magellan Dutch BidCo BV's (Mediq or the
company) long-term corporate family rating to B3 from B2 and its
Probability of Default Rating to B3-PD from B2-PD. Concurrently,
Moody's downgraded Mediq's ratings on the senior secured term loan
B (TLB) and senior secured revolving credit facility (RCF) to B3
from B2. The outlook remains stable.
RATINGS RATIONALE
The downgrade reflects the company's weak credit metrics for the 12
months ended December 2023 as illustrated by the high
Moody's-adjusted debt to EBITDA at 9.8x and weak EBITA to interest
coverage ratio at below 1.0x. These metrics include around EUR30
million of one-off costs which are higher than Moody's anticipated
for 2023. The one-off costs were related to the consolidation of
Mediq's most recent acquisitions, which were closed towards the end
of 2022, in addition to several projects that were designed to
enhance cost efficiency. The action also reflects Moody's
expectation that Mediq will not achieve credit metrics commensurate
with the guidance for the previous B2 rating over the next 12 to 18
months, despite expected improvement in EBITDA and cost efficiency
realization. Moody's anticipates that the company will maintain
adequate liquidity at all times.
Over the next 12-18 months, the rating agency expects Mediq's
revenue to grow in the low-single-digit percentages driven by
increase in volumes across all geographies. The company's
profitability is expected to improve mainly driven by realization
of cost efficiencies which will drive the company's Moody's
debt/EBITDA to decline towards 7.5x by end 2024. Moody's also
expects the company to materially reduce its one-off costs from the
high levels seen in 2023 to around EUR15 million in 2024 and
further reduce thereafter.
The rating continues to be supported by the company's scale and
good position within the fragmented market for the distribution of
medical products and devices and the defensive nature and positive
underlying trends supporting volumes.
LIQUIDITY PROFILE
Mediq's liquidity is adequate, supported by EUR38 million of cash
on balance sheet as of the end of December 2023; access to EUR85
million available senior secured revolving facility out of EUR100
million committed as of year-end 2023; and long-dated maturities,
with the senior secured revolving credit facility due in September
2027 and the senior secured term loan due in March 2028.
STRUCTURAL CONSIDERATIONS
The EUR562.1 million senior secured Term Loan B and the EUR100
million senior secured revolving credit facility are pari passu and
rated B3, in line with the CFR in the absence of any significant
liabilities ranking ahead or behind.
OUTLOOK
The stable outlook reflects Moody's expectations that the company
will grow revenues organically and make progress on growing its
profitability and reducing its one-off costs in the next 12 to 18
months which will allow it to have leverage, interest coverage and
liquidity characteristics commensurate with the B3 rating
category.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings could develop if the company
maintains positive organic revenue growth and there is substantial
improvement in Mediq's profitability. This improvement should lead
to more sustainable capital structure and credit metrics.
Quantitively, Mediq's ratings could be upgraded if leverage, as
measured by Moodys-adjusted debt/EBITDA, were to be sustained below
6.0x, Moody's-adjusted free cash flow to debt to increase toward 5%
and EBITA to interest coverage to increase towards 2.0x,
sustainably. An upgrade would also require the absence of any
releveraging transaction.
Mediq's ratings could be downgraded if the company's fails to grow
organically its revenue and substantially improve its margins.
Quantitively, Mediq's ratings could be downgraded if
Moody's-adjusted gross debt to EBITDA fails to decrease towards
7.0x in the next 12 to 18 months; Moody's-adjusted EBITA to
interest expense deteriorates to below 1.0x; Moody's-adjusted free
cash flow to debt remains negative on a sustained basis; or
liquidity deteriorates. Negative rating pressure could also occur
in the event of large debt-financed acquisitions or distributions
to shareholders.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Distribution
and Supply Chain Services published in February 2023.
COMPANY PROFILE
Mediq, headquartered in Utrecht, the Netherlands, is a distributor
of medical products and devices, and a provider of related care
services in 13 countries in Europe and particularly in the Benelux
region, Germany, Switzerland, Hungary, and the Nordics and UK
regions.
SPINNAKER DEBTCO: Moody's Assigns B3 CFR, Rates New Sr Sec. Debt B3
-------------------------------------------------------------------
Moody's Ratings has assigned a B3 corporate family rating and B3-PD
probability of default rating to Spinnaker Debtco Limited (Norgine
or the company), the top entity of Norgine's banking restricted
group. At the same time, Moody's has assigned B3 instrument ratings
to Norgine's proposed million senior secured term loan B (TLB), due
in 2031, and to the proposed senior secured revolving credit
facility (RCF), due in 2030. The outlook is stable.
The company is looking to refinance its existing debt and fund
transaction fees and expenses, with the proposed instruments.
RATINGS RATIONALE
The B3 rating considers Norgine's leading market position of its
three main products, Movicol, Xifaxan, and Plenvu/Moviprep across
the company's key markets in Europe, with strong brand awareness
for the treatment of chronic constipation and bowel preparation
solutions, its good geographic and end-customer diversification
with direct market presence in 16 European countries and Australia
and New Zealand which should support the development of the
company's consumer healthcare platform utilising Movicol as
flagship, and the company's long-dated patent exposure on its
promoted growth brands, including Xifaxan, Plenvu and Angusta,
which should support earnings growth over the rest of the decade.
The rating also reflects the company's reliance on three key
products contributing to 78% of 2023's revenue, which exposes the
company to potential operating disruptions that could affect the
company's financial performance, given its small scale. It
acknowledges the final phase of the company's operational
excellence programme that started in 2021, aimed at enhancing cost
structure, supply-chain, and commercial operations. The programme
involves several initiatives and material upfront investments which
will impact credit metrics in 2024. The initiatives in turn
introduce some execution risk to the company's business plan over
the next 12-18 months, which could lead into higher implementation
costs and would delay the expected improvement in credit metrics.
This risk is somewhat offset by the company's experienced
management team and good track record in operating performance
since 2021.
Under its ESG framework, Moody's views Norgine's financial policy
and concentrated ownership, as key governance risks, and key
drivers of the rating action. In particular, the company has weak
credit metrics with a high opening Moody's-adjusted gross leverage
of 6.4x pro forma for the refinancing. However, the company's board
has 50% composition of independent directors, which brings some
checks and balances to the controlling position of Norgine's
shareholders.
Over the next 12-18 months, the agency expects Norgine to grow in
the mid-to-high single digit range in percentage terms thanks to
continued growth in the company's largest products, and Movicol's
expansion into consumer healthcare, the latter should accelerate
from 2025. In 2024, credit metrics will be weak with a
Moody's-adjusted gross leverage at around 6.4x in 2024 and negative
Moody's-adjusted free cash flow (FCF) because of high investment
costs related to the operational excellence programme. The agency
expects organic deleveraging prospects from 2025 once non-recurring
items reduce and forecast a Moody's-adjusted gross leverage
trending below 6x with a Moody's-adjusted FCF increasing towards
EUR30 million, and a Moody's-adjusted EBITA to interest expense
around 2.5x.
Although Moody's has not considered debt-funded acquisitions in its
forecasts, given the company's strategy to grow its consumer
healthcare franchise, potential material acquisitions or licensing
deals, could delay leverage reduction if financed by new debt.
However this is not the agency's central scenario.
LIQUIDITY
Norgine's liquidity is adequate, supported by expected cash
balances of EUR17 million post-closing of the transaction, and
access to the EUR160 million RCF which is expected to be undrawn at
closing. Under the next 12-18 months, Moody's has assumed moderate
working capital requirements and total capex of around 7% of
revenue in 2024 and then decreasing to more normalised levels of
about 2.5%.
The RCF includes a springing senior secured net leverage covenant
set at 9.0x, tested only when, subject to certain exclusions, the
RCF is drawn above 40%. Moody's estimates sufficient capacity in
the covenant in case the RCF is used.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that Norgine's
operating performance will continue to benefit from organic
top-line growth in the mid-to-high single digit range in percentage
terms and from its operational excellence programme allowing
earnings growth. The agency forecasts the company's
Moody's-adjusted gross leverage will improve below 6x during 2025,
with increasing cash generation and continued adequate liquidity.
The outlook assumes that the company will not undertake any major
debt-funded acquisitions or shareholder distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could develop if Norgine is successful in
executing its strategy to expand Movicol as a key consumer health
product for gastroenterology and achieve further operational
efficiencies, and if it increases its scale. Numerically, this
would also translate into a Moody's-adjusted gross leverage
declining below 5.5x on a sustained basis, if its Moody's-adjusted
FCF to debt increases above 5% on a sustained basis, and its
Moody's-adjusted EBITA to interest expense improves above 2x on a
sustained basis.
Downward rating pressure could develop if Norgine's operating
performance weakens with a material decline in EBITDA margins.
Numerically, this would translate into a Moody's-adjusted gross
leverage increasing towards 7x on a sustained basis, or if its
Moody's-adjusted FCF remains negative for a prolonged period of
time, or its Moody's-adjusted EBITA to interest expense declines
towards 1x on a sustained basis, or if liquidity weakens. Material
debt-funded acquisitions that increase leverage or disrupt the
operations could also cause downwards pressure on the rating.
STRUCTURAL CONSIDERATIONS
The B3 ratings of the senior secured term loan B and RCF, in line
with the CFR, reflects their pari passu ranking in the capital
structure and the upstream guarantees from material subsidiaries of
the company. The B3-PD PDR, in line with the CFR, reflects Moody's
assumption of a 50% family recovery rate, typical for bank debt
structures with a limited or loose set of financial covenants.
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 non-Excluded
Entities or at the option of the Company 80% of consolidated
EBITDA. Excluded entities are incorporated in jurisdictions other
than the Netherlands, Luxembourg, the United States, England and
Wales, France, Germany, Spain, Denmark and any other jurisdiction
in which any borrower is incorporated. Each material subsidiary
will be required to provide security over key shares, bank accounts
and receivables.
Incremental facilities are permitted up to 100% of EBITDA.
Unlimited pari passu debt is permitted up to either (x) 4.5x senior
secured net leverage ratio or (y) the leverage ratio in effect
prior to such transaction. Restricted payments are permitted if
senior secured net leverage is 3.5x or lower or if funded from the
available amount. Asset sale proceeds are never required to be
applied in full for debt prepayment or reinvestment, with only 50%
of proceeds required for such where senior secured net leverage
exceeds opening leverage.
Adjustments to consolidated EBITDA include run-rate cost savings
and synergies, capped at 30% of consolidated EBITDA within a 24
months realisation period.
The proposed terms, and the final terms may be materially
different.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
COMPANY PROFILE
Norgine is a speciality pharmaceutical company based in the
Netherlands. The company is an integrated pan-European platform
specialising in gastroenterology, hepatology, critical care, and
other therapeutic areas with direct market presence across in 16
European countries and Australia and New Zealand, and operates two
manufacturing facilities in Europe. Norgine generated net sales of
EUR547 million and company-adjusted EBITDA of EUR128 million in
2023, and has been majority owned by funds managed by Goldman Sachs
Asset Management since 2022.
=============
R O M A N I A
=============
[*] ROMANIA: Number of Insolvent Cos. Up 13.5% in Jan-Feb 2024
--------------------------------------------------------------
Bogdan Todasca at SeeNews reports that the number of insolvent
Romanian companies increased by 13.5% year-on-year to 1,120 in the
first two months of 2024, the country's trade registry office,
ONRC, said.
According to SeeNews, ONRC said in a data released on April 3,
despite falling by 8.8% on the year to 207 in January-February, the
highest number of insolvent companies and legal entities was
registered in Bucharest.
The highest number of insolvent companies was registered in the
wholesale, retail and motor vehicles servicing sector -- 286, down
by an annual 6.5%, followed by construction with 230, up by 25%,
and manufacturing with 146, up by 39%, SeeNews discloses.
At the end of 2023, there were 6,650 insolvent companies in
Romania, virtually unchanged from 6,649 recorded a year earlier,
SeeNews notes.
===========
R U S S I A
===========
KAPITAL SUGURTA: Fitch Assigns 'B' IFS Rating, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has assigned Uzbekistan-based Kapital Sugurta JSC
(Kapital Sugurta) an Insurer Financial Strength (IFS) Rating of
'B'. The Outlook is Stable.
The rating reflects the insurer's moderate company profile in the
Uzbek insurance market, weak capital position, weak asset and
liquidity risk, and profitability that supports the rating.
KEY RATING DRIVERS
Moderate Company Profile: Fitch ranks Kapital Sugurta's business
profile as 'Moderate' compared with other Uzbek non-life insurers.
This is mainly due to its moderate diversification and competitive
positioning and less favourable business risk profile, as shown by
a higher risk appetite than the market average. The company is
highly exposed to motor insurance, which accounted for 62% of net
premiums in 2022, with fairly rigid and inflexible pricing,
although it is expanding in other business lines such as inwards
reinsurance and financial risks. Its assessment of corporate
governance is neutral to the company profile assessment.
Kapital Sugurta is a medium-sized domestic motor insurance company
with an adequate business franchise but limited competitive
advantages. It wrote UZS300 billion in 2023, making it the
sixth-largest non-life insurer in Uzbekistan by written premiums,
with a market share of 3.9% (2022: 3.2%).
Weak Capital Position: Kapital Sugurta's capital position, as
measured by Fitch's Prism Factor-Based Model (FBM), decreased to
below 'Somewhat Weak' at end-2022 from 'Somewhat Weak' at end-2021.
The target capital was under pressure due to rapidly increasing
business volumes while the available capital was broadly stable,
supported by modest profit generation. Fitch expects the capital
position at end-2023 to have remained below 'Somewhat Weak' due to
aggressive growth strategy, in the absence of any capital support
from shareholders.
The insurer's regulatory solvency margin was 123.7% at end-2023, a
marginal improvement from 117% at end-2022. In 2023, Kapital
Sugurta revalued the tangible assets on its balance sheet. This
resulted in an increase of its reserve revaluation, treated as
available shareholders' funds for regulatory capital calculation
purposes, to UZS38 billion at end-2023 from UZS7 billion at
end-2022 based on Uzbek GAAP. Fitch views this capital as being of
a moderate quality.
No Financial Leverage at end-2023: In March 2022, Kapital Sugurta
borrowed a EUR4 million short-term unsecured loan from a local bank
with interest of 2.57% paid on maturity. The purpose of the
borrowing was financing property construction. As a result, the
insurer's financial leverage ratio (FLR) as calculated by Fitch at
end-2022 weakened substantially to 48%. However, the loan was fully
repaid in November 2023. Fitch expects the FLR to remain at zero.
Weak Asset and Liquidity Risk: Fitch views Kapital Sugurta's
investment strategy as risky, as evidenced by sizeable exposure to
investments in affiliates and equity holdings. The insurer was
highly exposed to investments in affiliates, which totalled 98% of
shareholders' funds at end-2022. This exposure fell sharply to 12%
at end-2023, as the company partially disposed of these instruments
during the year. However, the proceeds were reinvested in other
non-listed equity holdings, which Fitch views as risky.
The remainder of the insurer's investment portfolio is placed in
bank deposits in a large number of state-owned and large private
banks, these latter rated in the 'B' category. The insurer's
ability to achieve better diversification by type of instruments or
issuer is limited due to narrow investment opportunities in the
local capital markets.
Profitability Supportive of Rating Level: Kapital Sugurta reported
a modest net income return on equity of 1.7% and of 1.2% in 2022
and in 2021, largely below the national inflation rate. The net
result was mainly supported by a strong investment result, driven
by high interest yields, which offset the negative underwriting
profitability, as reflected in combined ratios of 111% and 114% in
2022 and 2021, respectively. The negative underwriting was mainly
attributable to low operating efficiency, as demonstrated by
administrative and acquisition expenses ratio of 68% and 76%,
respectively, which weigh on earnings.
Based on Uzbek GAAP, Kapital Sugurta's net profit was UZS1.9
billion in 2023, equivalent to in a net profit return on equity of
2.7%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Significant improvement in the company profile assessment,
demonstrated by larger operating scale, better diversification and
a lower business risk profile.
- Significant strengthening in the capital position, as measured by
a stronger Prism FBM score, alongside an improvement in the asset
quality of the insurer's investment portfolio.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Significant erosion of the capital position, as measured by a
weaker Prism FBM score, on a sustained basis.
DATE OF RELEVANT COMMITTEE
22 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
----------- ------
Kapital Sugurta JSC LT IFS B New Rating
=========
S P A I N
=========
HIPOCAT 11: Fitch Hikes Class B Notes Rating From 'CCsf'
--------------------------------------------------------
Fitch Ratings has upgraded four tranches of Hipocat 9, FTA, two
tranches of Hipocat 10, FTA, two tranches of Hipocat 11, FTA and
one tranche of Valencia Hipotecario 3, FTA, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Hipocat 11, FTA
Class A2 ES0345672010 LT AA+sf Upgrade A+sf
Class B ES0345672036 LT B-sf Upgrade CCsf
Class C ES0345672044 LT CCsf Affirmed CCsf
Class D ES0345672051 LT Csf Affirmed Csf
Valencia Hipotecario 3,
FTA
Class A2 ES0382746016 LT AAAsf Affirmed AAAsf
Class B ES0382746024 LT AAsf Upgrade A+sf
Class C ES0382746032 LT A+sf Affirmed A+sf
Class D ES0382746040 LT CCCsf Affirmed CCCsf
Hipocat 9, FTA
Class A2a ES0345721015 LT AA+sf Upgrade A+sf
Class A2b ES0345721023 LT AA+sf Upgrade A+sf
Class B ES0345721031 LT AA+sf Upgrade A+sf
Class C ES0345721049 LT AA+sf Upgrade A+sf
Class D ES0345721056 LT BBB+sf Affirmed BBB+sf
Class E ES0345721064 LT Csf Affirmed Csf
Hipocat 10, FTA
Class A2 ES0345671012 LT AA+sf Upgrade A+sf
Class B ES0345671046 LT A+sf Upgrade BB+sf
Class C ES0345671053 LT CCsf Affirmed CCsf
Class D ES0345671061 LT Csf Affirmed Csf
TRANSACTION SUMMARY
The transactions comprise fully amortising Spanish residential
mortgages serviced by Caixabank, S.A. (BBB+/Stable/F2) and Banco
Bilbao Vizcaya Argentaria (BBB+/Stable/F2).
KEY RATING DRIVERS
Updated Interest Deferability Rating Approach: The upgrades and
removal from Rating Watch Positive (RWP) of Hipocat 9's class A to
C notes, Hipocat 10's class A and B notes, and Hipocat 11's class A
notes reflect Fitch's view that payment interruption risk (PIR) in
the event of a servicer disruption is immaterial up to 'AA+sf'
instead of 'A+sf' previously, following the update of Fitch's
Global Structured Finance Rating Criteria on 19 January 2024. This
is because interest deferability is permitted under transaction
documentation for all rated notes and does not constitute an event
of default.
The upgrades of Hipocat 10 and Valencia 3's class B notes also
reflect the update of Fitch's Global Structured Finance Rating
Criteria in relation to interest deferability, which previously
capped the rating at 'BB+sf' and 'A+', respectively. The removal of
the deferral caps under the new criteria reflects its assessment
that any interest deferrals on the notes will be fully recovered by
the legal maturity date, that deferrals are a common structural
feature in Spanish RMBS, and that the transactions' documentation
include a defined mechanism for the repayment of deferred amounts.
Hipocat 10 Class B Upgrade: The upgrade of Hipocat 10's class B
notes and Positive Outlook reflects its expectation that the
considerable uncleared interest deferrals as of the last reporting
date will be fully recovered in the short to medium term if the
transaction's robust performance continues.
CE Trends: Fitch expects credit enhancement (CE) for the Hipocat
transactions to continue increasing due to the mandatory sequential
amortisation of the notes. Fitch also expects CE ratios for
Valencia 3 notes to increase shortly as the transaction is expected
to switch to fully sequential amortisation once the pool factor
falls below 10% (currently 11%). The rating actions reflect Fitch's
view that the notes are sufficiently protected by CE to absorb the
projected losses commensurate with prevailing rating scenarios, for
example the upgrade of Hipocat 11 class B notes.
The zero or negative CE protection on all deals' most junior
tranches as well as Hipocat 10 and 11 class C notes is a driving
factor of the distressed ratings on these notes.
Portfolio Risky Attributes: All the portfolios are highly
concentrated in the regions of Valencia and Catalonia, with
exposure ranging between 65% and 70% of the pool balances. To
address regional concentration risk, Fitch applied higher rating
multiples to the base foreclosure frequency (FF) assumption to the
portion of the portfolios that exceeds 2.5x the population within
these regions relative to the national total, in line with its
European RMBS Rating Criteria.
Mild Weakening in Asset Performance: The rating actions reflect
Fitch's expectation of mild deterioration of asset performance,
consistent with the inflationary pressures that negatively affect
real household wages and disposable income. However, the
transactions have low shares of loans in arrears over 90 days (less
than 1.0% as of the latest reporting dates), and the portfolios
carry large seasoning of more than 18 years.
ESG Relevance Factor (Hipocat 9, 10 & 11): Hipocat 9, 10 and 11
have unmitigated payment interruption risk in the 'AAA' rating
case, which has a negative impact on the credit profile, and is
highly relevant to the ratings, resulting in a change to the
ratings of at least a one-notch downgrade.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
For notes rated 'AAAsf', a downgrade of Spain's Long-Term Issuer
Default Rating (IDR) could decrease the maximum achievable rating
for Spanish structured finance transactions. This is because the
notes are capped at the maximum achievable rating in Spain, six
notches above the sovereign IDR.
Long-term asset performance deterioration, such as increased
delinquencies or larger defaults, which could be driven by changes
to macroeconomic conditions, interest rate increases or borrower
behaviour. For instance, a combined scenario of increased defaults
and decreased recoveries by 30% each could trigger downgrades of up
to five notches.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
For Hipocat 9, 10 and 11, increasing liquidity protection
sufficient to fully mitigate PIR could lead to upgrades of the
senior notes to 'AAAsf'.
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE and potentially upgrades.
For instance, a combination of decreased defaults and increased
recoveries by 15% each could trigger upgrades of up to four
notches.
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
Hipocat 10, FTA, Hipocat 11, FTA, Hipocat 9, FTA, Valencia
Hipotecario 3, FTA
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transaction[s] over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Hipocat 9's class D notes and Valencia 3's class C notes are capped
at the transaction account bank's deposit rating due to Excessive
Counterparty Exposure, as the Reserve Fund is the sole provider of
CE for the notes.
ESG CONSIDERATIONS
The Environmental, Social and Governance (ESG) Relevance Score for
Hipocat 9, 10 and 11 is '5' for Transaction & Collateral Structure
due to unmitigated payment interruption risk at the 'AAA' rating
case, which has a negative impact on the credit profile, and is
highly relevant to the ratings, resulting in a change to the rating
of at least a one-notch downgrade.
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.
===========
S W E D E N
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ANTICIMEX INC: S&P Rates $400MM First-Lien Term Loan Add-on 'B'
---------------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating to the $400
million first-lien term loan B6, due November 2028, that Anticimex
Inc. plans to add on to its existing senior secured debt. The
recovery rating on the proposed term loan is '3', indicating its
expectation of meaningful recovery (50%-70%; rounded estimate:55%)
in the event of default. Anticimex Inc. is the U.S. subsidiary of
Anticimex Global, which will use the proceeds to repay the amount
outstanding under its revolving credit facility (RCF) and reprice
its $200 million first-lien term loan B5. The group also plans to
upsize its RCF by Swedish krona (SEK) 1 billion to SEK4 billion.
S&P considers the proposed transaction to be leverage neutral and
that it leaves the group's debt metrics within the thresholds of
its 'B' rating.
The proposed transaction highlights Anticimex's track record of
raising additional debt to finance mergers and acquisitions (M&A).
S&P already factors into its base case acquisition spending
(including deferred payments) of about SEK2.2 billion in 2024 and
SEK2.5 billion in 2025. The proposed issuance will enhance the
company's flexibility and liquidity position to pursue what S&P
assumes will be mostly bolt-on acquisitions, considering high
interest rates and expensive platform targets, to expand its reach
within existing and to new markets.
Anticimex continued to report solid operating performance in 2023,
with organic revenue growth of 5.2% (6.3% excluding disinfection
services) underpinned by successful price increases, positive
volume development from both traditional pest control and digital
preventive solutions (SMART), and modest margin improvement of 50
basis points. In 2024, S&P anticipates that supportive industry
trends will continue to drive earnings growth.
S&P said, "In our view, Anticimex has limited headroom for material
underperformance or more meaningful debt-funded acquisitions given
its high leverage and the increasing interest costs that have
tightened the company's interest coverage ratios. Factoring in the
company's interest rate hedges, we project a funds from operations
(FFO) cash interest coverage of about 1.7x in 2024, slightly up
from 1.6x in 2023. At the same time, we forecast positive free
operating cash flow (FOCF) of about SEK880 million in 2024,
alongside deleveraging to S&P Global Ratings-adjusted debt to
EBITDA of 7.3x in 2024 from 8.2x in 2023, based on stronger
EBITDA."
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- The issue rating on Anticimex's first-lien term loan, including
the proposed $400 million-equivalent term loan, is 'B'. The '3'
recovery rating on the debt reflects S&P's expectation of
meaningful recovery prospects (50%-70%; rounded estimate: 55%) in
the event of a payment default.
-- In S&P's view, the ratings reflect the limited amount of
priority debt in the capital structure.
-- S&P views the security package provided to the senior secured
lenders as weak because it only includes share pledges and
intercompany loan receivables.
-- The RCF documentation includes a springing covenant specifying
consolidated first-lien net leverage of 11.54x. The covenant is
only tested when 40% of the RCF is utilized.
-- Under the documentation, the issuer can raise incremental
amounts of debt up to a total of 5.76x first-lien net leverage and
7.3x total secured net leverage. It can raise up to 1x of EBITDA
outside these thresholds.
-- In S&P's hypothetical default scenario, it assumes a material
decrease in revenue due to a loss of market share and margin
contraction stemming from heightened competition following
reputational damage. This would, in turn, result in a significant
decline in EBITDA and cash flows, leading to an interest payment
default on the company's debt instruments.
-- S&P values the company as a going concern, given its strong
position as a pest control service provider within the Nordics--and
increasingly on a global basis--and its established and strong
customer relationships.
Simulated default assumptions
-- Year of default: 2027
-- Jurisdiction: Sweden
Simplified waterfall
-- Emergence EBITDA: SEK3.0 billion
-- Minimum capex: 2.5% of sales
-- Cyclicality adjustment: 5%, which is standard for the business
services sector
-- Multiple: 6.0x
-- Gross enterprise value (EV) at emergence: SEK18.3 billion
-- Net EV after admin. expenses (5%): SEK17.4 billion
-- First-lien debt claims: SEK30.6 billion*
-- Recovery expectation: 50%-70% (rounded estimate: 55%)
*All debt amounts include six months of prepetition interest.
KLARNA HOLDING: S&P Affirms 'BB+/B' Issuer Credit Ratings
---------------------------------------------------------
S&P Global Ratings affirmed its 'BBB-/A-3' long-term and short-term
issuer credit ratings on Klarna Bank AB and its 'BB+/B' ratings on
Klarna Holding AB. The outlook on both entities is stable.
Swedish payment and e-commerce specialist Klarna Group outperformed
the global e-commerce market in terms of gross merchandise value
growth during 2023. In addition, gross profits improved to Swedish
krona (SEK) 11.7 billion and strict cost-containment measures
enabled the group to cut net losses to SEK2.5 billion. S&P expect
Klarna to break even in 2024.
In S&P's view, Klarna has been diligently executing its expansion
strategy and is likely to break even in 2024. In 2023 Klarna
provided services to more than 150 million retail customers in 45
countries. Expansion in the U.S. market remains key to the group's
strategy for scaling up the business and we expect Klarna's
management to remain committed to achieving sustainable
profitability in this market. Management remains highly focused on
cost and risk reduction, even as it takes steps to grow the
franchise. Its strategic measures have materially improved gross
operating profit, which rose by 61% to SEK11.7 billion in 2023. By
Dec. 31, 2023, net losses were SEK2.5 billion (EUR225 million).
S&P's anticipate that the deep U.S. market will provide material
growth opportunities for Klarna. Compared with its share of the
mature markets in the Nordics and Germany, Klarna's share of the
U.S. market is still marginal.
Total revenue grew by 22% to SEK23.5 billion in 2023, fueled by
strong growth in merchant revenue, which S&P expects to continue in
2024. As Klarna onboards new partners, connecting them to more than
150 million consumers, and deepens existing relationships, its
revenue mix is shifting further toward merchants. In 2023, merchant
revenue constituted nearly 60% of the total revenue base, while
consumer business contributed 30% of revenue. Klarna has
facilitated the shift by onboarding new global partners and by
diversifying the business beyond the shopping ecosystem, toward
services such as Airbnb. Klarna estimates that its gross
merchandise volume, which rose 17% to SEK981 billion in 2023,
outperformed the global e-commerce market.
Klarna has limited its exposure to asset quality risk by focusing
on small-ticket "pay later" loans to a granular customer base, and
by making use of advanced risk models. In S&P's view, Klarna's
sophisticated use of customer data puts it at the leading edge
compared with traditional banks. Its models give it increasing
insights into customers' payment behavior and allow Klarna to
continuously adjust its scoring models and underwriting. The gross
loan portfolio, which mainly consists of pay-later and financing
receivables, amounted to SEK89.6 billion at the end of 2023.
However, Klarna's lending has a very short average tenor of around
40 days. Thus, its loan portfolio rolls over almost 10 times in a
calendar year. Management's focus on reducing risks underpins its
strong record on credit losses, which dropped 32% to SEK3.77
billion in 2023. As such, reported credit losses, as a percentage
of gross merchant volumes, decreased to 0.38% in 2023 from 0.66% in
2022. That said, S&P considers Klarna's business model vulnerable
to changes in consumer protection regulation across its markets.
The group has indicated that it intends to address this risk within
its business and risk strategy.
S&P said, "We expect Klarna's solid capitalization to enable
business growth, investment in technology, and higher
loss-absorption through 2026. As of Dec. 31, 2023, Klarna's RAC
ratio was 11.0%, compared with 13.8% at the end of 2022. We
forecast that Klarna will maintain a RAC ratio of 11.0%-12.0% in
2024-2026, but it lacks a track record of building capital through
sustained earnings. This is recognized in our capital and earnings
assessment. The group recently issued an SEK1.5 billion additional
Tier 1 (AT1) instrument and we anticipate that it will record a
small net profit in 2024. By 2026, we predict that Klarna will have
become self-sufficient in terms of capital generation. We do not
include further capital raising measures in our forecast. Given its
common equity tier 1 ratio of 16.2% and total capital ratio of
17.5% at the end of 2023, we consider Klarna maintains comfortable
buffers above its regulatory capital requirements.
"Previously, we miscalculated Klarna's RAC ratio for 2022. Klarna
Bank issued SEK276 million of AT1 perpetual capital in March 2022
and we included the full amount in our RAC calculation for 2022,
even though the regulator included only a portion of the issuance
when calculating regulatory capital ratios for the consolidated
group. Under our "General Criteria: Hybrid Capital: Methodology And
Assumptions," published March 2, 2022, we do not assign any equity
content to any instrument or portion of an issuance that is not
included in regulatory capital. We have corrected the error by
considering only the portion of AT1 capital recognized by the
regulator. At 13.8%, the RAC ratio is 10 basis points lower than we
previously calculated. The miscalculation did not lead to any
change in our assessment of the stand-alone credit profile, our
issuer credit rating on the bank, or the outlook on the rating.
"Klarna's deposit franchise is growing, and primarily consists of
term deposits, which contribute to sound asset-liability
management. We expect Klarna to continue to diversify its funding
profile, not only by expanding its own deposit platform but also by
tapping the senior unsecured market to fund further business
growth. Although Klarna's franchise is more price-sensitive than
that of retail banks in Sweden, we view the funding strategy as
broadly balanced. As of Dec. 31, 2023, customer deposits equaled
SEK97.1 billion (96% of the funding base). More than 80% of
deposits are fixed-term, and deposits have a far longer average
duration than loans. Furthermore, we view the group's liquidity
position as sound. It principally comprises central bank deposits
and high-quality securities and was equal to 21% of total assets at
the end of 2023. We calculate that Klarna has a buffer sufficient
to cover about 30% of customer deposits, after haircuts.
Furthermore, Klarna's regulatory liquidity coverage ratio of 720%
reflects its high share of term deposits.
"The stable outlook indicates that we expect Klarna to defend its
strong and expanding e-commerce position in its core markets while
becoming profitable over the next two years. Furthermore, we expect
the bank to make use of possible verticals in the payment and
banking segments to further diversify its revenue streams, while
managing the operational, IT, cyber security, and regulatory tail
risks embedded in its business model.
"In our base-case scenario, we assume that the bank will return to
profitability during 2024, despite investing in its business and in
technology. This will allow it to finance growth through retained
earnings, while maintaining a RAC ratio comfortably above 10%.
"We could lower the ratings if Klarna departed from its
underwriting standards and allowed its earnings to become dominated
by higher-risk markets or products, leading to a material increase
in credit losses and weaker asset quality. If this occurred, we
could revise our view of the bank's combined capital and risk
position, making it a material rating weakness."
Stiffer competition in Klarna's e-commerce segment could also
squeeze margins and depress overall earnings capacity. This could
put the bank's franchise strengths at risk or cause the RAC ratio
to weaken to below 10% for a prolonged period (absent further
injections).
S&P could raise the ratings if Klarna was able to break even and
then increase its profitability, leading to sustained earnings and
a RAC ratio comfortably above 10%. This could be supported by
progress in several areas including:
-- A broader financial product offering that diversifies the
bank's revenue streams and improves its loan-loss record;
-- Material improvements in cost efficiency; and
-- Achievement of strong market position and a wider consumer and
merchant base in its key markets, especially in the U.S. and
Germany.
An upgrade would depend on Klarna demonstrating a stable and
more-diversified funding profile, indicated, for example, by a
solid deposit franchise and access to alternative funding sources.
It would also depend on our view that Klarna's overall
creditworthiness had improved relative to that of peers.
=====================
S W I T Z E R L A N D
=====================
SUNSHINE LUXEMBOURG: Moody's Upgrades CFR to Ba2, Outlook Stable
----------------------------------------------------------------
Moody's Ratings has upgraded the long-term corporate family rating
of Sunshine Luxembourg VII SARL (Galderma or the company) to Ba2
from B2. Moody's has also upgraded the company's probability of
default rating to Ba2-PD from B2-PD. Concurrently Moody's has
withdrawn the B1 ratings on the company's senior secured bank
credit facilities. The outlook is stable, previously the ratings
were on review for upgrade.
The rating action follows the completing of the company's initial
public offering (IPO) on the SIX Swiss Stock Exchange, and the
repayment in full of the company's approximately $5 billion senior
secured first lien and second lien facilities. The existing debt
has been repaid using proceeds from the IPO alongside the issuance
of new $2.95 billion term debt which will not be rated. Following
the transaction the remaining ratings, including the CFR and PDR,
will also be withdrawn.
The rating action concludes the review for upgrade initiated by
Moody's on March 18, 2024.
RATINGS RATIONALE
The ratings reflect Galderma's IPO, which boosts the company's
financial flexibility through its access to public equity markets,
improve its liquidity profile and leads to a materially positive
impact on adjusted leverage.
Moody's expects that the company's Moody's-adjusted debt / EBITDA
will reduce below 3.8x from 5.9x as at December 2023, pro forma for
the transaction. Leverage is expected to reduce further to below 3x
over the next 12-18 months through continued earnings growth. The
debt reduction will also improve the company's interest cover
metrics, with Moody's-adjusted EBITA / interest expected to exceed
4x over the next 12-18 months, compared to 1.4x in 2023. Moody's
expects the company to generate material positive free cash flow
from 2024, compared to breakeven free cash flow in 2023.
The ratings reflect the company's: (1) diversified presence in
injectable aesthetics, therapeutic dermatology and dermatological
skincare markets; (2) solid market positions and growth prospects
in injectable aesthetics and dermatological skincare; (3) pipeline
assets with potentially sizeable opportunities; (4) history of
strong operating performance and good resilience over the economic
cycle; and (5) conservative financial policy.
The ratings also reflect the company's: (1) EBITDA concentration in
injectable aesthetics; (2) high reliance on a small number of
brands; (3) risks of reduced demand or pricing power in the event
of a weaker economic backdrop; and (4) potential for cash flows to
be limited by high working capital demands and new product launches
and business development spending.
LIQUIDITY
Galderma will retain good liquidity following the IPO, supported by
a new $700 million revolving credit facility, expected to be
undrawn at closing, and cash balances of $368 million as at
December 2023. Free cash flows are expected to be substantially
positive following the reduction in interest costs following the
transaction, with Moody's-adjusted free cash flow (FCF) / debt
above 10% in the next 12-18 months.
ESG CONSIDERATIONS
Galderma has limited exposure to environmental risks. It faces
social risks in connection with product safety and litigation,
regulatory pricing pressure and supply chain disruption. It has a
conservative financial policy in place following the IPO with a
medium term company-adjusted net leverage target of 2x, and
dividend policy of up to approximately 20% of net income.
Galderma's management has a strong track record of delivery and
executing on its transformation plan and there is a robust advisory
board structure with deep industry expertise.
OUTLOOK
The stable outlook reflects expectations that the company will
continue to grow revenues organically with stable to improving
profit margins, leading to leverage reducing to below 3x and FCF /
debt exceeding 10% over the next 12 months. The outlook also
assumes that the company will maintain good liquidity and will not
undertake material releveraging acquisitions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if (1) the company continues to
maintain organic revenue and EBITDA growth at least in the
mid-single digit percentages; and (2) demonstrates a successful
track record of pipeline execution, including the expected launch
of new therapeutic drug nemolizumab, whilst maintaining solid
market positions across its existing brands; and (3) achieves
further significant improvement in metrics including leverage and
cash flow; and (4) establishes a track record of adherence to a
conservative financial policy following the IPO.
The ratings could be downgraded if (1) the company's revenues or
EBITDA fail to grow on an organic basis; or (2) its
Moody's-adjusted gross debt/EBITDA fails to reduce below 3.5x on a
sustained basis; or (3) the company does not increase its
Moody's-adjusted FCF / debt cash flow from operations to debt
sustainably above 15%; or (4) the company undertakes material
debt-funded acquisitions or shareholder distributions; or (5)
liquidity deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
CORPORATE PROFILE
Headquartered in Zug, Switzerland, Galderma is a leading
dermatology company offering injectable aesthetics, therapeutic
dermatology and dermatological skincare products. Established in
1981, it has over 6,500 employees and was a wholly-owned subsidiary
of Nestle S.A. (Aa3 stable) until a consortium of financial
sponsors led by EQT and ADIA carved it out in mid-2019. It is
listed on the SIX Swiss Stock Exchange, with around 23% of shares
in free float on March 22, 2024. In 2023, the company reported
revenue of $4.1 billion.
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T U R K E Y
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SASA POLYESTER: Fitch Affirms 'B' LongTerm IDR, Outlook Negative
----------------------------------------------------------------
Fitch Ratings has affirmed Sasa Polyester Sanayi Anonim Sirketi's
(Sasa) Long-Term Issuer Default Rating at 'B'. The Outlook remains
Negative.
The Negative Outlook reflects high leverage, reduced profit margins
along with Fitch's expectation of only moderate deleveraging due to
continued investments in growth. Fitch anticipates that EBITDA net
leverage will stay high at 8.2x in 2024 because the demand for
polyester products is expected to remain subdued, and the company
is completing its investment projects. A reduction in leverage to
about 5.0x starting in 2025 is contingent upon the timely
completion and cash flow generation from projects, as well as a
prudent approach to the subsequent expansion phase.
The rating reflects Sasa's strong domestic market position as the
largest Turkish polyester producer and growing vertical
integration. This is balanced by single-site asset concentration
and exposure to the domestic Turkish economy at 76% of sales.
KEY RATING DRIVERS
Elevated Leverage: Weaker earnings coupled with persistent
capex-intensive investment meant EBITDA net leverage increased to
8.3x in 2023 from 4.2x in 2022. As Sasa's projects progress, Fitch
expects EBITDA net leverage to remain high at 8.2x in 2024. Fitch
anticipates that EBITDA net leverage will decrease to around 5.0x
in 2025 due to a pause in large capex plus cash generation from
completed projects. Fitch sees limited scope for further
deleveraging since Sasa has additional expansion plans including
USD1.5 billion propylene plant or new aromatics facility with
investments likely to start from 2026.
Fitch expects Sasa to start matching the pace of subsequent
investments with growth in earnings and to have a more disciplined
approach to leverage, restricted by certain covenants on the
existing debt facilities.
Stable Volumes, Shrinking Margins: Sasa maintained steady sales
volumes close to 1.2 million tonnes in 2023. Nevertheless, cost
inflation and more competitive pricing from Chinese competitors
squeezed the EBITDA margin to 15.5% in 2023 from over 19% in 2022.
For 2024, Fitch assumes only modest recovery although shipping
disruptions in the Red Sea supported polyester prices and benefited
local European suppliers at the start of 2024.
The outlook for the polyester market is muted in the short term as
Fitch expects economic growth in Turkiye (B+/Positive) where Sasa
generated 76% of revenues in 2023 to decelerate in 2024 and export
markets remain affected by stubbornly high interest rates and
subdued demand.
Earnings from Investments Delayed: The 1.75mt facility for purified
terephthalic acid (PTA), Sasa's main feedstock, is expected to be
completed in 2H24 whereas commissioning of new fibre and
melt-to-resin plants with combined capacity of 700,000 tons is
planned for 4Q24. Fitch believes that vertical integration though
PTA will be the main driver of a rebound in margins from 2025
onwards. Earnings from other projects will depend on market
conditions, timely and on budget completion and utilisation rates.
Short-term Funding Reduced: The company successfully drew down
committed investment loans and commercial banking facilities and
reduced the share of short-term funding facilities from around
USD1.45 billion (equivalent) as of end-June 2023 to USD0.7 billion
at end-2023. Fitch assumes that short-term funding, which accounted
for around 15% of total debt at the end of 2023, will remain low as
the company plans to issue new longer-dated convertible bonds in
2024.
Single-Site Producer: Sasa's manufacturing facilities are
concentrated in a single site in Adana, Turkiye, which exposes the
company to potential disruptions to the manufacturing process or
supplies through Turkiye's largest container port, Mersin. Asset
concentration is somewhat mitigated by the plant's segregation into
24 production lines. Sasa generates around 75%-85% of sales from
the domestic market and while its customers are mainly exporters,
it remains exposed to the deterioration of macro-economic
conditions in Turkiye.
Domestic Market Deficit: Sasa accounts for around 60% of domestic
polyester production capacity. Turkiye has historically been a net
importer of polyester products, mainly from Asia. Fitch believes
that expansion of Sasa's capacity from 1.2mt in 1Q24 to 2.1mt by
end-2024 can be absorbed by the domestic market and will bolster
its market share due to the lack of capacity for growth of other
domestic producers. However, Fitch believes competition from
low-cost producers in Asia could impact the pricing of Sasa's
products or put pressure on the new assets utilisation rates in the
medium term.
Standalone Rating: Sasa is majority-owned by Erdemoglu Holding,
which directly owns around 55% of shares and controls an entity
that owns around 21% of Sasa's shares. Fitch rates Sasa on a
standalone basis as it is run independently, relies predominantly
on external funding, has its own treasury functions and does not
provide any guarantees for other group companies.
Fitch views support from the parent as moderate but increasing. In
2023, the parent sold around 3.8% share capital in Sasa on the
market and channeled around TRY8.3 billion (around USD290 million)
of proceeds to Sasa via intercompany transactions.
FX, Interest Rate Exposure Manageable: Sasa's foreign-exchange (FX)
exposure is manageable as over 90% of sales are indexed to the euro
and US dollar. Raw materials prices (accounting for around 75% of
operating costs) are also hard-currency-denominated. Sasa's
domestic customers are mostly export-driven companies selling in
hard currencies. As of December 2023, around 14% of total debt was
lira-denominated and Fitch expects similar levels in its forecasts.
Interest rates on Sasa's debt facilities are predominately fixed
and low level of borrowings denominated in Turkish lira limits
exposure to high domestic interest rates.
DERIVATION SUMMARY
Alpek, S.A.B. de C.V. (BBB-/Stable) is a Mexican chemical producer
that focuses on the consumer goods-oriented polyester market
accounting for around 75% of its turnover. With total capacity of
8.873mt, it is significantly larger, already diversified into PTA
production and has a wider geographical reach than Sasa.
Ineos Quattro Holdings Limited (BB/Negative) is one of the largest
PX, PTA and PVC manufacturers in Europe. It is also one of the
leaders in the global polystyrene and styrene monomers markets.
Ineos is significantly larger and more diversified than Sasa.
Petkim Petrokimya Holdings A.S. (B-/Stable) and Sasa are both small
commodity producers with similar margins, but Sasa will generate
higher revenue and EBITDA once its expansion programme is
completed, and has a stronger domestic market share than Petkim.
Both companies have high leverage and Sasa has more exposure to
execution risk due to its capex plan.
Lune Holdings Sarl (Kem One; B/Stable) is an integrated PVC
producer with production assets concentrated in the south of
France. Both Sasa and Kem One have had volatile capacity
utilisation rates in recent years and are carrying out significant
investments to improve their positions in their respective value
chains. Kem One has more conservative leverage and stronger
liquidity, but Sasa has larger scale and better supplier
diversification.
Roehm Holdings GmbH (B-/Stable) has similar scale to Sasa but
greater diversification, a stronger market position albeit in more
cyclical end market. Like Sasa, Roehm is expanding through large
investment projects, which drives up its leverage.
KEY ASSUMPTIONS
- Sales volumes of 1.2mt in 2024, 1.6mt in 2025, 1.7mt per year
over 2026-2028
- EBITDA margin around 18% in 2024 and average 22.5% over
2025-2028
- Cumulative capex of USD2.0 billion over 2024-2028
- No dividends or share repurchase
- Turkish lira to US dollar on average at 31.31 in 2024, and 39.63
thereafter
- PTA facility starting production in 4Q24, with its fibre and
melt-to-resin lines operational by end of 2024
- TRY8.3 billion injected by Erdemoglu Holdings A.S treated as 100%
non-debt
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The Negative Outlook means positive rating action is unlikely at
least in the short term. Deleveraging to below EBITDA net leverage
of 5x would result in a revision of the Outlook to Stable
- Sustained reduction in EBITDA net leverage below 3.5x would be
positive for the rating
- Successful refinancing supporting liquidity
- Successful completion of expansion projects with a record of
stable, high utilisation rates and cash flow generation
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA net leverage above 5x on a sustained basis
- EBITDA interest cover sustainably below 1.5x
- Deterioration in liquidity position and high refinancing risk
- Aggressive expansion plan or deteriorating margins leading to
recurring negative free cash flow
LIQUIDITY AND DEBT STRUCTURE
Modest Liquidity: Fitch views Sasa's liquidity as tight due to
reliance on timely disbursement of the remaining portion of
investment loan and roll-over of short-term debt. Reliance on
short-term funding improved markedly over 2023 and at the end of
the year the company had TRY5.1 billion of cash versus current
financial liabilities of around TRY23 billion.
Sasa has some flexibility to stagger its capex and access to
various forms of committed and uncommitted financing from a mix of
Turkish and foreign credit institutions. Fitch believes that
liquidity could become tight if those lines become unavailable.
ISSUER PROFILE
Sasa is the largest Turkish manufacturer of polyester staple
fibres, filament yarns, polyester-based and specialty polymers and
intermediates.
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 Prior
----------- ------ -----
Sasa Polyester Sanayi
Anonim Sirketi LT IDR B Affirmed B
TURKIYE WEALTH: Fitch Hikes LongTerm IDR to 'B+', Outlook Positive
------------------------------------------------------------------
Fitch Ratings has upgraded Turkiye Wealth Fund's (TWF) Long-Term
Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'B+'
from 'B'. The Outlook is Positive. Fitch has also upgraded TWF's
senior unsecured notes to 'B+' from 'B'.
Fitch classifies TWF as a government-related entity (GRE) of
Turkiye (B+/Positive) and equalises its ratings with those of the
sovereign irrespective of its Standalone Credit Profile (SCP; b).
The upgrade of the IDRs and the Positive Outlook follow the upgrade
of Turkiye's sovereign ratings (see 'Fitch Upgrades Turkiye to
'B+'; Outlook Positive' dated 8 March 2024).
KEY RATING DRIVERS
Support Score Assessment 'Virtually certain'
Fitch considers that extraordinary support from the Turkish
government to the TWF would be 'Virtually Certain' in case of need,
reflecting a support score of 55 (out of a maximum 60) under
Fitch's GRE criteria. This reflects the combination of
responsibility to support and incentive to support factors
assessments.
Responsibility to Support
Decision Making and Oversight 'Very Strong'
Fitch views TWF as a policy-driven key strategic long-term
investment arm of Turkiye, underpinned by the Turkish state's full
ownership and very strong control over TWF's strategy, operations,
and financial activities. TWF provides regular reporting to the
government authorities, including the Ministry of Treasury and
Finance on its external borrowing, and through a three-stage audit
mechanism requiring annual presidential and parliamentary audits,
including independent external audit.
The 'Very Strong' assessment also reflects strong control and
oversight through its affiliation to the Presidency of the Republic
of Turkiye, represented through TWF's board of directors. As a key
economic agent of the Turkish state, Fitch does not expect changes
to TWF's decision making and oversight over the medium term.
Precedents of Support 'Strong'
This assessment is based on a first demand full Treasury guarantee
on TWF's syndicated euro loan that accounts for roughly 30% of its
outstanding debt stock as of February 2024 (including its recent
debut bond issuance of USD500 million). Support is also evidenced
by the provision of on-lent Treasury funding for the
recapitalisation of the state-owned banks and acquisition of
state-owned insurance and pension companies. Fitch expects
guarantees on future borrowing may be granted if instrumental for
TWF's smooth access to capital and financial markets.
Since its inception, the government has transferred key strategic
state-owned companies to TWF through equity injections. TWF also
benefits from a supportive government policy, and exemption from
privatisation, competition and public procurement laws to the
waiving of dividends.
Incentives to Support
Preservation of Government Policy Role 'Very Strong'
This assessment reflects TWF's strategic importance for the
national government's long-term economic agenda with no direct
substitutes, which leads us to believe that a default by TWF on its
financial obligations would lead to deep political repercussions.
TWF's highly strategic public policy role was demonstrated by the
improvement of core capital adequacy ratios of key state-owned
banks in TWF's portfolio by injecting a total of TRY184.2
billion(around USD9.6 billion as March 2023), consolidation of
state-owned insurance and pension companies in 2020-2022 to create
a regional leader in the sector. TWF's acquisitions consist of
controlling equity stakes in the technology and telco sector such
as Turkcell İletişim Hizmetleri A.S. (26.2%) and Turk
Telekomünikasyon A.S. (55%) for economies of scale of key
strategic assets. TWF has also made investments in the real estate
sector to create an international financial hub (Istanbul Finance
Center).
TWF manages key state-owned portfolio companies in a wide range of
sectors ranging from aviation, telecommunications to agriculture,
energy and mining with total assets of TRY5,613 billion or about
37% of national GDP at end-2022, making TWF among the
highest-profile entities under the government.
Contagion Risk 'Very Strong'
The assessment reflects TWF's growing presence as a reference
Turkish issuer in the international financial markets, as also
evidenced by its recent debut five-year USD500 million bond
issuance in February 2024, which trades closely to the government
benchmark US dollar bond and its outstanding syndicated euro loan
from international banks. Fitch consequently believes a default by
TWF despite its modest debt would impair access to financing for
the government and other GREs, also because TWF benefits from a
first-demand Treasury guarantee on its syndicated euro loan.
Standalone Credit Profile
TWF's 'b' SCP reflects unchanged financials and the combination of
a 'Weaker' risk profile and 'bbb' category financial profile.
Risk Profile: 'Weaker'
Fitch assesses TWF's risk profile at 'Weaker', reflecting the
combination of assessments.
Revenue Risk: 'Weaker'
This assessment reflects weaker demand and midrange pricing
characteristics. The dividend up-stream from the subsidiaries,
which contribute about 50% of TWF's expected EBITDA over the medium
term are subject to the volatile operating environment that is
still marked by high inflation. Fitch expects dividend income to
grow at a CAGR of 23% below expected annual inflation of 38% due to
a less diversified dividend upstream based on sector and geography
; stemming mainly from Borsa Istanbul and TWF Financial Investment
operating in the insurance and pension sectors and Turk
Telekomünikasyon A.S., Turkcell İletişim Hizmetleri A.S. in the
telecommunication sector.
Royalties are expected to make up 40% of EBITDA and demonstrate
fairly inelastic and counter-cyclical demand, somewhat offsetting
the volatility of dividends. Fitch assesses pricing characteristics
as 'Midrange' mainly due to revenue growth trend broadly in line
with inflation for the portfolio companies and its royalties.
Expenditure Risk: 'Midrange'
This assessment reflects expected moderate cost volatility for
royalties. Fitch expects these to comprise about 95% of operating
spending on a gross basis in its rating case and that they will
move in tandem with expected operating revenue growth due to their
fixed nature. They will be broadly stable due to management's
commitment and ability to curtail costs.
Investment planning is assessed as 'Midrange' with a sound
investment and funding strategy with moderate execution risks. At
the Holdco level, there is no record of impairment loss of the
portfolio companies and those under management are mature and
well-established in their industries. Capex is carefully planned
and conditional on funding being planned in advance. Most portfolio
companies can generate stable free cash flow to realise investments
and funding.
TWF has a capital recycling policy in place that indicates it
invests in equity stakes that will be financed through divestments
in minority stakes to invest in new sectors such as agriculture,
petrochemicals and renewables.
Liabilities and Liquidity Risk: 'Weaker'
This assessment reflects its belief that TWF's debt servicing
liabilities may be above expectations as they are entirely
denominated in foreign currency and it lacks committed bank lines
to absorb a potential rise of debt servicing requirements above
expected operating cash flow. This is compounded by the relatively
short average maturity of about three years for the TRY91 billion
(USD2.9 billion) bonds and loans currently outstanding. However,
Fitch expects a gradual lengthening of debt repayment profile as
TWF continues to tap the capital markets.
The risks are mitigated by TWF's policy of swapping some FX debt
exposure, and its cash and liquidity reserves of around
TRY39billion at end-February 2024. The majority of liquidity is
foreign-currency-denominated and invested in short-term deposits,
euro treasury and corporate bonds providing a natural hedge. In
addition, the rental income from Istanbul Finance Center is
foreign-currency-denominated.
TWF's contingent liabilities are moderate and relate to the
Istanbul Finance Center's borrowing of TRY6.5 billion for the
construction and development of the finance centre in Atasehir,
located on the Asian side of Istanbul. The financing is guaranteed
by TWF and consists ofTRY1.5 billion green sukuk issuance and a
TRY5 billion bridge loan.
Financial Profile 'bbb'
Fitch expects TWF's financial debt at HoldCo level to rise, mainly
due to FX volatility and new investments, but it will remain
moderate, at TRY144.7 billion in 2027 (up from TRY91.5 billion as
of February 2024). Fitch expects investments to be in strategic
sectors, such as petrochemicals and mining, financial services,
technology, telecommunications and real estate. Net funding
requirements will be partly covered by possible divestments of
minority equity stakes and Fitch forecasts average net borrowing at
about TRY3.6 billion.
Fitch expects large investments to deplete TWF's cash to TRY11.0
billion in 2027, from TRY27.0 billion in 2022. The expected
leverage ratio (Fitch net adjusted debt/EBITDA) of between 8x-9x on
average over the scenario horizon leads to a primary metric ratio
in the 'bbb' category.
Additional Risk Factors Considerations
Asymmetric risk attributes are assessed as Neutral. Accounting
policies in place comply with international accounting standards
with consolidated accounts audited by reputable external auditor
since 2018. TWF also strengthens and increases the accountability
and transparency of the HoldCo and portfolio companies through the
publication of an integrated annual report since 2021.
Derivation Summary
Fitch classifies TWF as a GRE of Turkiye and equalises its ratings
with those of the Turkish sovereign irrespective of its SCP. This
reflects Fitch's view of 'Virtually Certain' extraordinary support
from Turkiye with a support score of 55 (out of maximum 60) under
Fitch's GRE criteria.
Short-Term Ratings
Under Fitch's criteria, when an issuer's Long-Term IDR is equalised
with a sponsor's (government), the Short-Term IDR is also
equalised. TWF's Short-Term IDR is 'B', in line with Turkiye's.
National Ratings
TWF's 'AAA(tur)' National Rating reflects its role as a key
strategic GRE in Turkiye with the highest creditworthiness among
other GREs, and therefore exceptional financial support from the
state.
Debt Ratings
The long-term rating on TWF's senior unsecured USD500 million
8.250% notes due in February 2029 is in line with its Long-Term
IDR.
Issuer Profile
TWF is the sole sovereign wealth fund of Turkiye and manages key
state-owned companies on behalf of the government to promote the
national economy in alignment with the national strategic agenda.
At end-2022, TWF's total consolidated assets accounted for about
37% of national GDP.
KEY ASSUMPTIONS
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2017-2022 historical figures and 2023-2027
scenario assumptions:
- Financial debt includes: (i) the existing syndicated loan
guaranteed by Treasury, (ii) loan used for the purchase of 55% of
Turk Telekom shares in 2022 and TWF's USD500 million bond issuance
in 2024
- Net debt change on average at TRY3.6 billion.
- Dividend up-stream included as per management's case and expected
to increase to TRY10.7 billion in 2027 from TRY3.6 billion in 2022
- Operating revenue CAGR at 35%, slightly below expected average
inflation of around 38%, and limited by estimated CAGR for dividend
income at around 20%
- Operating expenditure CAGR at 38% in 2023-2027, in line with
expected average inflation of around 38%
- Average funding cost at 8.9% as TWF will borrow predominantly on
the international markets in euros or US dollar
- US dollar/Turkish lira (year-end) assumptions are based on the
Fitch sovereign team's estimate of 38.0 in 2024, 41.0 in 2025, with
5% annual depreciation over the previous year's rate for 2026 and
2027.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of the sovereign would lead to a downgrade of TWF.
A weaker assessment of the overall support factors leading to a
score below 45 under its GRE Criteria could lead to a downgrade.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of the sovereign would lead to an upgrade of TWF,
provided that overall support factors remains unchanged.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
TWF's IDRs are credit linked to the Turkish sovereign's ratings.
Entity/Debt Rating Prior
----------- ------ -----
Turkiye Wealth Fund LT IDR B+ Upgrade B
ST IDR B Affirmed B
LC LT IDR B+ Upgrade B
LC ST IDR B Affirmed B
Natl LT AAA(tur)Affirmed AAA(tur)
senior unsecured LT B+ Upgrade B
YAPI VE KREDI: Fitch Puts Final 'CCC' Rating to AT1 Capital Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Yapi ve Kredi Bankasi A.S.'s (YKB;
B/Positive/b/Rating Watch Positive (RWP)) USD500 million issue of
additional Tier 1 (AT1) capital notes a final rating of 'CCC' and
placed it on RWP.
The final rating is the same as the expected rating assigned on 26
March 2024.
KEY RATING DRIVERS
The notes are Basel-III compliant, perpetual, deeply subordinated,
fixed-rate resettable AT1 debt securities. The notes have fully
discretionary non-cumulative interest payments and are subject to
partial or full write-down if the group's common equity Tier 1
ratio (CET1) ratio falls below 5.125%. The principal write-down can
be reversed and written-up at full discretion of the issuer if
positive solo and consolidated distributable net profit are
recorded.
The rating assigned to the securities is three notches below YKB's
Viability Rating (VR) of 'b'/RWP, in accordance with Fitch's Bank
Rating Criteria. Fitch has only notched the debt rating three times
from YKB's VR (twice for loss severity and only once for
non-performance risk), instead of the baseline four notches, due to
rating compression, as YKB's VR is below the 'BB-' anchor rating
threshold.
The notes have no fixed maturity, although YKB will have an option
(subject to approval by the Banking Regulation and Supervision
Agency) to repay the notes after five years.
YKB's consolidated regulatory CET1 and Tier 1 ratios were 13.8% and
15.3% (excluding regulatory forbearance on foreign-currency
risk-weighted assets), respectively, at end-2023, well above its
regulatory minimum requirements of 8.05% and 9.55%, respectively,
including a capital conservation buffer of 2.5% and domestic
systemically important bank buffer of 1%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
As the notes are notched down from YKB's VR, the rating is
sensitive to a downgrade of the VR. The notes' rating is also
sensitive to an unfavourable revision in Fitch's assessment of
incremental non-performance risk. The notching of the notes' rating
would be widened to four should YKB's VR be upgraded to the 'bb-'
threshold.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes' rating is sensitive to an upgrade of YKB's VR.
DATE OF RELEVANT COMMITTEE
22 March 2024
Entity/Debt Rating Prior
----------- ------ -----
Yapi ve Kredi
Bankasi A.S.
junior
subordinated LT CCC New Rating CCC(EXP)
===========================
U N I T E D K I N G D O M
===========================
888 HOLDINGS: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has downgraded 888 Holdings PLC's (888) Long-Term
Issuer Default Rating (IDR) to 'B+' from 'BB-'. The Outlook is
Stable. Fitch has also downgraded senior secured debt ratings of
888 Acquisitions Limited and 888 Acquisitions LLC to 'BB-' from
'BB+'. Their Recovery Ratings have been revised to 'RR3' from
'RR2'.
The downgrade follows its forecast revision of slower deleveraging
due to weaker revenue growth and more muted profitability
improvement than its earlier expectations, which also results in
EBITDAR fixed charge coverage (FCC) falling below its previous
negative sensitivity (under 1.8x) until at least 2025.
888's business profile continues to exhibit strengths commensurate
with a higher rating category, than its current 'B+' IDR, including
a strong brand portfolio, omnichannel presence in its core market
of the UK, as well as some geographical diversification. It is
offset by weaker profitability and higher EBITDAR net leverage, of
around 6.0x in 2024 trending to below 5.5x by 2026, than its
closest peers, and consequently a higher interest burden that
limits free cash flow (FCF) generation.
The Stable Outlook is driven by limited further downside of revenue
decline after structural changes to customer composition both in
the UK and international segments, and its forecast of low
single-digit positive FCF margins starting from 2025. It also
assumes strict budget discipline and a conservative financial
policy with no dividends or debt-funded acquisitions, as 888
focuses on deleveraging by 2026.
KEY RATING DRIVERS
Change in Revenue Evolution Forecast: Its revised 2024 revenue
growth forecast is now 360bp below the previous review, due to
prolonged weak dynamics of the UK online business that Fitch
expects to continue at least in 1H24, as well as weak 2H23 results
in 888's international segment. The group's revised assumptions of
future profitability of its US B2C operations and consequent
decision to terminate the partnership operating under Sports
Illustrated brand in the US will negatively affect medium- to
long-term revenue growth opportunities and reduce business
diversification, but should also benefit EBITDA in 2024.
Recreational Players Impacting Profitability: Fitch acknowledges
that an increasing focus on a recreational player base provides
higher visibility of revenues over the long term as this revenue is
less likely to be hit by regulatory policies. However, Fitch views
higher-spending players as yielding higher profitability and Fitch
therefore believes that shifting to a more recreational-based
structure of active players will likely provide lower
profitability, partially offsetting the synergies achieved
post-acquisition of William Hill. Its updated forecast assumes that
the EBITDAR margin will reach 19.2% in 2024 after 18.0% in 2023,
and improve further to around 20% by 2026.
Slower Deleveraging Path: Its revised revenue and profitability
forecasts assume slower deleveraging. Fitch now expects net EBITDAR
leverage to have exceeded 6.0x in 2023, which it will remain above
in 2024 and 2025 before dropping below 5.5x in 2026. Additionally,
further deleveraging is contingent on 888's ability to deliver its
cost-optimisation programme and identified value-enhancing
initiatives, which entail some execution risk.
Rebased Leverage Sensitivities: Fitch has rebased its leverage
sensitivities to reflect its view of the updated business profile
and its reassessed debt capacity for the issuer. These tightened
leverage sensitivities align its assessment of 888's scale,
diversification, revenue visibility, operating profitability and
cash flow generating capacity against sector peers in the 'B' and
'BB' rating categories.
Low FCC: Fixed charge cover (FCC) under Fitch's rating case is
forecast to remain around 1.7x in 2024 and 2025, driven by a high
interest burden and sizeable lease expense. This level of fixed
costs limits available cash flows to support growing operations and
capex that partially consists of less discretionary labour costs
related to software development. Fitch does not view the current
level of FCC as commensurate with the 'BB' rating category. Fitch
forecasts FCC to improve to 2.0x by 2027 based on organic EBITDAR
growth and lower variable interest payments under Fitch's rating
case.
Recent Corporate Governance Record: "Know your client" procedure
failures that led to a VIP account freeze in early 2023,
unanticipated top management changes and minority shareholder
suitability concerns from the UK regulator, underline its view of
recent corporate governance events as negative for the rating. High
regulatory scrutiny on the gaming business means corporate
governance issues could lead to higher regulatory risks. At the
same time, Fitch acknowledges 888's cooperation with regulators and
the self-reported nature of some of incidents in its international
markets, as well as the conclusion of UK Gambling Commission
license review with no impact or license conditions on the group.
Risk of Less Regulated Markets: Despite receiving 95% of revenue
from locally regulated or taxed markets, 888 continues to actively
develop its optimize markets, some of which are not fully
regulated. Their higher profitability may provide a boost to
margins and improve brand perception in case these markets become
regulated. However, they also have higher volatility of revenues
and profits over the medium term, including extreme cases of part
or full market closures or legal challenges and claims.
DERIVATION SUMMARY
888's business profile is weaker than that of Flutter Entertainment
Plc's (Flutter, BBB-/Stable) and Entain Plc's (Entain, BB/Stable),
given the former's similar portfolio of strong brands, but smaller
scale and slightly weaker geographical diversification with no
sizeable US presence. Fitch also projects 888 to have higher
leverage and lower profitability over 2024-2025, which translates
into its rating differentials with Flutter and Entain.
All three entities have high exposure to the UK market and are
vulnerable to regulatory risk, which is factored into their current
ratings. Of these three, 888 has the highest exposure to the UK and
highest share of online gaming revenues, making it more vulnerable
to potentially adverse regulations.
Post-acquisition, 888 is also more leveraged than Allwyn
International a.s. (BB-/Stable). Its organic growth potential of
online gaming and betting is offset by higher regulatory risk than
Allwyn's lottery business. Allwyn's strong FCF generation and lower
leverage translate into a one-notch rating differential, which is
only partially mitigated by a more aggressive forecast financial
policy and a more complex group structure.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Flat revenue development in 2024, followed by with low
single-digit growth in 2025-2027
- EBITDAR margin improving to around 19% in 2024 from 18% in 2023,
and to 20.0% in 2026-2027 driven by cost optimisation and savings
- Non-recurring expenses of around GBP100 million in 2024-2025
- Capex at around 4.2% of revenues to 2027
- No dividends in 2024-2027
RECOVERY ANALYSIS
Fitch assumes that 888 would be considered a going-concern (GC) in
bankruptcy and that it would be reorganised rather than
liquidated.
The GC EBITDA estimate reflects its view of a sustainable,
post-reorganisation EBITDA level upon which Fitch bases the
enterprise valuation (EV). In its bespoke GC recovery analysis,
Fitch considered an estimated post-restructuring EBITDA available
to creditors of about GBP220 million.
Fitch applied a distressed EV/EBITDA multiple of 6x, within the
higher range of multiples Fitch uses for the corporate portfolio
outside of the US. In its view, the high intangible value of 888's
brands and historical multiples of B2C brands acquisitions,
including William Hill International by 888 itself, support an
above-average multiple. This multiple is higher than the 5.0x one
Fitch uses for Inspired Entertainment, Inc (B/Stable) and 5.5x
Fitch uses for Meuse Bidco SA (B+/Stable).
As per its criteria, 888's GBP13 million operating company debt
ranks ahead of all holding company debt of GBP1,962 million, which
includes senior secured debt and GBP150 million senior secured
revolving credit facility (RCF), assumed fully drawn at default.
After deducting 10% for administrative claims, its principal
waterfall analysis generated a ranked recovery in the 'RR3' band,
indicating a 'BB-' instrument rating. The waterfall analysis output
percentage on current metrics and assumptions is 60% for the senior
secured notes and term loans, resulting in a 'BB-'/'RR3' rating.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action or Upgrade:
- EBITDAR margin being maintained above 15%
- Sustained low single-digit FCF margins after dividends
- Evidence of adjusted net debt/EBITDAR trending below 4.5x
- EBITDAR FCC above 2.0x on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action or Downgrade:
- Consistent revenue decline due to loss of market shares in core
markets or regulatory pressures
- EBITDAR margin below 12% due to increased regulatory pressure or
operating underperformance
- Negative FCF after dividends
- Adjusted net debt/EBITDAR above 5.5x on a sustained basis
- EBITDAR FCC below 1.6x on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity, Concentrated Maturities: Fitch estimates
that as of 31 December 2023, 888 had sufficient liquidity with
Fitch-calculated readily available cash of around GBP80 million
(excluding GBP128 million customer deposit balances and GBP50
million adjustment for working-capital swings) and a fully undrawn
GBP150 million RCF. At the same time, all debt except for its GBP11
million legacy William Hill International bonds, matures in
2027-2028.
Its forecast assumes FCF margin to remain positive from 2025
onwards, but not sufficiently for full debt repayment at maturity.
Fitch therefore expects 888 will aim to refinance a majority of its
outstanding debt well ahead of maturities.
ISSUER PROFILE
Gibraltar-based gaming operator 888 is a global online gaming and
sports betting operator focused on casino and poker, with retail
operations in the UK.
ESG CONSIDERATIONS
888 Holdings PLC has an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due to increasing
regulatory scrutiny of the sector, particularly in the UK, greater
awareness around social implications of gaming addiction and an
increasing focus on responsible gaming. Although Fitch has
reflected conservative assumptions on UK online sales and
profitability, ahead of the UK Online Gambling Review, more
punitive legislation than envisaged could put ratings under
pressure, given 888's high leverage. This has a negative impact on
the credit profile, and is relevant to the rating[s] in conjunction
with other factors.
888 Holdings PLC has an ESG Relevance Score of '4' for Governance
Structure- Board Independence and Effectiveness, Ownership
Concentration due to recent unanticipated top management rotations,
which has a negative impact on the credit profile, and is relevant
to the rating[s] in conjunction with other factors. Recent
regulator's concerns over suitability of one of its minority
shareholders have resulted in a license review that concluded with
no license conditions, remedies or penalties imposed on 888.
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
----------- ------ -------- -----
888 Acquisitions
Limited
senior secured LT BB- Downgrade RR3 BB+
888 Holdings PLC LT IDR B+ Downgrade BB-
888 Acquisitions LLC
senior secured LT BB- Downgrade RR3 BB+
BIDVEST GROUP (UK): Fitch Affirms 'BB' Sr. Unsec. Notes Rating
--------------------------------------------------------------
Fitch Ratings has affirmed Bidvest Group Limited's (The) Long-Term
Issuer Default Rating (IDR) at 'BB' with a Stable Outlook. Fitch
has also affirmed The Bidvest Group (UK) Plc's USD800 million
senior guaranteed notes at 'BB' with a Recovery Rating of 'RR4'.
Bidvest's ratings reflect the company's leading market position in
a range of diverse business segments, including a strong portfolio,
with business-to-business assets with a sizeable portion of
recurring revenues. Additionally, it has a conservative financial
profile and robust liquidity. With around 78% of revenues and
EBITDA generated in South Africa (SA; BB-/Stable), the rating is
highly influenced by the country's fairly weak operating
environment. Leverage is not a factor currently constraining the
ratings.
The Stable Outlook reflects its expectation that Bidvest will
continue to deliver resilient operating performance and free cash
flow (FCF), and manage its financial profile and liquidity
conservatively. Further diversification into developed markets, or
improvements in South Africa's operating environment, coupled with
maintained financial discipline may lead to positive rating
action.
KEY RATING DRIVERS
Continued Emphasis on Offshore Growth: Approximately 22% of group
EBITDA was generated from operations outside company-defined
Southern Africa during the financial year ending June 2023 (FY23)
and 1HFY24. Past M&A in Europe (the UK, Ireland and Spain) and
Australia provide access to hard-currency (HC) revenue and EBITDA
generation. Recent acquisitions and the enlarged international
footprint have improved geographical diversification from around
11% of group EBITDA generated from operations outside Southern
Africa in FY20 (including two months of PHS trading).
Fitch expects the bulk of M&A capital to be deployed offshore in
hygiene services and facilities management. Bidvest has a
significant market share in SA, so real growth will come from
offshore, supported by economies-of-scale advantages such as cost
optimisation, purchasing and cross-selling in its international
service operations.
Diversified Business Profile: Bidvest's cash flow benefits from
strong domestic brands with a leading market position in key
segments. While barriers to entry in the business services segment
are fairly low, Bidvest benefits from its extensive product
offering, strong brand recognition, and national footprint in SA.
This allows the group to lead price initiatives in many of its SA
segments and provides resilience during economic downturns.
Slow Growth in SA: SA's economy grew just 0.6% in 2023, as
significant power cuts, high inflation and a struggling logistics
sector contributed to economic stagnation. Fitch expects slow but
gradually improving GDP growth towards 0.9% in 2024 with power cuts
(or load-shedding) to ease relative to 2023, but still weigh on the
economy together with blockages in transportation.
Adequate HC Debt Service: Based on its HC EBITDA generation, and
given its low leverage (with EBITDA net leverage at 2.0x in FY23),
the applicable Country Ceiling for Bidvest is currently 'AAA' as
the HC EBITDA generated in countries with 'AAA' Country Ceilings
covers at least one year of HC debt service.
Weak Operating Environment, FX Mismatch: Fitch's assessment of
Bidvest's operating environment is highly influenced by its
significant exposure to SA, with around 78% of the group's EBITDA
correlating with SA's GDP, including foreign-exchange (FX) risk,
power shortages and inflation. This influences the group's
Long-Term Local-Currency IDR, which is well below the applicable
Country Ceiling and therefore, acts as a cap on the Long-Term
Foreign-Currency IDR of 'BB'.
Bidvest also faces a material FX mismatch with about 65% of gross
debt in foreign currencies at end-2023, against around 22% of
EBITDA generated offshore. While US dollar-denominated debt has
been swapped into sterling to part-match sterling-denominated
earnings, the overall foreign- and local- currency mismatch can
affect its debt service metrics, should the rand deteriorate in
relation to foreign-currency debt.
Recurring Contractual Revenue: Bidvest's ratings reflect a
resilient business model with moderate cash flow visibility backed
by one-to-five-year contracts with diversified counterparties. Its
contractual revenue is mostly concentrated in the business services
segment. Bidvest has a three-year average contract tenure in its
services international division. Within the freight division
Bidvest has a few take-or-pay contracts, which also contribute to
improving earnings visibility.
Deconsolidated Profile Non-Material: Bidvest holds a 100% stake in
Bidvest Bank and other financial- services assets. The
deconsolidation of these financial services operations is
immaterial to the rating, in its view. Fitch focuses on the
consolidated profile unless the risk profile or capital
requirements of these financial-services operations materially
change.
DERIVATION SUMMARY
Bidvest benefits from a well-diversified portfolio of services and
products across a diverse set of sectors predominantly in SA. This
differentiates Bidvest's rating from service, industrial or
consumer product peers and limits the universe of comparable
publicly rated peers.
In the services divisions (40% of 1HFY24 EBITDA (pre-central cost))
Bidvest's profitability is generally higher than peers, i.e.
company-defined EBITDA margin around 12% in services international
(and closer to 14% in services SA), compared with catering and food
services Sodexo SA (BBB+/Stable) and cleaning and facility services
Serco Group Plc and ISS A/S with EBITDA margins around 5-6%. This
is likely due to a mix effect of services provided as Bidvest's
services margins are fairly similar to Rentokil Initial Plc's
(BBB/Stable) European hygiene operations, generating an operating
margin of around 15%.
In terms of scale, Bidvest's services operations (international and
SA) represents around EUR300 million (equivalent) of EBITDA (group
EBITDA above EUR600 million-equivalent), similar to Serco's
services operations, but significantly smaller than Rentokil
Initial and Sodexo, both with EBITDA around EUR1.3 billion.
Fitch also compares Bidvest with European technical installation
service company SPIE SA (BB+/Stable), which has a strong presence
in France, Germany and north-western and central Europe, where the
group generates the majority of its revenue. SPIE has higher gross
leverage and weaker business diversification, but operates in a
stronger and more diversified operating environment.
KEY ASSUMPTIONS
- Revenue to grow around 10% in FY24 and around 5%-6% to FY26 (both
including M&A), following a strong 15% in FY23, due to acquisitions
and organic sector opportunities
- Stable trading margins to FY26 as cost saving efficiencies offset
delayed pass-through of cost inflation
- Capex to average about 3.3% of revenue per year for FY24-FY26
- Around ZAR3 billion of international M&A per year until FY26 at
valuation multiple of 10x with an average EBITDA margin of 12%
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Strengthening of SA's operating environment
- Improved geographical diversification, with a share of EBITDA
generated in developed markets trending towards 30% and with lower
reliance on SA, coupled with lower FX mismatch, access to
international market funding, and consolidated EBITDA net leverage
remaining below 2.5x
- Sustained low-to-mid single-digit FCF margins (post recurring
dividends)
- EBITDA interest cover sustained at above 4.0x
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Deterioration in SA's operating environment
- Significant market-share erosion and operating pressures leading
to weaker profitability, and cash flow generation
- Evidence of a more aggressive financial policy such as large
debt-funded investments, leading to consolidated EBITDA net
leverage above 3.5x on a sustained basis
- Sustained neutral to volatile FCF margins
- Consolidated EBITDA interest cover below 3.5x on a sustained
basis
LIQUIDITY AND DEBT STRUCTURE
Robust Liquidity: Bidvest had comfortable liquidity at end 1HFY24,
supported by a cash balance of ZAR4.8 billion (excluding Bidvest
Bank and around ZAR0.5 billion of restricted cash). It also has
access to a EUR562 million committed revolving credit facility
(RCF, around ZAR9.0 billion undrawn), as well as short-term
bilateral facilities through SA banks.
Debt Structure: Bidvest's RCF and term loan (TL; EUR187 million)
facilities mature in June 2026. Its USD800 million fixed-rate notes
mature in September 2026. Fitch expects Bidvest to explore
refinancing options for its fixed-rate notes well ahead of
maturity. Fitch forecasts higher debt service costs on floating-
rate debt and on refinancing of debt, in line with a higher
interest rate environment.
Bidvest has a staggered maturity profile under its ZAR12 million
domestic medium-term notes programme.
ISSUER PROFILE
Bidvest is a SA diversified business-to-business services,
manufacturing, trading and distribution group with over 250
individual businesses in SA, the UK, Ireland, Australia, Spain and
recent entry into Singapore. It employs over 125,000 people. The
company's reported revenue was around EUR6 billion in FY23.
Bidvest was founded in 1988 and is listed on the JSE Limited in
Johannesburg, SA.
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
----------- ------ -------- -----
The Bidvest Group
(UK) Plc
senior unsecured LT BB Affirmed RR4 BB
Bidvest Group
Limited (The) LT IDR BB Affirmed BB
senior unsecured LT BB Affirmed RR4 BB
BUSINESS MORTGAGE 4: Fitch Affirms 'B-sf' Rating on Class B Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed the Business Mortgage Finance (BMF)
series, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Business Mortgage
Finance 4 Plc
Class B XS0249508754 LT B-sf Affirmed B-sf
Class C XS0249509133 LT CCsf Affirmed CCsf
Business Mortgage
Finance 6 PLC
Class B2 XS0299447507 LT Csf Affirmed Csf
Class C XS0299447846 LT Csf Affirmed Csf
Class M1 XS0299446442 LT CCCsf Affirmed CCCsf
Class M2 XS0299446798 LT CCCsf Affirmed CCCsf
Business Mortgage
Finance 7 Plc
Class B1 XS0330228320 LT Csf Affirmed Csf
Class C XS0330229138 LT Csf Affirmed Csf
Class M1 XS0330220855 LT CCCsf Affirmed CCCsf
Class M2 XS0330222638 LT CCCsf Affirmed CCCsf
Business Mortgage
Finance 5 PLC
B1 XS0271325291 LT CCsf Affirmed CCsf
B2 XS0271325614 LT CCsf Affirmed CCsf
C XS0271326000 LT Csf Affirmed Csf
M1 XS0271324724 LT BBsf Affirmed BBsf
M2 XS0271324997 LT BBsf Affirmed BBsf
TRANSACTION SUMMARY
The BMF transactions are securitisations of mortgages to SMEs and
the owner-managed business community, originated by Commercial
First Mortgages Limited. Fitch has analysed the performance of the
transactions using its SME Balance Sheet Securitisation Rating
Criteria.
KEY RATING DRIVERS
Secondary Quality Collateral: The pools comprise loans secured
against owner-occupied commercial real estate, which is likely to
be more affected by a deterioration in economic sentiment,
especially due to the secondary quality of the collateral
properties. This leaves the pool exposed to tail risks in case of
an economic downturn.
Junior Notes Mostly Under-Collateralised: The combination of past
cumulative large losses and insufficient excess spread has led to
the depletion of reserve funds and increasing balances on the
principal deficiency ledgers (PDL). The outstanding PDLs in BMF5, 6
and 7 now account for 26%, 38% and 35% of the current notes
balance, respectively. The debited PDLs, together with the presence
of other loans in litigation but still not provisioned for, leave
the junior notes in serious distress. These distressed notes are
rated from 'CCCsf' to 'Csf' depending on each class level of
subordination and each transaction's recovery prospects.
Portfolio Underperformance: Late stage arrears remain elevated with
three-month plus arrears at 14.0%, 8.7%, 11.7% and 12.4% as of
February 2024 in BMF 4, 5, 6 and 7, respectively. In BMF5 this is a
decrease from 12.1% a year earlier, which has contributed to the
affirmation of these notes. Three-month plus arrears have increased
in the other transactions, but none of their notes are rated above
'B-sf'.
Evidence of Fixed Fee Normalisation: In the last four years, the
transactions' senior expenses have been elevated, mainly due to
legal fees and Libor transition costs. The Libor transition was
completed in August 2022 and litigation has also concluded, but
fees in the following periods remained elevated. However, fees in
the most recent few quarters have shown evidence of reducing. In
light of the recent trend, Fitch has made assumptions of a
stabilised level of senior fixed costs. This supports the
affirmation of the notes.
Robust CE: The only notes outstanding across the transactions with
ratings above 'B-sf' are BMF5's class M1 and M2 notes, which have
57.6% credit enhancement (CE). Fitch considers this CE sufficient
to withstand the level of stress associated with a 'BBsf' rating
and it has contributed to the affirmation of these notes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transactions' 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. Fitch tested
a weighted average foreclosure frequency (WAFF) increase of 25% and
a 25% decrease in weighted average recovery rates (WARR). The
results indicate no impact for BMF 4, BMF6 and BMF7 and a
three-notch downgrade for BMF 5.
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 WAFF by 25% and an increase in the WARR
of 25%. The results indicate no impact for BMF4, BMF6 and BMF7, and
a two-notch upgrade for BMF5.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is, therefore, satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
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.
CARLTON FOREST: Collapses Into Administration
---------------------------------------------
Darren Burke at Doncaster Free Press reports that jobs are
understood to be under threat after a Doncaster logistics,
transport and warehousing firm went into administration.
Carlton Forest, which has a base in High Common Lane, Tickhill,
called in the administrators late last month, Doncaster Free Press
understands.
According to Doncaster Free Press, in a notice sent to creditors,
James Lumb, spokesman for administrators Interpath, said: "Howard
Smith and I were appointed joint Administrators of the company on
March 25.
"The company is currently continuing to trade and all outstanding
contracts or orders for the supply of goods and services are being
reviewed.
"It is not currently possible to forecast the outcome of the
administration," the note added but a further update would be
issued by May 2.
The firm's website has been taken down, with a message which simply
reads: "Website under construction, back soon."
COM GROUP: Bought Out of Administration, 20+ Jobs Saved
-------------------------------------------------------
Business Sale reports that a Midlands-based telecoms firm has been
acquired out of administration by a new company set up by a former
employee.
COM Group fell into administration on March 14, with BLB Advisory
director Brett Barton appointed as administrator, Business Sale
relates.
The Stratford-upon-Avon company's business and assets have now been
sold to COM Group Telecom Limited, which has been established by
former COM Group employee Jim Hawksworth to carry the business
forward as a new entity. The acquisition has saved more than 20
jobs at the company, Business Sale discloses.
COM Group specialised in providing telecoms surveying and auditing
services for major UK communications providers. However, from late
2022 onwards, the company began to experience a major downturn in
survey and design work, attributed to the impact of the COVID-19
pandemic, Business Sale recounts. This was exacerbated by
challenging conditions in the wider market throughout 2023,
Business Sale notes.
KTWO SALES: Financial Difficulties Prompt Administration
--------------------------------------------------------
Aleksandra Cupriak at Farmers Guide reports that Ktwo Sales Ltd,
the Buckinghamshire manufacturer of spreaders and trailers, has
confirmed that the company went into administration on March 28.
The statutory moratorium includes Warwick Trailers, as it was
acquired by Ktwo in 2019, to increase capacity for production of
their high-quality muck spreaders and to offer a full product range
of trailers, Farmers Guide discloses.
One of its customers said that the company had been struggling
financially due to rising interest rates, Farmers Guide relates.
According to Farmers Guide, commenting on a farming forum, another
Ktwo customer said: "A massive shame and a big loss to the ag
machinery world, sadly only the start of it. Realistically UK
farming cannot sustain the massive price tag of machinery
currently."
Founded in 1988, Ktwo became one of the biggest British
manufacturers of muck spreaders, trailers and farming machinery.
Warwick Trailers started trading during the 1950s.
LONDON CARDS NO.2: S&P Assigns Prelim 'CCC' Rating to Cl. X Notes
-----------------------------------------------------------------
S&P Global Ratings has assigned its preliminary credit ratings to
London Cards No.2 PLC's asset-backed floating-rate class A, B, C,
D-Dfrd, E-Dfrd, F-Dfrd, and X-Dfrd notes. At closing, London Cards
No. 2 will also issue unrated class G-Dfrd and Z VFN notes. The
class A, B, C, D-Dfrd, E-Dfrd, F-Dfrd, and G-Dfrd notes represent
the collateralized debt.
The class X-Dfrd notes are excess spread notes. The proceeds from
the class X-Dfrd notes are used in part to fund the initial reserve
fund.
The assets backing the notes comprise credit card receivables
arising under designated VISA accounts granted to limited liability
companies and limited liability partnerships, originated by New
Wave Capital Ltd., trading as Capital on Tap (CoT) in the U.K. This
is the second securitization of receivables originated by CoT and
the first that S&P has rated.
CoT's business is focused on the business credit card market,
primarily to small and medium-sized enterprises, with interest
rates on the accounts generally ranging from Bank of England Base
Rate (BBR) +9.9% to BBR+49.9%, depending on the enterprises' credit
quality.
The transaction has an initial scheduled revolving period of three
years during which principal collections will be reinvested to
purchase additional receivables, subject to early amortization upon
the occurrence of certain events including performance-based tests.
CoT can extend the revolving period for an additional 12 months
with no change to the notes' original terms and conditions (e.g.
interest rates, legal final maturity date).
The rated notes will pay a floating rate of interest based on
compounded daily Sterling Overnight Index Average plus a margin. If
they are not redeemed by the original scheduled redemption date,
which is also the step-up date, the margin will increase to a
higher step-up margin except the class X-Dfrd notes.
Interest due on all classes other than the most senior class of
notes outstanding is deferrable under the transaction documents.
The deferred interest accrues interest at the same rate applicable
on the note. Once a class becomes the most senior, interest is due
on a timely basis.
However, although interest can be deferred, our preliminary ratings
on the class A, B, and C notes address timely payment of interest
and ultimate payment of principal. Our preliminary ratings on the
other rated notes address ultimate payment of interest and
principal.
S&P's analysis indicates that, at the assigned preliminary ratings,
the class D-Dfrd to F-Dfrd notes and X-Dfrd notes pay timely senior
fees and accrued interest (including interest that was previously
deferred) and principal once that class of notes becomes the most
senior class outstanding.
A combination of note subordination and available excess spread
provides credit enhancement on the collateralized debt.
Additionally, the class A and B notes also benefit from credit
enhancement from a reserve fund.
The transaction will feature a net yield trigger event (where
three-month average excess spread turns negative) that will result
in an early amortization event. If the notes are not redeemed on
their scheduled redemption date or if an early amortization event
occurs, the transaction may enter rapid amortization and the
principal on the notes will become payable under a fully sequential
payment structure.
There is an amortizing reserve fund sized to cover more than two
months of interest payments on the class A, B, and C notes and
senior expenses in the event of a disruption in servicing, and to
cure any principal deficiencies on the class A and B notes. The
reserve amortizes in line with the collateralized debt. Any reserve
fund balance will be entirely available as per the priority of
payments on the class C notes' redemption date.
Commingling risk is mitigated by a daily sweep on the collections
to the issuer account, a declaration of trust over funds in the
collection account, and a minimum rating requirement and remedies
on the collection account bank.
Since CoT is not a deposit taking institution and lends only to
businesses, S&P considers any deposit or employee set-off risk
fully mitigated.
CoT will remain the initial servicer of the portfolio. Moderate
severity and portability risk along with moderate disruption risk
initially cap the maximum potential ratings on the notes at 'AA' in
the absence of a back-up servicer. However, following a servicer
termination event, Equinity Gateway Ltd. (trading as Lenvi Capital
Markets Ltd.) will assume servicing of the portfolio. S&P said, "We
have therefore incorporated a three-notch uplift, which enables the
transaction to achieve a maximum potential rating of 'AAA' under
our operational risk criteria. Therefore, our operational risk
criteria do not constrain our ratings on the notes."
The issuer is an English special-purpose entity, which S&P
considers to be bankruptcy remote.
S&P said, "Our ratings in this transaction are not constrained by
our structured finance sovereign risk criteria. We expect the
remedy provisions at closing to adequately mitigate counterparty
risk in line with our counterparty criteria. We expect the legal
opinions will adequately address any legal risk in line with our
legal criteria."
Ratings
CLASS PRELIM. RATING* AMOUNT (MIL. GBP)
A AAA (sf) TBD
B AA (sf) TBD
C A(sf) TBD
D-Dfrd BBB (sf) TBD
E-Dfrd BB (sf) TBD
F-Dfrd B (sf) TBD
G-Dfrd NR TBD
X-Dfrd CCC (sf) TBD
Z VFN NR TBD
*S&P's preliminary ratings address timely payment of interest and
ultimate repayment of principal by legal final maturity on the
class A, B, and C notes and the ultimate payment of interest and
principal on the other rated notes.
NR--Not rated.
TBD--To be determined.
NOBLE CORP: S&P Upgrades ICR to 'BB-' on Strong Credit Metrics
--------------------------------------------------------------
S&P Global Ratings raised our issuer credit rating on Noble Corp.
PLC, a U.K.-based offshore drilling company to 'BB-' from 'B+'. At
the same time, S&P affirmed its 'BB-' issue-level rating on the
company's unsecured debt (issued by Noble Finance II LLC). S&P also
revised its recovery rating to '3' from '2', indicating its
expectation for meaningful (50%-70%; rounded estimate: capped at
65%) recovery in the event of a payment default.
S&P said, "The stable outlook reflects our expectation that the
company's financial measures will remain appropriate for the rating
given the supportive offshore drilling environment and continued
relative stability in oil prices, which we expect will enable the
company to reprice its rigs at higher day rates as existing
contracts roll off.
"Our upgrade to 'BB-' from 'B+' reflects strong credit metrics amid
favorable market fundamentals, as well as the successful
integration with Maersk Drilling."
Noble generated around $149 million of FOCF in 2023, resulting in
strong credit measures supported by increasing offshore market
activity and solid operational execution. S&P said, "Based on our
current assumptions, we now expect funds from operations (FFO) to
debt of well above 100%, with debt to EBITDA below 1x over the next
two years. At the same time, we expect the company to generate
positive discretionary cash flow (DCF) over the next two years.
Additionally, the company is close to completing its integration
with Maersk Drilling. Noble has nearly realized its initial synergy
target of $125 million ahead of schedule, and subsequently raised
its target to $150 million."
The offshore drilling market continues to improve, supported by
higher upstream capital spending and activity levels.
Oil and gas exploration and production companies are increasing
offshore activity due to favorable crude oil prices and a greater
focus on energy security, leading to a significant uptick in
contracting over the past 12 months. Sector-wide utilization for
most rig classes (excluding stacked rigs) is now around 90%, which
helped lift day rates over the past year. Leading-edge rates for
the highest specification floaters are currently in the mid- to
high-$400,000 area, and for sixth generation rigs in the low- to
mid-$400,000; while average leading-edge day rates for harsh and
benign environment jackup rigs are over $150,000. Additionally,
contract lengths are increasing across various geographies, with
recent deals approaching 2 years. While S&P anticipates deepwater
market demand to remain solid, it expects several rigs could face
downtime between contracts – including for upgrades or Special
Periodic Surveys (SPS) maintenance, resulting in idle times or gaps
between contracts (white space) in the short to medium term.
The company has a sizeable contract backlog, providing revenue
visibility for 2024 and 2025.
As of Dec. 31, 2023, Noble had approximately $4.8 billion in
backlog, 46% of which the company expects to realize this year and
26% in 2025. The large backlog increase from about $3.9 billion a
year ago reflects higher market day rates, averaging around
$417,000 per day in floater backlog and $179,000 per day in jackup
backlog, as well as the extension of multiyear contracts with
ExxonMobil in Guyana and Aker BP in 2023, accounting for
approximately 43% and 15%, respectively, of the total.
Noble is committed to return at least 50% of its free cash flow to
shareholders.
In 2023, the company returned around $202 million of cash to its
shareholders via dividends and share repurchases and at year-end
had around $291 million remaining under its $400 million share
repurchases program. Based on S&P's current estimates, it
anticipates the company will distribute the majority (around 85%)
of its free cash flow to shareholders, in line with its target to
return at least 50% of its free cash flow to shareholders through
buybacks or dividends if net leverage is at or below 1.0x.
S&P said, "While DCF was moderately negative in 2023, we expect the
company to generate positive DCF over the next two years.
Additionally, we expect the company to continue to pursue
conservative financial policies, including maintaining net leverage
under 1.0x and at least $600 million of total liquidity, while
managing shareholder distributions in a prudent manner.
"The stable outlook reflects our expectation that the company's
financial measures will remain appropriate for the rating given the
supportive offshore drilling environment and continued relative
stability in oil prices. We expect this will enable the company to
reprice its rigs at higher day rates as existing contracts roll
off. We also expect the company to maintain its conservative
financial policy. Based on our current assumptions, we anticipate
funds from operations (FFO) to debt of over 100% in the next 12-24
months, with debt to EBITDA below 1.0x and positive DCF."
S&P could lower its ratings on Noble if FFO to debt approaches 45%
for a sustained period, causing us to reassess its view of the
company's financial risk profile. This would most likely occur if:
-- Market fundamentals weaken contrary to our current
expectations, triggering a sustained decrease in day rates and
utilization; or
-- The company pursues a more-aggressive financial policy and
significantly increases its capital spending or shareholder
distributions, or undertakes debt-financed acquisitions without
near-term offsetting cash flow.
S&P could raise its rating on Noble if:
-- Offshore market fundamentals strengthen beyond our current
expectations, leading to higher utilization and day rates,
longer-term contracts that provide good revenue visibility, and
stable profitability over a sustained period; and
-- The company maintains appropriate credit measures, including
FFO to debt comfortably above 60% and positive DCF, as well as a
conservative financial policy.
S&J EUROPEAN: Goes Into Administration
--------------------------------------
Business Sale reports that a Leicestershire-headquartered haulage
company that has been trading for around 44 years has fallen into
administration after struggling to secure its future over recent
weeks.
S&J European Haulage Limited, which is headquartered at the
Asfordby Business Park in Melton Mowbray, filed an initial notice
of intention (NOI) to appoint administrators on February 23 via law
firm Brown Jacobson, Business Sale relates.
This was followed by a second NOI, filed on March 6, providing
further protection from Creditors, Business Sale notes. However,
the firm, which is a member of the Palletline network of logistics
companies, has ultimately fallen into administration, appointing
Alvarez & Marshal as administrators on March 26, Business Sale
discloses.
However, despite this rise, the company's pre-tax profits fell
considerably from GBP356,038 in 2021 to GBP245,737 in 2021,
Business Sale relays. According to Business Sale, in their report,
the company's directors stated that "significant inflationary cost
pressures" had impacted the wider haulage industry and led to the
drop in profitability. The directors also noted threats to the
business from factors including Russia's war in Ukraine and the
ongoing effects of COVID-19 and Brexit, Business Sale relays.
At the time of those accounts, the company's fixed assets were
valued at GBP3.9 million and current assets at GBP3.6 million,
Business Sale discloses. The company's debts left it with net
assets totalling around GBP1.25 million, Business Sale states.
SELINA HOSPITALITY: Five Proposals Passed at Shareholder Meeting
----------------------------------------------------------------
Selina Hospitality PLC held a general meeting of shareholders on
March 26, 2024, during which the majority of the holders of
226,076,187 ordinary shares of the Company approved the following
proposals:
Ordinary Resolutions
1. Authority to allot Shares in the Company up to an aggregate
nominal amount of US$7,064,280.00, which shall equate to a maximum
of 1,395,000,000 ordinary shares of US$0.005064 (rounded to six
decimal places) nominal value each, which authority shall, unless
renewed, varied or revoked, expire on 26 March 2029.
2. Authority to allot Shares in the Company up to an aggregate
nominal amount of US$1,012,800.00, which shall equate to a maximum
of 200,000,000 ordinary shares of US$0.005064 (rounded to six
decimal places) nominal value each, which authority shall, unless
renewed, varied or revoked, expire on 26 March 2029.
3. Authority to exercise all powers of the Company to consolidate,
with effect from such date and time to be determined by the
directors, all of the then outstanding ordinary shares of the
Company of US$0.005064 (rounded to six decimal places) nominal
value each (the "Existing Ordinary Shares") into new ordinary
shares of US$0.15192 nominal value each (the "New Ordinary Shares")
on the basis of one (1) New Ordinary Share for every thirty (30)
Existing Ordinary Shares, such New Ordinary Shares to have the same
rights and be subject to the same restrictions (save as to their
nominal value) as the Existing Ordinary Shares.
Special Resolutions
4. Conditional on the passing of Resolution 1, authority to allot
equity securities pursuant to any authority granted under
Resolution 1 as if section 561 of the Companies Act 2006 did not
apply to any such allotment, provided that this power shall:
a. be limited to the allotment of equity securities up to an
aggregate nominal amount of US$7,064,280.00, which shall equate to
a maximum of 1,395,000,000 ordinary shares of US$0.005064 (rounded
to six decimal places) nominal value each; and
b. expire at midnight on 26 March 2029 (unless renewed, varied
or revoked by the Company prior to or on that date).
5. Conditional on the passing of Resolution 2, authority to allot
equity securities pursuant to any authority granted under
Resolution 2 as if section 561 of the Companies Act 2006 did not
apply to any such allotment, provided that this power shall:
a. be limited to the allotment of equity securities up to an
aggregate nominal amount of US$1,012,800.00, which shall equate to
a maximum of 200,000,000 ordinary shares of US$0.005064 (rounded to
six decimal places) nominal value each; and
b. expire at midnight on 26 March 2029 (unless renewed, varied
or revoked by the Company prior to or on that date).
About Selina Hospitality PLC
United Kingdom-based Selina (NASDAQ: SLNA) is one of the world's
largest hospitality brands built to address the needs of millennial
and Gen Z travelers, blending beautifully designed accommodation
with coworking, recreation, wellness, and local experiences.
Founded in 2014 and custom-built for today's nomadic traveler,
Selina provides guests with a global infrastructure to seamlessly
travel and work abroad. Each Selina property is designed in
partnership with local artists, creators, and tastemakers,
breathing new life into existing buildings in interesting locations
in 24 countries on six continents -- from urban cities to remote
beaches and jungles.
THAMES WATER: Fate Hinges on Two Chinese State-Backed Banks
-----------------------------------------------------------
Ben Marlow and Luke Barr at The Telegraph report that two Chinese
banks are to determine the fate of Thames Water as it scrambles to
avoid a collapse into administration.
According to The Telegraph, a consortium of lenders to Thames
Water's parent company, Kemble, is made up entirely of foreign
banks, including the Bank of China and the Industrial and
Commercial Bank of China -- both of which are owned and controlled
by the Chinese state.
Dutch bank ING and Allied Irish Bank are also part of the creditor
group, The Telegraph notes.
Thames is meant to repay GBP190 million to its lenders by the end
of April, but its shareholders are refusing to hand over fresh
funds and the deadline will be missed, The Telegraph discloses. It
will then be up to the banks to either grant an extension or tip
the company into administration, The Telegraph states.
The revelations will prompt fresh fears about Thames's future.
Ministers will be concerned that the future of a critical piece of
British infrastructure is likely to be determined by foreign
players because it reduces the leverage that they and the regulator
have over proceedings, according to The Telegraph.
Kemble, The Telegraph says, has been forced into crunch refinancing
talks after conceding that a GBP190 million debt repayment at the
end of April will be missed. Investors hope to convince senior
creditors to either roll over the loan or agree to convert it into
shares, The Telegraph notes.
If they are unable to strike a deal then parent company Kemble
risks being plunged into insolvency, which could in turn force the
Government to step in and temporarily renationalise Thames at vast
cost to the taxpayer, The Telegraph states.
Thames was plunged deeper into crisis last month when its owners
refused to honour a pledge to pump nearly GBP4 billionn of fresh
capital into the company unless industry watchdog Ofwat agrees to a
series of demands including massive increases in customer bills,
The Telegraph recounts.
The appointment of turnaround specialists Alvarez and Marsal to
lead the negotiations is being interpreted by some as an indication
that the refinancing talks will ultimately end with Kemble being
dissolved, wiping out its debts, The Telegraph notes.
The group has amassed debts totalling GBP18.3 billion, roughly
GBP1.7 billion of which was issued by Kemble, according to The
Telegraph.
Some believe the dissolution of Kemble will boost Thames's survival
chances, The Telegraph states.
"It would take the heat off and make the whole structure look less
opaque, which makes it a lot easier for potential new investors to
get their heads around," The Telegraph quotes a restructuring
expert as saying.
However, others think dismantling the set-up will do little to
change Thames's prospects, The Telegraph notes. "The Kemble debt is
neither here nor there. It's 10% of total borrowings so it doesn't
really move the needle," said one debt adviser.
The company's predicament is expected to be worsened by a fresh
fine from Ofwat in the coming weeks, The Telegraph relays.
Thames, The Telegraph says, may also have to try to renegotiate the
terms of a separate GBP200 million debt. According to The
Telegraph, the company is in danger of breaching a covenant on the
loan in the coming weeks, auditors PWC have warned. The disclosure
was made in Kemble's last accounts.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The First Junk Bond
------------------------------------
Author: Harlan D. Platt
Publisher: Beard Books
Softcover: 236 pages
List Price: $34.95
http://www.beardbooks.com/beardbooks/the_first_junk_bond.html
Only one in ten failed businesses is equal to the task of
reorganizing itself and satisfying its prior debts in some
fashion.
This engrossing book follows the extraordinary journey of Texas
International, Inc. (known by its New York Stock Exchange stock
symbol, TEI), through its corporate growth and decline, debt
exchange offers, and corporate renaissance as Phoenix Resource
Companies, Inc. As Harlan Platt puts it, TEI "flourished for a
brief luminous moment but then crashed to earth and was consumed."
TEI's story features attention-grabbing characters, petroleum
exploration innovations, financial innovations, and lots of risk
taking.
The First Junk Bond was originally published in 1994 and received
solidly favorable reviews. The then-managing director of High Yield
Securities Research and Economics for Merrill Lynch said that the
book "is a richly detailed case study. Platt integrates corporate
history, industry fundamentals, financial analysis and bankruptcy
law on a scale that has rarely, if ever, been attempted." A retired
U.S. Bankruptcy Court judge noted, "[i]t should appeal as
supplementary reading to students in both business schools and law
schools. Even those who practice.in the areas of business law,
accounting and investments can obtain a greater understanding and
perspective of their professional expertise."
"TEI's saga is noteworthy because of the company's resilience and
ingenuity in coping with the changing environment of the 1980s, its
execution of innovative corporate strategies that were widely
imitated and its extraordinary trading history," says the author.
TEI issued the first junk bond. In 1986 it achieved the largest
percentage gain on the NYSE, and in 1987 suffered the largest
percentage loss. It issued one of the first bonds secured by a
physical commodity and then later issued one of the first PIK
(payment in kind) bonds. It was one of the first vulture investors,
to be targeted by vulture investors later on. Its president was
involved in an insider trading scandal. It innovated strip
financing. It engaged in several workouts to sell off operations
and raise cash to reduce debt. It completed three exchange offers
that converted debt in to equity.
In 1977, TEI, primarily an oil production outfit, had had a
reprieve from bankruptcy through Michael Milken's first ever junk
bond. The fresh capital had allowed TEI to acquire a controlling
interest of Phoenix Resources Company, a part of King Resources
Company. TEI purchased creditors' claims against King that were
subsequently converted into stock under the terms of King's
reorganization plan. Only two years later, cash deficiencies forced
Phoenix to sell off its non-energy businesses. Vulture investors
tried to buy up outstanding TEI stock. TEI sold off its own
non-energy businesses, and focused on oil and gas exploration. An
enormous oil discovery in Egypt made the future look grand. The
value of TEI stock soared. Somehow, however, less than two years
later, TEI was in bankruptcy. What a ride!
All told, the book has 63 tables and 32 figures on all aspects of
TEI's rise, fall, and renaissance. Businesspeople will find
especially absorbing the details of how the company's bankruptcy
filing affected various stakeholders, the bankruptcy negotiation
process, and the alternative post-bankruptcy financial structures
that were considered. Those interested in the oil and gas industry
will find the book a primer on the subject, with an appendix
devoted to exploration and drilling, and another on oil and gas
accounting.
Dr. Harlan D. Platt is a professor of Finance at D'Amore-McKim
School of Business at Northeastern University. He is a member of
the Board of Directors of Millennium Chemicals Inc. and is on the
advisory board of the Millennium Liquidating Trust. He served as
the Associate Editor-Finance for the Journal of Business Research.
He received a Ph.D. from the University of Michigan, and holds a
B.A. degree from Northwestern University.
This book may be ordered by calling 888-563-4573 or by visiting
www.beardbooks.com or through your favorite Internet or local
bookseller.
*********
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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The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
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or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *