/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240605.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 Wednesday, June 5, 2024, Vol. 25, No. 113 Headlines I R E L A N D BANCO DI DESIO: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable MAN GLG V: Fitch Affirms Bsf Rating on Class F Notes I T A L Y VOLKSBANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable N E T H E R L A N D S EUROSAIL -NL 2007-2: Fitch Lowers Rating on Class D1 Notes to CCsf T U R K E Y TIB DIVERSIFIED: Fitch Assigns 'BB+' Final Rating on 2024-F Notes VESTEL ELEKTRONIK: Fitch Assigns 'B+' Foreign Currency IDR U N I T E D K I N G D O M EUROSAIL-UK 2007-6: Fitch Affirms 'B-sf' Rating on Class C1a Notes HAULAGE GROUP: Goes Into Administration KING CONTRACT: Enters Administration RMB COMMERCIALS: Collapses Into Administration ROBERTO COSTA: Falls Into Administration SMALL BUSINESS 2023-1: Fitch Affirms 'BB+sf' Rating on Cl. D Notes SS GROUNDWORKS: Goes Into Administration THAMES CASH: Goes Into Administration XIHELM LIMITED: Goes Into Administration - - - - - ============= I R E L A N D ============= BANCO DI DESIO: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Banco di Desio e della Brianza S.p.A.'s (Desio) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook and Viability Rating (VR) at 'bb+'. Fitch has also upgraded Desio's long-term deposit rating to 'BBB-' from 'BB+' and short-term deposit rating to 'F3' from 'B'. The upgrade of the deposit ratings reflects its expectation that the recent imposition of minimum requirements for own funds and eligible liabilities (MREL) in excess of regulatory capital requirements to Desio as part of its resolution framework, combined with full depositor preference in Italy, will increase the protection that would accrue to depositors in a default scenario. KEY RATING DRIVERS Small Bank, Strengthening Financial Profile: Desio's ratings reflect its small and geographically concentrated franchise, which limits earnings generation capacity, despite progress in revenue diversification. They also reflect Desio's moderate risk profile, which results in asset quality that has improved to levels more in line with the industry average, adequate capitalisation underpinned by improved internal capital generation and a stable funding and liquidity profile. Regional Traditional Bank: Desio is a small bank in Italy with limited pricing power but some competitive advantages in its local markets. It primarily operates in the wealthy region of Lombardy and northern Italy where competition from larger banks is fierce, and to a lesser extent in central Italy. The bank's business model is less diversified than higher-rated peers but its revenue generation benefits from growing fee-generating business. The latter results from the distribution of wealth and insurance products. Good Execution Record: Desio has exceeded its financial targets over the past three years. The acceleration of its de-risking strategy resulted in better profitability and excess capital that the bank has partially deployed for growth. The acquisition of small portfolios of salary-backed loans and recent acquisitions of branches support the bank's franchise growth. This will also ultimately support Desio's strategy to increase cross-selling of wealth and insurance products. Moderate Risk Profile: Desio's footprint in Lombardy, its increasing use of state guaranteed lending and tightened underwriting and risk monitoring should help prevent large inflows of new impaired loans. Regular sales of impaired loans will also contribute to keep asset quality under control. Fitch expects Desio to further expand its franchise through small targeted acquisitions, as seen recently. Exposure to the Italian sovereign debt remains high, and Fitch expects it to only moderately decrease in 2024. Asset Quality Under Control: Desio's impaired loans ratio stabilised at 3.4% at end-March 2024, slightly above the Italian average of just below 3%. Fitch expects the bank to mitigate asset-quality pressures with further sales of impaired loans and effective workouts, resulting in an impaired loans ratio remaining below 4% by 2025. Desio's high and above sector average loan loss allowance coverage provides the bank with an adequate buffer to absorb the expected asset quality weakening. Modest Earnings Generation Capacity: Desio's operating profitability at 1.9% of risk-weighted assets (RWAs) in 2023, remains modest compared with peers, but materially above the bank's four-year average of 1.2%. Fitch expects Desio's core metric to stabilise at about 2% in 2024-2025. The bank should benefit from a structurally higher average asset margin, in tandem with increasing contribution of fees. These should mitigate the impact of increasing cost of funding, loan impairment charges and expected limited improvements in operating efficiency. Adequate Capitalisation: Desio's common equity Tier 1 (CET1) ratio of 17.5% at end-March 2024 is underpinned by improved capital management and consistent, although modest, internal capital generation, comfortably above regulatory requirements. Capital encumbrance by unreserved impaired loans has reduced and is now low. Exposure to Italian government bonds is high, at 2.2x Desio's CET1 capital, despite gradually declining. Stable Customer Deposit Funding, Liquidity: The bank's funding is supported by a stable and granular customer deposit base. Diversification into wholesale funding sources is lower than higher-rated peers, but this has increased with secured funding. Liquidity is sound, thanks to adequate buffers of unencumbered eligible assets, which represented about 20% of end-2023 total assets. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Desio's ratings are sensitive to a significant weakening of the operating environment in Italy. This could be due to much slower economic growth than its forecasts, which could result in higher default rates and lead to a deterioration in asset quality, earnings and capital metrics. The ratings would likely be downgraded if the impaired loans ratio sustainably increased above 6% and the bank's operating profit falls well below 1% of RWAs on a sustained basis, especially if this translated into weakening internal capital generation with the CET1 ratio falling towards 13%, without the prospect of recovery in the short term. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Rating upside is limited given the bank's business profile. An upgrade would require a higher assessment of Italy's operating environment and Desio materially strengthening its franchise, resulting in an operating profit materially above 2% of RWAs through the interest and economic cycles. An impaired loans ratio below 3% on a sustained basis and maintaining a CET1 ratio of at least 16% would also be required. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS The upgrade of Desio's long-term deposit rating to one notch above its Long-Term IDR, reflects Fitch's view that default risk on the bank's deposits is lower than reflected by the bank's IDR. This is due to full depositor preference in Italy and Desio being subject to and expected to comply with binding MREL in excess of regulatory capital requirements. The short-term deposit rating has been upgraded to 'F3', in line with the bank's 'BBB-' long-term deposit rating under Fitch's rating correspondence table. No Government Support: Desio's Government Support Rating (GSR) of 'no support' (ns) reflects Fitch's view that although external extraordinary sovereign support is possible, it cannot be relied on. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes nonviable. 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 The deposit ratings are primarily sensitive to changes in the bank's Long-Term IDR. In addition, the deposit ratings could be downgraded by one notch and be aligned with the IDRs if Fitch expects Desio to have difficulties in complying with its MREL or is no longer subject to a MREL in excess of regulatory capital requirements, which is not Fitch's base case. An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible. VR ADJUSTMENTS The operating environment score of 'bbb' has been assigned below the implied 'a' category score due to the following adjustment reason: sovereign rating (negative). The funding and liquidity score of 'bb+' has been assigned below the implied 'bbb' category score due to the following adjustment reason: Non-deposit funding (negative). 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 ----------- ------ ----- Banco di Desio e della Brianza S.p.A. LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B Viability bb+ Affirmed bb+ Government Support ns Affirmed ns long-term deposits LT BBB- Upgrade BB+ short-term deposits ST F3 Upgrade B MAN GLG V: Fitch Affirms Bsf Rating on Class F Notes ---------------------------------------------------- Fitch Ratings has revised Man GLG Euro CLO V DAC's class E notes Outlook to Negative from Stable and removed its class C notes from Rating Watch Positive (see Fitch Places 31 EMEA CLO Ratings on Rating Watch Positive on FitchRatings.com). All notes have been affirmed. Entity/Debt Rating Prior ----------- ------ ----- Man GLG Euro CLO V DAC A-1-R XS2313672177 LT AAAsf Affirmed AAAsf A-2-R XS2313672250 LT AAAsf Affirmed AAAsf B-1 XS1881728221 LT AA+sf Affirmed AA+sf B-2-R XS2313672334 LT AA+sf Affirmed AA+sf B-3 XS1885673399 LT AA+sf Affirmed AA+sf C-1 XS1881728908 LT A+sf Affirmed A+sf C-2-R XS2313673142 LT A+sf Affirmed A+sf C-3 XS1885673985 LT A+sf Affirmed A+sf D-1 XS1881729203 LT BBB+sf Affirmed BBB+sf D-2-R XS2313672680 LT BBB+sf Affirmed BBB+sf E XS1881732256 LT BB+sf Affirmed BB+sf F XS1881732330 LT Bsf Affirmed Bsf TRANSACTION SUMMARY Man GLG Euro CLO V DAC is a cash flow CLO comprising mostly senior secured obligations. The transaction is actively managed by GLG Partners LP, exited its reinvestment period in December 2022 and has started to pay down its A-1-R notes. KEY RATING DRIVERS Performance Stable: Since the transaction's last review in October 2023, the portfolio's performance has been stable with the weighted average rating factor (WARF) remaining at around 33, as reported by the trustee, and the portfolio net loss widening by 0.6%. The portfolio is currently 3.2% below par. The transaction is passing its portfolio profile test, collateral quality test and coverage test. Transaction Outside Reinvestment Period: The transaction exited its reinvestment period in December 2022, and is deleveraging. As a result, credit enhancement for the senior class notes has slightly increased from closing in 2018. The manager can reinvest unscheduled principal proceeds and sale proceeds from credit-impaired obligations after the reinvestment period, subject to compliance with the reinvestment criteria. As the transaction is passing all tests the manager has been actively reinvesting. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio using the agency's collateral quality matrix specified in the transaction documentation, comprising a top-10 obligor limit at 20% and the largest and third-largest Fitch-defined industries limits at 17.5% and 40%, respectively. Fitch also applied a haircut of 1.5% to the WARR as the calculation of the WARR in the transaction documentation is not in line with the agency's latest CLO Criteria. Negative Outlook Reflects Limited Cushion: The Negative Outlook on the class E notes reflects their reduced default-rate cushion against credit quality deterioration, due to uncertain macro-economic conditions and the transaction's increased exposure to assets on Fitch's market loan concern list (7.5% of the portfolio balance), and refinancing risk (24.4% of assets maturing before 2027). In Fitch's opinion, this may lead to further deterioration of the portfolio from credit migration, eroding the default-rate cushion. Given the junior position of the class E notes, the effect of further amortisation may not offset potential portfolio deterioration, but Fitch expects the ratings to remain within the current category. However, the fairly stable portfolio credit quality as well as expected deleveraging supports the other senior notes ratings. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the underlying obligors at 'B'/'B-'. The Fitch-calculated WARF of the current portfolio is 24.8 under its latest criteria. High Recovery Expectations: Senior secured obligations comprise 98.1% of the portfolio. 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 (WARR) of the current portfolio is 60.8%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration, as calculated by Fitch, is 13.6%, and no obligor represents more than 1.6% of the portfolio balance. Fixed-rate assets reported by the trustee are at 9.0% of the portfolio balance, which is below the covenant of 10%. Cash Flow Analysis: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par-value and interest-coverage tests. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upgrades may result from 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 Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG relevance scores for Man GLG Euro CLO V. 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. ========= I T A L Y ========= VOLKSBANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed Banca Popolare dell'Alto Adige S.p.A.'s (Volksbank) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook and Viability Rating (VR) at 'bb+'. Fitch has also upgraded the bank's long-term deposit rating to 'BBB-' from 'BB+' and the short-term deposit rating to 'F3' from 'B'. The upgrade of the deposit ratings reflects its expectation that the recent imposition of minimum requirements for own funds and eligible liabilities (MREL) in excess of regulatory capital requirements to Volksbank as part of its resolution framework, combined with full depositor preference in Italy, will increase the protection that would accrue to depositors in a default scenario. KEY RATING DRIVERS Small Bank in Wealthy Region: Volksbank's ratings reflect its geographically concentrated franchise in the wealthy province of Bolzano in northern Italy, and a less diversified business model than higher-rated peers, resulting in below-average profitability and cost efficiency. They also reflect its ample capital buffers relative to regulatory minimum requirements, despite its small equity size, and adequate funding from a stable deposit franchise. Its impaired loans ratio is acceptable but remains weaker than the domestic sector average. Diversification Lags Peers: Volksbank is a regional traditional commercial bank with a moderate franchise in its home territories but small national market shares. Revenue diversification is improving but still lags higher-rated peers, making profitability particularly sensitive to expected policy rate cuts. Fitch expects Volksbank to expand its assets under management and distribution of insurance products, but volumes and profit contribution will remain modest, given the bank's small scale and limited competitive advantage. Moderate Credit Risk, Sovereign Exposure: Volksbank's risk profile is commensurate with its business model. Loan underwriting has become increasingly conservative. This should mitigate the risk of asset quality deterioration, although the bank's focus on SMEs and family-owned businesses heightens vulnerability to changes in the economic cycle, especially outside Volksbank's home region where asset performance remains weaker. The bank's appetite for Italian sovereign risk has reduced, but domestic government bonds still account for a large multiple of its common equity Tier 1 (CET1) capital. Unrealised losses in securities portfolio are material but they are unlikely to materialise, considering the bank's liquidity position and stable and granular deposit base. Asset Quality Under Control: Asset quality was better than Fitch's expectations in 2023 and there are no signs of deterioration in 2024 to date. Volksbank is managing its legacy impaired loans through workout and small sales, which allowed it to reduce the impaired loan ratio to 4.4% at end-2023 (end-2022: 5%). At this level, the ratio remains above the domestic sector average and high internationally, and Fitch expects it to remain stable in 2024-2025, as selective loan growth and internal workouts, including on some of the bank's largest exposures, should offset a mild increase in default rates. High Rates Benefit Profitability: Interest rates remaining positive, although at lower levels than currently, will support Volksbank's operating profit, which Fitch expects to remain at least at 1.5% of risk-weighted assets (RWAs) in 2024-2025 (2023: 2.7%). Fee generation is still below higher-rated domestic peers, but should improve in line with the bank's strategy to expand in wealth management. Loan-impairment charges should also remain structurally below pre-pandemic levels. Enhanced digitalisation should benefit operating efficiency over the medium term, although the bank's lack of scale and investment needs will limit the extent of the improvement. Size Constrains Capitalisation: Volksbank's CET1 ratio of 15.4% at end-2023 had adequate buffers over regulatory requirements. In addition, Fitch expects capital ratios to slightly improve over 2024-2025, due to sustained internal capital generation and sufficiently conservative dividend payouts. However, Volksbank's small equity base heightens concentration risk and vulnerability from large holdings of Italian government bonds. Largely Deposit-Funded: Volksbank's funding relies mainly on a stable and growing base of deposits from loyal local customers. Funding is less diversified and the ability to access the debt market at times of volatility more uncertain than at larger domestic peers. Volksbank has largely repaid its ECB funding while maintaining healthy buffers of liquid assets. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Volksbank's ratings are sensitive to a significant weakening of the operating environment in Italy. This could be due to much slower economic growth than its forecasts, which could result in higher default rates and lead to deterioration in asset quality, earnings and capital metrics, for example. The ratings would likely be downgraded if the impaired loans ratio sustainably increased above 6% and the bank's operating profit falls well below 1% of RWAs on a sustained basis, especially if this translated into weakening internal capital generation with the CET1 ratio falling towards 13%, without the prospect of recovery in the short term. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upgrade potential is limited given Volksbank's business profile. It would require a higher assessment of Italy's operating environment and Volksbank materially growing its franchise and improving the diversification of its business model within a conservative risk appetite. For this to be rating positive, it would have to result in an operating profit/RWAs ratio materially above 2% through the economic and interest cycles, a lower impaired loans ratio, at less than 3%, and a CET1 ratio maintained at least at 16%, or materially lower capital encumbrance by Italian government bonds. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Volksbank's 'BBB-' long-term deposit rating of is one notch above the Long-Term IDR. This reflects its expectation that default risk on the bank's deposits is lower than reflected by the bank's IDR due to full depositor preference in Italy and Volksbank being subject to and expected to comply with binding MREL in excess of regulatory capital requirements. The short-term deposit rating of 'F3' maps to the bank's 'BBB-' long-term deposit rating under Fitch's rating correspondence table. Volksbank's subordinated debt is rated two notches below the VR for loss severity to reflect poor recovery prospects. No notching is applied for incremental non-performance risk because write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility before non-viability. GOVERNMENT SUPPORT RATING (GSR) Volksbank's GSR of 'no support' ('ns') reflects Fitch's view that although external extraordinary sovereign support is possible, it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. 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 The deposit ratings are primarily sensitive to changes in the bank's Long-Term IDR. In addition, the deposit ratings could be downgraded by one notch and aligned with the IDRs if Fitch expects Volksbank to have difficulties in complying with its MREL or is no longer subject to a MREL in excess of regulatory capital requirements, which is not Fitch's base case. The subordinated debt rating is primarily sensitive to changes in the VR, from which it is notched. The rating is also sensitive to a 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. 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, although not impossible. VR ADJUSTMENTS The operating environment score of 'bbb' has been assigned below the implied 'a' category score due to the following adjustment reason: sovereign rating (negative). The earnings and profitability score of 'bb+' has been assigned below the 'bbb' category implied score due to the following adjustment reason: revenue diversification (negative). The capitalisation and leverage score of 'bb+' has been assigned below the 'bbb' category implied score due to the following adjustment reason: size of capital base (negative). The funding and liquidity score of 'bb+' has been assigned below the 'bbb' category implied score due to the following adjustment reason: non-deposit funding (negative). 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 ----------- ------ ----- Banca Popolare dell'Alto Adige S.p.A. LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B Viability bb+ Affirmed bb+ Government Support ns Affirmed ns long-term deposits LT BBB- Upgrade BB+ subordinated LT BB- Affirmed BB- short-term deposits ST F3 Upgrade B ===================== N E T H E R L A N D S ===================== EUROSAIL -NL 2007-2: Fitch Lowers Rating on Class D1 Notes to CCsf ------------------------------------------------------------------ Fitch Ratings has upgraded Eurosail-NL 2007-2 B.V.'s class M notes, downgraded the class D notes and affirmed the others. Fitch has also affirmed Eurosail-NL 2007-1 B.V. and EMF-NL Prime 2008-A B.V., as listed below. Entity/Debt Rating Prior ----------- ------ ----- Eurosail-NL 2007-2 B.V. Class B 29879JAB1 LT B-sf Affirmed B-sf Class C 29879JAC9 LT CCCsf Affirmed CCCsf Class D1 29879JAD7 LT CCsf Downgrade CCCsf Class M 29879JAF2 LT A+sf Upgrade BBBsf Eurosail-NL 2007-1 B.V. Class A US298797AA96 LT A+sf Affirmed A+sf Class B 298797AB7 LT A+sf Affirmed A+sf Class C 298797AC5 LT A+sf Affirmed A+sf Class D 298797AD3 LT BB+sf Affirmed BB+sf Class E1 XS0307265370 LT CCCsf Affirmed CCCsf EMF-NL Prime 2008-A B.V. Class A2 26868QAB4 LT Bsf Affirmed Bsf Class A3 26868QAC2 LT Bsf Affirmed Bsf Class B 26868QAD0 LT CCCsf Affirmed CCCsf Class C 26868QAE8 LT CCsf Affirmed CCsf Class D XS0362466772 LT CCsf Affirmed CCsf TRANSACTION SUMMARY The transactions are securitisations of Dutch non-conforming residential mortgages originated by ELQ Portefeuille I BV and partially by Quion 50 (EMF only). KEY RATING DRIVERS Continued Deleveraging: All three transactions continue to amortise sequentially, leading to increased credit enhancement (CE) for all rated notes except EMF's class D notes. Eurosail 2007-2 has seen the highest redemption rate over the last year, with the class M notes recently starting to amortise after the class A notes' full redemption at the January 2024 payment date, leading to an increase in CE to 79% from 60% at its last review. This is the main driver of the upgrade of the class M notes. Moderately Deteriorating Asset Performance: Portfolio performance data as of March 2024 shows moderately increasing delinquencies in all three transactions, returning to levels last seen before the pandemic. The absolute level of late-stage arrears has increased to around 2.3% in Eurosail 2007-1, 3.6% in Eurosail 2007-2 and 3.9% in EMF. Combined with rising senior costs, this has put pressure on available excess spread for Eurosail 2007-2, leading to a reduction in the current reserve fund amount and increasing the risk of default for its junior class D notes. Originator Adjustment Increases Losses: Given the significant portion of borrowers with adverse credit characteristics, Fitch applied originator adjustments of 3.5x for all three transactions. These adjustments address the portfolios' sub-standard credit quality and the weak performance reported since closing compared with prime Dutch RMBS. Fitch has floored the performance adjustment factor at 100% to reflect the back-loaded risk profile from interest-only loans combined with non-prime borrowers. Eurosail Limited to 'Asf' Category: Fitch currently views the Eurosail transactions' portfolio characteristics as incompatible with high investment-grade categories ('AAsf' or higher) due to residual uncertainty around high maturity concentrations of interest-only loans plus the non-standard nature of the assets in both portfolios. Consequently, Fitch has limited the transactions' ratings to the 'Asf' rating category. As a result, the ratings on Eurosail 2007-1's class A, B and C notes and Eurosail 2007-2's class M notes are below their model-implied ratings. EMF Ratings Capped at 'B+sf': In the absence of liquidity protection, principal borrowing or other mitigants, EMF depends solely on interest collections to meet timely interest payments on the class A2 and A3 notes. In Fitch's view, the notes are not compatible with ratings above 'Bsf'-category, at least as long as the reserve fund is not sustainably replenished, which Fitch considers unlikely at present due to about EUR5.8 million of uncleared losses in the principal deficiency ledger (PDL), which ranks senior to the reserve. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Unanticipated increases in the frequency of defaults or decreases in recovery rates could produce larger losses and reduce available revenue funds. Lower available revenue funds may jeopardise the transactions' ability to meet timely or ultimate interest payment obligations. Since the notes can be called net of the PDL, the occurrence of material PDLs in Fitch's cash flow analysis over the life of the transactions may trigger negative rating action. Fitch has tested an increase in defaults of 15% and a decrease in recoveries of 15%. In this scenario, Eurosail 2007-1's class D notes' model-implied ratings would be three notches lower than the current rating and Eurosail 2007-2's class M notes' model-implied ratings would be one notch lower than the current rating. EMF-NL Prime 2008-A's class A2/A3 notes' model-implied ratings would be unchanged in this scenario, but these notes are vulnerable to a reduction in excess spread to meet timely interest payments, driven by increased senior expenses at the tail combined with decreasing interest rates. 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 higher-than-expected available revenue funds late in the transactions' lives and potentially upgrades, as long as no cap applies. Higher available revenue funds could also result in an increase in excess spread, which could replenish Eurosail 2007-2's and EMF's reserve funds. If EMF's reserve fund is sustainably replenished, all else being equal, Fitch could lift the 'Bsf' category rating cap on the class A2 and A3 notes and upgrade the notes. CRITERIA VARIATION The portfolios comprise over 90% of interest-only loans with maturities clustered within a short two-year period, close to the notes' legal final maturity. Combined with the adverse borrower profile, this exposes the structures to more back-loaded losses than typically assumed. In the scenarios analysed by Fitch, later defaults and recoveries lead to later note principal amortisation, which results in larger interest shortfalls being accumulated. The issuers cannot borrow principal funds and so may not be able to cover larger shortfalls by the legal final maturity date. To account for this risk, Fitch applied a criteria variation by changing the distribution of defaults for the back-loaded default timing and extending the recovery timing for additional 18 months across all rating scenarios. 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 EMF-NL Prime 2008-A B.V., Eurosail-NL 2007-1 B.V. and Eurosail-NL 2007-2 B.V. have ESG Relevance Scores of '4' for Transaction Parties & Operational Risk due to weaker underwriting standards that have manifested in weaker-than-market performance of the asset portfolio, which Fitch has reflected in originator adjustments to foreclosure frequency. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. =========== T U R K E Y =========== TIB DIVERSIFIED: Fitch Assigns 'BB+' Final Rating on 2024-F Notes ----------------------------------------------------------------- Fitch Ratings has assigned TIB Diversified Payment Rights Finance Company's (TIB DPR) series 2024-D, 2024-E and 2024-F notes final 'BB+' ratings. The Outlook is Positive. The agency has also affirmed TIB DPR's outstanding notes, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- TIB Diversified Payment Rights Finance Company Series 2012-A XS0798555966 LT BB+ Affirmed BB+ Series 2012-B XS0798556345 LT BB+ Affirmed BB+ Series 2013-D XS0985825172 LT BB+ Affirmed BB+ Series 2014-A XS1102748073 LT BB+ Affirmed BB+ Series 2014-B LT BB+ Affirmed BB+ Series 2015-B XS1210043136 LT BB+ Affirmed BB+ Series 2015-G XS1316496907 LT BB+ Affirmed BB+ Series 2016-B XS1508150452 LT BB+ Affirmed BB+ Series 2016-E XS1529855253 LT BB+ Affirmed BB+ Series 2016-F XS1508150023 LT BB+ Affirmed BB+ Series 2017-A XS1733314790 LT BB+ Affirmed BB+ Series 2017-H XS1739379623 LT BB+ Affirmed BB+ Series 2017-I XS1739379979 LT BB+ Affirmed BB+ Series 2022-A USMM0044CVQ9 LT BB+ Affirmed BB+ Series 2022-B USMM0044CW06 LT BB+ Affirmed BB+ Series 2023-A KYMM004WWV65 LT BB+ Affirmed BB+ Series 2023-B KYMM004WWV40 LT BB+ Affirmed BB+ Series 2023-C KYMM004WWV81 LT BB+ Affirmed BB+ Series 2023-D LT BB+ Affirmed BB+ Series 2024-B KYMM004Z5WJ2 LT BB+ Affirmed BB+ Series 2024-C KYMM004Z5VU1 LT BB+ Affirmed BB+ Series 2024-D KY009A977U41 LT BB+ New Rating Series 2024-E LT BB+ New Rating Series 2024-F LT BB+ New Rating TRANSACTION SUMMARY The programme is a financial future flow securitisation of existing and future US dollar-, euro-, and sterling-denominated diversified payment rights (DPRs) originated by Turkiye Is Bankasi A.S. (Isbank). DPRs can arise for a variety of reasons including payments due on the export of goods and services, capital flows, tourism and personal remittances. The programme has been in existence since 2004. KEY RATING DRIVERS Originator Credit Quality: Isbank's Long-Term Local-Currency Issuer Default Rating (LTLC IDR) of 'B', which forms the basis for the ratings above, is driven by its Viability Rating (VR) of 'b'. Fitch placed both ratings on Rating Watch Positive (RWP) in March 2024 following a one-notch upgrade on the sovereign (Turkiye, B+/Positive/B). Fitch believes Turkish banks' enhanced operating conditions, decreased risks in macroeconomics and financial stability with monetary policy normalisation (despite persistent inflation) and improved access to external markets, will bolster their business, funding, and liquidity profiles. GCA Score Supports Rating: Fitch maintains a Going Concern Assessment (GCA) of GC1 on Isbank, which is the highest on the GCA scale. The GCA score measures of the likelihood that the business will remain a going concern and the underlying cash flow will continue to be generated if the bank defaults on other liabilities. Four-Notch Uplift: In March 2024, Fitch affirmed TIB DPR's debt at 'BB+' and revised the Outlook to Positive, mirroring the Outlook on the sovereign but not the RWP on Isbank's LTLC IDR, as the resolution of the RWP may not directly result in an upgrade of the DPR ratings. The uplift of TIB's DPR from Isbank's LTLC IDR remains four notches, pending the RWP resolution on the bank's LTLC IDR. This new issuance has not affected Fitch's view on the programme. Sufficient Coverage Levels: Fitch calculates monthly debt service coverage ratio (DSCR) for the programme at 46x. This is based on the average monthly offshore flows processed through designated depositary banks (DDBs) over the past 12 months, after incorporating interest rate stresses, over maximum debt service under the current capital structure. Fitch also tests a number of different scenarios, resulting in healthy coverage even when concentration and currency mismatch are considered. Diversion Risk Reduced: Similar to their peers, the transaction' s structure mitigates certain sovereign risks by keeping DPR flows offshore until paid to investors. Fitch believes diversion risk is materially reduced by the acknowledgement agreements signed by the nine DDBs. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Adverse changes to originator's credit quality, the GCA score, DPR flow development and the debt service coverage may have a negative impact on the transaction's rating. Significant increases to the level of future flow debt as a percentage of the originating bank's overall liability profile, its non-deposit funding and long-term funding may also have a negative impact on the transaction's rating. In addition, the ratings of Bank of New York (BONY, AA/Stable/F1+) as the transaction account bank, may constrain the ratings of DPR debt should BONY's rating converge with the then ratings of the DPR debt and if no remedial action is taken. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upgrades of the DPR ratings in the short-to-medium term are possible, as the Outlook on Turkiye's IDR is currently Positive and Isbank's LTLC IDR is on RWP. The Positive Outlook on TIB DPR indicates the likely direction of the ratings in the next one to two years, and is due to the general positive momentum of Turkiye's rating, which is a positive operating environment that could improve DPR flows, rather than to a specific event in relation to Isbank. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch did not review the results of a third-party assessment conducted on the asset portfolio information. 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. VESTEL ELEKTRONIK: Fitch Assigns 'B+' Foreign Currency IDR ---------------------------------------------------------- Fitch Ratings has assigned Vestel Elektronik Sanayi Ve Ticaret A.S. (Vestel) a final Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) of 'B+' with a Positive Outlook and a final Long-Term Local-Currency (LTLC) IDR of 'BB-' with a Stable Outlook. Fitch has also assigned a final senior unsecured rating of 'B+' to Vestel's USD450 million notes, in line with its LTFC IDR. The Recovery Rating on the senior unsecured debt is 'RR4'. The final ratings conform with the previously assigned expected ratings as the final documentation was in line with expectations. The LTLC IDR reflects Vestel's credit profile as a low-cost white goods and electronics manufacturer in Turkiye benefiting from proximity to export markets in Europe that are its major revenue source. It also reflects a strong market position domestically and a longstanding customer base. Rating constraints are domestic production concentration, limited pricing power, foreign-exchange (FX) risks and negative free cash flow (FCF). The refinancing supports the LTLC IDR due to its covenants that weaken Vestel's links to its 54.56% shareholder, Zorlu Holding A.S. (Zorlu), while improving its liquidity and debt maturity profile. Unlike the LTLC IDR, the LTFC IDR and the notes rating are constrained by Turkiye's Country Ceiling at 'B+' because Vestel's Fitch-defined hard-currency export revenues and offshore cash do not sufficiently cover expected hard-currency debt service. The Positive Outlook on the LTFC IDR mirrors that of Turkiye's sovereign rating. KEY RATING DRIVERS Concentrated Low Cost Manufacturer: Vestel's business profile supports its unconstrained credit profile and LTLC IDR in the 'BB' category. Despite its manufacturing base concentration in Turkiye and the highly competitive market in electronics and white goods manufacturing, Vestel's robust dealership network and comprehensive service operations provide a competitive edge and barriers to new entrants. However, Vestel's revenues largely stem from manufacturing for private labels, which is a low- margin business, as it depends primarily on cost-competitiveness for contracts, thus limiting pricing power, especially in the recent high inflation period. In addition, Vestel's long payment terms to suppliers in comparison with shorter receivable days add to FX risks and affect its profit margins although this is partly mitigated by Vestel's inventory management and FX hedging. Export-driven Revenues: Vestel generates 60%-70% of revenues from exports, mainly to Europe, with good customer diversification and longstanding brand license agreements aiding profitability and order-book visibility. Household appliances dominate gross profits due to their higher margins (especially domestically) and lower seasonality than electronics, which nevertheless offer overall product diversification. Limited R&D; Potential in Mobility: Vestel's low R&D spending, at around 1.8% of its revenue, marks it as a mid-tier innovator in comparison with its peer group. This broadly matches its domestic peer Arcelik's A.S. (slightly above 2%), but lags behind that of European peers with around 3% of its revenues in R&D spend. However, mobility electronics, including Vestel's 23% stake in a domestic market-leading electric vehicle producer, offer significant growth potential. Refinancing Supports Financial Profile: Vestel's refinancing strengthened its financial profile, which was previously dominated by short-term domestic borrowing, through the long-term US dollar notes issue. In addition to a longer average debt maturity and diversification of funding, the notes also reduce the average cost of debt. Although hard-currency revenues offer natural hedge for US dollar debt service, a further significant devaluation of lira would make notes repayment more expensive for Vestel. The refinancing has been neutral to Vestel's leverage ratios (EBITDA net leverage up to 3x and funds from operations (FFO) net leverage around 3.8x from 2025) as the notes proceeds are mostly used to refinance existing short-term debt and fund capex. FCF to Remain Weak: Fitch expecst capex to remain around 5% of revenues and possible modest dividend distributions within the covenants. This, combined with FX and working-capital outflows, will keep FCF negative in its rating-case forecasts. Bond Covenants Underpin Rating: The final terms of the notes include leverage covenants that support its view of an insulated legal ringfencing around Vestel. Fitch also views access and control, including partial public listing of Vestel and its independent external funding, as 'porous'. Overall, Fitch rates Vestel on a standalone basis under its Parent and Subsidiary Linkage Rating Criteria. Vestel has historically provided inter-company loans to Zorlu, but Fitch does not expect a reduction in its outstanding debt balance from, or new loans to be provided to, Zorlu. Providing new loans to the parent would likely lead to a downgrade. FC IDR Capped by Country Ceiling: Vestel's LTFC IDR and notes' ratings are capped by Turkiye's Country Ceiling of 'B+' due to the lack of manufacturing diversification outside of the country and the need to repatriate and convert much of its hard-currency export revenues into liras. Fitch-defined hard- currency debt service coverage for Vestel is thus insufficient for the rating to pierce the ceiling. Consequently, rating actions on Vestel's LTFC IDR and the notes will follow sovereign rating actions. DERIVATION SUMMARY Vestel's position as a low-cost manufacturer in the European and Turkish market drive through-the-cycle EBITDA and EBIT margins of approximately 13% and 11%, respectively. These are similar to that of its Turkiye-based peer Arcelik A.S. (LTLC IDR BB+/Stable), but exceed that of higher-rated peers like Whirlpool Corp. (BBB/Negative) and LG Electronics Inc. (BBB/Stable). However, this strength is offset by Vestel's weaker FCF margin, due to the sharp devaluation of the Turkish lira and unfavourable working-capital management from a longer payables cycle relative to receivables days. Unlike Vestel, Arcelik is focused solely on more profitable white goods and benefits from geographical diversification of its production base. In addition, its brand portfolio and thus pricing power are stronger, explaining the two-notch rating differential. Similar to Vestel, Uzbekistan-based Artel Electronics LLC (B/Positive) manufactures within its local market; however, it lacks sales geographic diversification versus Vestel and Arcelik. Although Vestel's leverage metrics are not excessive, financial flexibility is constrained by low interest coverage, FX risk with only partly effective hedging, and by short-term debt exposure and weak liquidity. KEY ASSUMPTIONS - Revenue to increase on average 40% for 2023-2027, reflecting further Turkish lira devaluation and organic growth - Average EBITDA margin at around 12% to 2027, driven by ability to pass on costs - Capex in line with management forecasts to 2027 with modest Fitch-assumed dividends from 2025 - Refinancing of existing debt with USD450 million notes in 2024 - No sizeable M&As to 2027 RECOVERY ANALYSIS The recovery analysis assumes that Vestel would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. - An administrative claim of 10% is used in line with the industry median and peer group's - The recovery analysis is translated into US dollars from Turkish liras since the majority of the capital structure is in US dollars. The translation used a Fitch-calculated exchange rate for 2024, when the notes are issued - The GC EBITDA estimate of USD255 million is Vestel's 2022 EBITDA. This reflects the lowest EBITDA margin in the company's recent history, adversely affected by Turkiye's hyper-inflationary environment, and resulting in a total cash deficit for 2022 - An enterprise value (EV) multiple of 4.5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation EV given Vestel's strong market position in Turkiye and flexible cost structure. However, this multiple is constrained by industry dynamics (including Turkish regulations), lack of geographical diversification (particularly in Asia and North America), lack of pricing power and the strength of competitors within the market - The waterfall analysis is based on the new capital structure and consists of factoring, senior unsecured Eurobond and bank credit facilities. Debt issued by Vestel's subsidiary Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. (Vestel White Goods) ranks structurally senior to remaining debt instruments - Factoring is expected to remain available during bankruptcy - These assumptions result in a recovery rate for the senior unsecured instrument within the 'RR3' range, but is restricted by Turkiye's Country Ceiling at 'RR4' that corresponds to the LTFC IDR at 'B+'. The principal and interest waterfall analysis output percentage on current metrics and assumptions is also capped at 50%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: LTFC IDR and Notes' Rating - An upgrade in Turkiye's Country Ceiling LTLC IDR - Sustained net EBITDA leverage below 2.0x, FFO net leverage below 2.5x and EBITDA interest coverage above 3.0x, supported by stricter covenants and financial policy - Positive FCF margin sustained above 2.5% - Stronger business profile with geographical diversification of production base and higher pricing power Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: LTFC IDR and Notes' Rating - A downgrade of Turkiye's Country Ceiling LTLC IDR - Sustained net EBITDA leverage above 3.0x, FFO net leverage above 3.5x and EBITDA interest coverage below 2.0x - Substantial deterioration in liquidity and consistently negative FCF margins - Lack of ring-fencing and tighter links with Zorlu - Business profile deterioration with loss of market share and pricing power LIQUIDITY AND DEBT STRUCTURE Refinancing Improves Weak Liquidity: Historically, Vestel has been dependent on short-term bank debt facilities to meet its financial requirements. The practice of continuously rolling over these uncommitted bank lines is typical in the Turkish corporate market, and still limits Vestel's liquidity assessment post-refinancing. Long-term notes represent around 31% of expected 2024 debt with short-term bank loans and domestic bonds making up the balance. Fitch expects debt currency to move further away from Turkish liras and average debt maturity to increase to above three years from less than one year. ISSUER PROFILE Vestel specialises in manufacturing in Turkiye and sales of electronics, major household appliances, digital and e-mobility solutions. Vestel is an export-driven company, with strong market shares in Turkiye and Europe. 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 ----------- ------ -------- ----- Vestel Elektronik Sanayi Ve Ticaret A.S. LT IDR B+ New Rating B+(EXP) LC LT IDR BB- New Rating BB-(EXP) senior unsecured LT B+ New Rating RR4 B+(EXP) =========================== U N I T E D K I N G D O M =========================== EUROSAIL-UK 2007-6: Fitch Affirms 'B-sf' Rating on Class C1a Notes ------------------------------------------------------------------ Fitch Ratings has affirmed Eurosail-UK 2007-2 NP Plc (ES07-2) and Eurosail-UK 2007-6 NC Plc (ES07-6). Entity/Debt Rating Prior ----------- ------ ----- Eurosail-UK 2007-6 NC Plc Class A3a 29881HAG0 LT AAAsf Affirmed AAAsf Class B1a 29881HAK1 LT BBB-sf Affirmed BBB-sf Class C1a 29881HAN5 LT B-sf Affirmed B-sf Class D1a 29881HAR6 LT CCCsf Affirmed CCCsf Eurosail-UK 2007-2 NP Plc Class A3a 29881AAG5 LT AAAsf Affirmed AAAsf Class A3c 29881AAJ9 LT AAAsf Affirmed AAAsf Class B1a 29881AAN0 LT AAAsf Affirmed AAAsf Class B1c 29881AAQ3 LT AAAsf Affirmed AAAsf Class C1a 29881AAR1 LT AAAsf Affirmed AAAsf Class D1a 29881AAU4 LT A+sf Affirmed A+sf Class D1c 29881AAW0 LT A+sf Affirmed A+sf Class E1c XS0291443892 LT CCCsf Affirmed CCCsf Class M1a 29881AAK6 LT AAAsf Affirmed AAAsf Class M1c 29881AAM2 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY The transactions comprise non-conforming UK mortgage loans originated by Southern Pacific Mortgage Limited (formerly a wholly-owned subsidiary of Lehman Brothers) and Preferred Mortgages Limited. KEY RATING DRIVERS Deteriorating Asset Performance: Arrears greater than one monthly payment have increased to 22.2% from 15.9% in ES07-2 and to 35.1% from 27.5% in ES07-6 over the last year. Fitch expects asset performance in non-conforming pools to continue to deteriorate as a result of high interest rates as well as an increase in the proportion of loans past maturity. Fitch also sees weaker recovery performance in these pools versus the base case recovery rate from Fitch's Resiglobal Model: UK. The ratings on ES07-2 class D notes and ES07-6 class B1a notes have been constrained by up to five notches below their model-implied ratings (MIRs) to account for this risk. Sequential Payments to Continue: Fitch expects the transactions to continue to amortise sequentially. Pro-rata amortisation is being prevented by a number of triggers, such as the non-reversible cumulative loss trigger (ES07-2) and the long-stage delinquencies trigger, which is currently at 33.3% and above the 22.5% threshold (ES07-6). The sequential amortisation and non-amortising reserve fund have allowed credit enhancement (CE) to build up for all notes. Liquidity Facility Mitigates PIR: ES07-2 features a non-amortising liquidity facility sized at GBP32.2 million. All classes of notes have access to the liquidity facility, with classes other than the class A and M notes subject to a 50% principal deficiency ledger lock-out trigger. In Fitch's base case the lock-out trigger is not breached and the liquidity facility is sufficient to mitigate payment interruption risk (PIR) for all notes. ES07-6 features a liquidity reserve, which mitigates PIR for the class A3a notes. High Senior Fees: Since the onset of 2021, both transactions have experienced escalating senior fixed fees driven by the costs incurred from the LIBOR transition and the replacement of transaction account bank and Guaranteed Investment Contract (GIC) account provider. Fitch expects senior fees to reduce, which it has incorporated into its modelling. PAF Floored: Fitch has floored the performance adjustment factor (PAF) for both transactions at 100%, in line with its criteria. This reflects the back-loaded risk profiles associated with the high proportion of interest-only (IO) owner-occupied (OO) loans in the pools, as well as their worsening asset performance. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transactions' performance may be affected by adverse changes in market conditions and economic environment. Weakening economic performance is strongly correlated with increasing delinquencies and defaults that could reduce CE available to the notes. Additionally, 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 weighted average foreclosure frequency (WAFF) and a 15% decrease in the weighted average recovery rate (WARR) would result in downgrades of up to four notches for ES 07-2 class D1a and D1c notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and, potentially, upgrades. Fitch found that a decrease in the WAFF of 15% and an increase in the WARR of 15% would result in upgrades of up to four notches for ES07-2 class D1a and D1c notes and eight notches for ES07-6 class B1a notes. ES07-2 class A to C notes and ES07-6 class A notes are at the highest achievable ratings on Fitch's scale and cannot be upgraded. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset 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 ES07-2 and ES07-6 have an ESG Relevance Score of '4' for human rights, community relations, access & affordability due to a significant proportion of the pool containing OO loans advanced with limited affordability checks, which has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors. ES07-2 and ES07-6 have an ESG Relevance Score of '4' for customer welfare - fair messaging, privacy & data security due to the pool exhibiting IO maturity concentration of legacy non-conforming OO loans of greater than 20%, which has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation of the materiality and relevance of ESG factors in the rating decision. HAULAGE GROUP: Goes Into Administration --------------------------------------- Business Sale reports that The Haulage Group Limited, a haulage and freight transport business based in Sutton Coldfield, fell into administration last week, with Daniel Richardson, Edward Avery-Gee and Nick Brierley of CG&Co appointed as joint administrators. In the company's accounts for the period from June 1, 2022 to May 31, 2023, its fixed assets were valued at GBP5.4 million and current assets at GBP2.7 million, Business Sale discloses. At the time, its net assets were valued at GBP2.18 million, Business Sale states. KING CONTRACT: Enters Administration ------------------------------------ Business Sale reports that King Contract Services Limited, a construction recruitment firm based in Hove, fell into administration in May, with James Snowdon and Georgina Eason of MacIntyre Hudson appointed as joint administrators. In the company's accounts for the year to June 30, 2022, its total assets were valued at close to GBP2.4 million, with net assets standing at GBP212,556, Business Sale discloses. RMB COMMERCIALS: Collapses Into Administration ---------------------------------------------- Business Sale reports that RMB Commercials Limited, a repair and maintenance company for commercial vehicles headquartered in Oldbury, fell into administration in late May, with Robert Dymon and Craig Povey of Begbies Traynor appointed as joint administrators. According to Business Sale, in the company's accounts for the year to February 28, 2023, its fixed assets were valued at GBP364,693 and current assets at GBP1.3 million. However, at the time, its net liabilities totalled GBP53,573, Business Sale notes. ROBERTO COSTA: Falls Into Administration ---------------------------------------- Business Sale reports that Roberto Costa (Exmouth) Limited, the trading name of the Exmouth Market site in the Macellaio RC restaurant chain, fell into administration in May, with Nick Parsk and Kalani Gunawardana of Oury Clark Chartered Accountants appointed as joint administrators. The business' collapse comes approximately a month after the administration of Macellaio RC's Soho restaurant -- Roberto Costa Soho Limited, Business Sale notes. In Roberto Costa (Exmouth) Limited's most recent accounts at Companies House, for the year to December 31, 2022, its fixed assets were valued at close to GBP502,000 and current assets at GBP956,179, Business Sale states. At the time, its net assets were valued at GBP856,520, according to Business Sale. SMALL BUSINESS 2023-1: Fitch Affirms 'BB+sf' Rating on Cl. D Notes ------------------------------------------------------------------ Fitch Ratings has upgraded Small Business Origination Loan Trust 2023-1 DAC's class A and B notes and affirmed the others. Entity/Debt Rating Prior ----------- ------ ----- Small Business Origination Loan Trust 2023-1 DAC Class A XS2629043428 LT AA+sf Upgrade AAsf Class B XS2629043931 LT A+sf Upgrade Asf Class C XS2629045043 LT BBB+sf Affirmed BBB+sf Class D XS2629045555 LT BB+sf Affirmed BB+sf TRANSACTION SUMMARY The transaction is a true-sale securitisation of a static pool of UK unsecured SME loans, originated through the marketplace lending platform of Funding Circle Ltd (the servicer) and sold by Glencar Investments 40 DAC. KEY RATING DRIVERS Performance in Line With Expectations: As of the latest trustee report, defaulted loans have an outstanding principal amount of around GBP11.6 million, or 4.86% of the closing portfolio balance. Delinquencies between 30 and 90 days were at 1.9%. The portfolio balance net of defaulted loans is about GBP5.6 million lower than the current scheduled notional amount under the interest rate cap agreement, which leaves the transaction over-hedged against the risk of interest rate increases. Together with the shorter pro-rata amortisation period supported the upgrades of the class A and B notes. Shorter Remaining Pro-Rata Period: The transaction features pro-rata amortisation of the notes scheduled to expire in one year, or until the breach of a sequential-pay trigger. Pro-rata structures generally leak proceeds to subordinated notes and therefore are at a higher risk of sequential amortisation. The pro-rata amortisation is based on the notes' balance net of the corresponding principal deficiency ledger (PDL). Given the outstanding class Z PDL balance equal to GBP2 million, this implies a relatively lower amount of principal proceeds being used to pay the class Z notes under the pro-rata mechanism. Unsecured SME Loans: The securitised loans are unsecured apart from personal guarantees granted by the owners or directors of the SME borrowers. Total recoveries are currently GBP0.34 million, equivalent to 2.9% of cumulative gross defaults. Granular Portfolio: The collateral portfolio features low single obligor concentration levels, with the top 10 obligors accounting for 2.6% of the portfolio balance. Industry concentration is more in line with other SME portfolios, with the largest three industries accounting for 44.9% of the portfolio balance, of which property and construction is the largest (19.2%) followed by retail (13.4%) and business services (12.3%). Deviation from MIRs: The class A to D notes' ratings are one notch lower than their model-implied rating (MIR). The is due to the ongoing pro-rata amortisation feature, which heightens the sensitivity of the notes to assumptions regarding asset performance, in contrast to similar structures that utilise sequential payment mechanisms. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Weakening asset performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. Additionally, 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 those recoveries. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade After the end of the pro-rata period, upgrades may occur on better-than-initially expected asset performance, 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 Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS 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. SS GROUNDWORKS: Goes Into Administration ---------------------------------------- Business Sale reports that SS Groundworks (Derbyshire) Limited, a South Yorkshire-based construction firm specialising in new build housing, vacuum excavation and drainage solutions, fell into administration on May 20, with the Gazette confirming the appointment of Jonathan Philmore of Philmore & Co as administrator on May 29. According to Business Sale, in the company's accounts for the year to March 31, 2023, its fixed assets were valued at close to GBP464,000 and current assets at slightly over GBP909,000. At the time, its net assets were valued at just under GBP527,000, Business Sale notes. THAMES CASH: Goes Into Administration ------------------------------------- Business Sale reports that Thames Cash & Carry Limited, an independent wholesaler serving retailers and caterers across the South West of England, fell into administration in late May, with Andrew Duncan and Marco Piacquadio of FTS Recovery appointed as joint administrators. According to Business Sale, in the company's abridged accounts for the period from August 1, 2021 to March 31, 2022, its fixed assets were valued at GBP5.27 million and current assets at GBP5.3 million. At the time, its net assets were valued at close to GBP6.8 million, Business Sale discloses. XIHELM LIMITED: Goes Into Administration ---------------------------------------- Business Sale reports that Xihelm Limited, a company developing AI-driven automation solutions for the agrifood technology industry, fell into administration last week, with Gareth Peckett and Michael Chamberlain of Quantuma appointed as joint administrators. According to Business Sale, in its most recent accounts, for the year ending December 31, 2022, the Poole-based company's fixed assets were valued at GBP229,838 and current assets at GBP1.18 million, with net assets amounting to GBP371,011. ********* 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. 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