/raid1/www/Hosts/bankrupt/TCREUR_Public/240606.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
Thursday, June 6, 2024, Vol. 25, No. 114
Headlines
B E L G I U M
AZELIS GROUP: S&P Affirms 'BB+' ICR, Outlook Stable
F R A N C E
DERICHEBOURG: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
MEDIAWAN HOLDING: Moody's Assigns First Time 'B2' CFR
MEDIAWAN HOLDING: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
SEQUANS COMMUNICATIONS: Ernst & Young Raises Going Concern Doubt
I R E L A N D
EURO CLO 20218-2: Fitch Lowers Rating on Class F Notes to 'B-sf'
HARVEST CLO XII: Fitch Affirms B+ Rating on Class F-R Notes
MADISON PARK VII: Fitch Affirms 'B+sf' Rating on Class F Notes
I T A L Y
GUALA CLOSURES: Moody's Cuts CFR to B2 & Alters Outlook to Stable
GUALA CLOSURES: S&P Lowers LongTerm ICR to 'B', Outlook Stable
REKEEP SPA: S&P Affirms 'B' ICR, Outlook Remains Negative
L U X E M B O U R G
ALTICE INT'L: Moody's Cuts CFR to Caa1 & Alters Outlook to Negative
CPI PROPERTY: S&P Cuts ICR to 'BB+' on Ongoing Tight Credit Metrics
SAPHILUX SARL: S&P Upgrades ICR to 'B', Outlook Stable
N O R W A Y
ADEVINTA ASA: S&P Withdraws 'BB-' LongTerm Issuer Credit Rating
S P A I N
MBS BANCAJA 3: Fitch Affirms 'CCCsf' Rating on Class E Notes
U N I T E D K I N G D O M
ATLAS FUNDING 2024-1: S&P Assigns BB(sf) Rating on E-Dfrd Notes
GETTI LIMITED: Falls Into Administration
GLOBAL SHIP: S&P Raises LongTerm ICR to 'BB+', Outlook Stable
GREENE KING: S&P Affirms 'BB+(sf)' Rating on Class B Notes
INT'L PERSONAL: Moody's Rates New EUR300MM Unsecured Notes 'Ba3'
ISTIDAMA LIMITED: Goes Into Administration
LISTAWOOD PROMOTIONAL: Enters Administration, 77 Jobs Affected
MARSTON'S ISSUER: S&P Affirms 'B+(sf)' Rating on Class B Notes
NOBLE TREE: Enters Administration After Defaulting on Rent
SHAUN LEANE: Collapses Into Administration
TENET GROUP: Goes Into Administration
- - - - -
=============
B E L G I U M
=============
AZELIS GROUP: S&P Affirms 'BB+' ICR, Outlook Stable
---------------------------------------------------
S&P Global Ratings affirmed its 'BB+' ratings on specialty
chemicals distributor Azelis Group and its senior unsecured notes.
The stable outlook reflects S&P's view that Azelis Group can
maintain S&P Global Ratings-adjusted debt to EBITDA of 3.0x-4.0x in
2024-2025, while generating healthy free operating cash flow
(FOCF).
Private-equity firm EQT and the Public Sector Pension Investment
Board (PSP) have sold approximately 11% of shares in Azelis Group
NV (about 21.9 million shares sold by EQT and about 4.6 million
shares by PSP).
As a result, EQT's stake in Azelis Group has reduced to less than
40.00%; S&P therefore no longer considers Azelis Group to be
controlled by a financial sponsor and has revised its financial
policy assessment to neutral from FS-4.
S&P said, "We view as positive the reduction of Azelis Group's
private-equity ownership to less than 40% and have therefore
revised our financial policy assessment. In May 2024, private
equity sponsor EQT sold about 21.9 million of Azelis Group shares,
reducing its stake to 36.1% from 47.9% as of Dec. 31, 2023,
following the settlement of the share sales. Since EQT's stake in
Azelis Group is now lower than our 40% threshold, we no longer
consider Azelis Group to be controlled by a financial sponsor and
assess the company's financial policy as neutral compared with FS-4
in the past. As a result of this change, we net cash against debt
in our calculation of Azelis Group's debt-to-EBITDA ratio, and now
anticipate S&P Global Ratings-adjusted debt to EBITDA of 3.4x-3.6x
in 2024 and 3.2x-3.4x in 2025. Our financial policy assessment is
supported by the company's clear dividend policy, introduced
following the IPO (dividends at 25%-35% of reported net profit) and
its reported, company-defined net leverage target of 2.5x-3.0x,
which is commensurate with a 'BB+' rating.
"We anticipate a gradual and moderate improvement in Azelis Group's
performance over the next 12 months. Azelis Group's revenue was
down by 3.8% year on year in first-quarter 2024 (1.2% at constant
currency). The positive effect of acquisitions did not fully offset
an organic revenue contraction of 8.2% due to pricing pressure
across several products. We expect pricing pressure will persist in
the second quarter of 2024. However, we anticipate the progressive
increase in sales volumes will continue, leading to a modest
improvement in performance. Supported by a potential improvement in
chemical market conditions in the second half of 2024, and in the
absence of large adverse events, we expect Azelis Group will return
to modest organic growth in 2024.
"We assume acquisitions will fuel most of the revenue and earnings
growth we anticipate in our base-case scenario. Azelis Group
completed three acquisitions during first-quarter 2024 and
announced two additional transactions. The combined annual revenue
of the five acquired companies exceeded EUR50 million in 2023.
These transactions follow approximately EUR500 million-EUR600
million spent on acquisitions per year in 2022 and 2023. We
understand the company's acquisition strategy remains unchanged
with a healthy pipeline well distributed globally. We assume Azelis
Group will spend at least EUR300 million per year on acquisitions
over our forecast horizon, which will support revenue and earnings
growth despite the challenging and uncertain economic environment.
"The stable outlook reflects our view that Azelis Group can
maintain S&P Global Ratings-adjusted debt to EBITDA of 3.0x-4.0x in
2024-2025, while generating healthy FOCF. At the same time, we
anticipate that the company will use its balance sheet capacity to
fund bolt-on acquisitions and expand inorganically in a fragmented
market."
Downside scenario
S&P could lower its rating on Azelis Group if it expected adjusted
leverage to increase significantly and exceed 4x for a prolonged
period. This could occur if:
-- S&P anticipates weaker operating performance due to lower
prices or potentially more volatile industrial chemicals demand, or
in the event of a more severe economic downturn that led to
significantly lower EBITDA than in our base-case scenario; or
-- Azelis Group pursued material acquisitions that increase
leverage beyond our expectations.
Upside scenario
S&P could raise the rating if:
-- The company demonstrates it can operate with stable credit
metrics, including S&P Global Ratings-adjusted leverage below 3.0x
and and above-average margins, even through challenging
macroeconomic cycles; and
-- Funds from operations (FFO) to debt exceeds 30%.
===========
F R A N C E
===========
DERICHEBOURG: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
----------------------------------------------------------------
S&P Global Ratings revised its outlook on French recycler
Derichebourg to negative from stable and affirmed its 'BB+'
long-term issuer credit rating on the company.
The negative outlook reflects a potential downgrade in the coming
six months if France's economy remains sluggish in 2025.
The outlook revision follows the deterioration of credit measures
and takes into account the recent profit warning. The tepid
economic growth in Europe, especially in France (the company's main
market with 70% of revenue in 2023), continues to affect
Derichebourg's top line. With real GDP growth close to zero in
first-half 2024, the company saw its volume shrink by 4%. The weak
results should be seen in stable steel production in Europe,
indicating to sensitivity to the industrial activity in its core
market and specific end-markets.
S&P said, "We think rating pressure will remain and improvement
will largely depend on favorable industry conditions. The
availability of scrap, elevated energy prices, a major cyberattack
(which had an impact of EUR15 million-EUR20 million), and the sale
of eight recycling centres translated into EBITDA of EUR142 million
in first-half 2024 (compared with EUR180 million for the same
period a year earlier). Consequently, we reduced our EBITDA
projections in 2024 by EUR50 million-EUR75 million to EUR300
million-EUR310 million, resulting in credit measures deviating from
the expected range for the rating (such as 2x-3x adjusted
leverage). This comes after a disappointing fiscal 2023. Key
factors for EBITDA improvement in the next 18 months will likely
relate to modest growth in Europe; improved demand for copper,
aluminum, and steel; and lower energy costs. These factors are
largely not in the company's control. Positively, we assume that
Derichebourg's profitability will continue to be relatively stable
(including an EBITDA margin at 8%-10%, as demonstrated in the past
few years) even if it is not immune to price variations and its
ability to pass through costs can be impaired in case of sudden
downturn. Another positive factor is the favorable long-term trends
supported by government incentives to foster recycling activities.
"Derichebourg's focus on cost discipline and adhere to its
objective to restore its balance sheet are critical to maintaining
the rating. We understand that the company plans to deleverage to
restore balance-sheet strength, and we assume that dividends will
be contained until Derichebourg reaches its financial objectives of
meeting 1x net debt (equivalent to approximately 2.5x S&P Global
Ratings-adjusted leverage), a level it had reached before the Ecore
acquisition in 2022. We forecast the company will continue
generating material free operating cash flow, which could help
reducing slightly its debt levels. At March 31, the company's
reported net debt position (including leases) was EUR769 million,
which is fairly stable from Sept. 30, 2023's EUR772 million. Still,
any unexpected cash outlays (as experienced in 2022-2023 through
large acquisitions) could slow this process and accelerate rating
pressure."
The negative outlook reflects Derichebourg's limited headroom for
the rating and the relative lack of visibility over a rebound in
market conditions in the coming quarters.
S&P said, "Under our base-case scenario, we expect EBITDA of EUR300
million-EUR310 million in fiscal 2024, translating into free cash
flow of about EUR100 million and adjusted debt to EBITDA of about
3.5x, exceeding the 2x-3x we see as commensurate with our 'BB+'
rating. In normalized market conditions, we expect the company to
report EBITDA of at least EUR350 million.
"We could downgrade the company in the next six months if EBITDA
for fiscal 2024 was below EUR300 million or if we maintained our
EBITDA forecast for fiscal 2025 (below EUR350 million) and the
company took no action to contain (and reduce) its leverage in line
with its financial policy."
Other triggers for a negative rating action include changes in the
arm's length relationship between the company and Elior, notably a
change in the likelihood for supporting the latter's capital
structure.
An outlook revision to stable will be linked primarily to a
recovery in economic growth in the coming 12 months, with EBITDA
heading toward EUR400 million. Under this scenario, the company
would build headroom under the rating with an adjusted debt to
EBITDA well below 3x. Additional supportive factor would include
better visibility on the company's financial policies, including a
time frame for achieving net debt reduction.
MEDIAWAN HOLDING: Moody's Assigns First Time 'B2' CFR
-----------------------------------------------------
Moody's Ratings has assigned a first-time B2 long-term corporate
family rating and a B2-PD probability of default rating to Mediawan
Holding S.A.S. (Mediawan or the company). Concurrently, Moody's has
also assigned a B2 instrument rating to the proposed EUR500 million
backed senior secured term loan B (TLB) due 2031 and to the EUR225
million backed senior secured revolving credit facility (RCF) due
2030, both to be borrowed by Mediawan Financing S.A.S. The outlook
on the ratings is stable for both entities.
Mediawan has been recently combined with Leonine, a leading German
independent platform for content production, distribution and
licensing, owned by KKR, to create a leading European independent
television content production group, with combined revenues of
EUR1,046 million and Moody's-adjusted EBITDA of EUR119 million in
2023. Proceeds from the proposed TLB will be used to refinance the
EUR395 million of existing debt of Mediawan and Leonine; to finance
the acquisition of third-party intellectual property for EUR55
million; to pay EUR15 million of transaction fees and expenses;
and to provide EUR35 million of cash overfunding.
"The B2 rating balances Mediawan's solid position in its core
markets of France and Germany, its positive industry demand
dynamics and the value of its film and TV library, with its high
initial leverage and the execution and event risks that come with
its rapid and ambitious inorganic growth strategy," says Víctor
García Capdevila, a Moody's Vice President-Senior Analyst and lead
analyst for Mediawan.
RATINGS RATIONALE
Mediawan's B2 long-term CFR reflects the company's status as one
of the leading independent television content producers in Europe,
particularly in its core markets of France and Germany, and with a
growing presence in North America; its strong relationships with
both traditional linear broadcasters and over-the-top (OTT)
platforms; the positive industry demand dynamics owing mainly to
the strong and resilient demand for content from OTT platforms; a
supportive regulatory environment in Europe for independent content
producers; a highly profitable licensing and distribution business;
adequate interest coverage metrics of around 2.5x; a good title
diversification; and a substantial and valuable content library
with an estimated market value of around EUR600 million, which
exceeds the company's financial debt.
However, the rating also takes into account the company's high
Moody's-adjusted gross leverage at the closing of the transaction;
its temporarily negative free cash flow generation; a relatively
high degree of client concentration with the top 10 customers
generating more than 50% of total production revenue; the
challenges associated with attracting and retaining creative talent
and the requirement to perpetually create, refresh, and replace
formats with new successful productions; its short operating track
record, as Mediawan was founded in 2015 and has doubled its size in
the past two years; the focus on in-house scripted content
production, which presents attractive opportunities for
monetization and syndication at high margins, but also carries
higher production risks compared to non-scripted content; the
company's title portfolio, although popular in its core markets, is
weaker and has less global reach than that of some rivals; and
event risks associated with its rapid and ambitious inorganic
growth strategy in a highly fragmented industry.
The company's Moody's-adjusted gross leverage proforma for the
transaction is very high at 7.1x in 2023 and it is expected to
remain broadly unchanged at around 7.0x in 2024. In the absence of
debt funded acquisitions, Moody's estimates that the company will
be able to reduce leverage towards 6.0x in 2025 and 5.2x in 2026,
primarily due to robust EBITDA growth of around 15% each year,
reaching EUR150 million in 2025 and EUR170 million in 2026. This
growth will be primarily supported by strong performance in new
scripted content productions, while contribution from the
distribution and licensing business will remain broadly flat.
However, due to the highly fragmented nature of the industry, the
importance of scale, and Mediawan's historical appetite for
inorganic growth, further M&A activity in the next 18-24 months is
highly likely. In the past, the company has funded some
acquisitions with equity, and this could continue to be the case
going forward. Since the rating is initially weakly positioned in
the B2 category, there is limited headroom for debt-financed
acquisitions that could delay its deleveraging prospects.
ESG CONSIDERATIONS
Governance risks as per Moody's ESG framework were considered key
rating drivers of this first-time rating assignment. Governance
risks reflect a degree of power concentration, given that the
founders and other minority shareholders have more than 50% of the
company's total voting rights; the company's high tolerance for
leverage and its ambitious inorganic growth strategy. In addition,
its governance is comparatively less transparent than that of
publicly listed companies.
LIQUIDITY
Mediawan's liquidity is adequate. At transaction closing, the
company will have a cash balance of EUR188 million and full
availability under its EUR225 million revolving credit facility due
in 2030. The revolver is subject to a springing financial covenant
of net debt/EBITDA of 7.5x, tested when drawings exceed 40% of the
total.
Moody's base case scenario assumes that the company will generate
negative free cash flow generation (FCF) of around EUR30 million in
2024 mainly due to large investments in scripted content
production. Production costs are funded through a mix of
broadcasters' prepayments and short term production credits, which
combined cover around 65% of total production costs, with the
remainder covered by internally generated cash flows. Moody's base
case scenario expects that the company will generate positive FCF
of around EUR20 million in 2025 and EUR50 million in 2026. The
company will have no debt maturities until 2030 and 2031 when the
RCF and TLB mature, respectively.
STRUCTURAL CONSIDERATIONS
The B2-PD probability of default rating is in line with the B2
corporate family rating (CFR), reflecting the 50% family recovery
rate used. This is in line with Moody's standard approach for all
covenant-lite TLB capital structures.
The EUR500 million TLB and the EUR225 million RCF are rated B2, in
line with the company's CFR. The shareholder loan due six months
after the maturity of the senior secured debt and provided by KKR,
receives equity credit under Moody's Hybrid Equity Credit
methodology.
COVENANTS
Moody's Ratings has reviewed the marketing draft terms for the new
credit facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of consolidated EBITDA
(determined in accordance with the agreement) and include all
wholly-owned material restricted subsidiaries in France, Germany
(except for certain German stock corporations), England and Wales,
New York and Delaware. Security will be granted over key shares,
material bank accounts and intercompany loans by French and German
entities and over certain assets by entities in England and Wales,
New York, and Delaware.
Incremental facilities are permitted up to the greater of EUR150
million and 100% consolidated EBITDA.
Unlimited pari passu debt is permitted up to a senior secured net
leverage ratio of 3.5x. Restricted payments are permitted if
secured net leverage is 3.0x or lower. Asset sale proceeds are only
required to be applied in full (subject to exceptions) where senior
secured net leverage is greater than 3.0x.
Adjustments to consolidated EBITDA include cost savings and
synergies, capped at 25% of consolidated EBITDA and believed to be
realisable within 24 months.
The proposed terms, and the final terms may be materially
different.
RATIONALE FOR THE STABLE OUTLOOK
While Mediawan is initially weakly positioned within the B2 rating
category owing to the high leverage, the stable outlook on the
rating factors in the expectation that the company will
progressively reduce its Moody's-adjusted gross leverage ratio
towards 6.0x in 2025, driven by organic revenue growth in the
mid-single digits and a steady rise in profitability margins
towards 13%. The stable outlook does not factor in any substantial
debt-funded acquisitions and assumes adequate liquidity at all
times.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop if the company develops
a track record of solid operating performance and deleveraging,
such that its Moody's-adjusted gross leverage declines sustainably
below 5.0x and its free cash flow remains materially positive.
Downward rating pressure could develop if the company fails to
reduce leverage towards 6.0x by 2025, and its free cash flow
generation continues to be negative, owing to weaker than expected
operating performance or large debt-financed acquisitions. Downward
rating pressure can also develop if its liquidity deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Mediawan, headquartered in Paris, France, is a leading European
independent television content producer. The company creates,
develops, sells, produces, distributes and licenses television
content worldwide across a network of 85 production companies in 13
countries and engaging over 550 creative talents. The group is
largely focused in scripted content production and distribution and
benefits from a large library of more than 30,000 hours of content.
In 2023, the group reported pro forma revenue and Moody's adjusted
EBITDA of EUR1,046 million and EUR119 million, respectively.
MEDIAWAN HOLDING: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating to France-based content production, distribution, and
licensing company Mediawan Holding SAS (Mediawan). S&P also
assigned its preliminary 'B' issue and '3' recovery ratings to the
proposed senior secured term loan.
The stable outlook reflects S&P's view that Mediawan will continue
to deliver successful shows and will integrate Leonine, such that
its revenue and EBITDA will steadily increase organically, and that
the higher-margin licensing and distribution revenue will support
its solid profitability, leading FOCF to become breakeven and
adjusted debt to EBITDA to reduce toward 6.5x in 2025.
Mediawan is well-positioned to achieve consistent organic revenue
growth. The 'B' preliminary rating and stable outlook on Mediawan
reflects the company's good position in the fragmented and
competitive TV and film content production and distribution
industry. The rating is constrained by its relatively high starting
debt to EBITDA of about 7.0x and negative FOCF in 2024, mainly
reflecting its heavier focus on capital-intensive scripted
productions compared with peers.
Mediawan operates in the competitive and fragmented TV and film
content production and distribution business and holds a
market-leading position within the European audiovisual production
market, being the No. 2 independent producer in terms of EBITDA,
ahead of Gold Rush Bidco (All3 Media;B[prelim]/Stable/--) but
behind Banijay Group SAS (B+/Stable/--). Mediawan is the No. 1
scripted and No. 2 non-scripted content producer in France. With
the consolidation of Leonine, it will become the No. 1 independent
content producer and distributor in Germany.
S&P said, "We expect in the next two to three years, Mediawan will
benefit from its strong positions in European markets, because we
believe global and local streaming platforms will keep investing in
original content to drive subscriber acquisition in underpenetrated
markets such as France or Germany. We also think streaming
platforms will continue to invest in local original content,
supported by regulation in Mediawan's key markets that requires
investment in local productions or directed toward local content
providers. We therefore anticipate Mediawan will deliver solid
revenue growth of 5%-7% per year over 2024-2025 and an S&P Global
Ratings-adjusted EBITDA margin of 12.5%-13.5% spurred by topline
growth, a largely stable cost base, and gradually reducing
restructuring costs."
Mediawan's track record of producing successful, high quality, and
replicable content supports its business growth. The company has a
strong intellectual property (IP) portfolio of award-winning
content, global hits, and returning franchises, providing
visibility and some recurring revenue and cash flows. Returning
series' make up to about 40% of production revenue and Mediawan has
produced 12 shows that have been aired for more than 10 seasons.
The company has also produced content that is successful in
multiple countries, through the production of local versions of an
original content (for example, Call My Agent) and licenses content
across several countries. Additionally, Mediawan has consolidated a
catalog of more than 30,000 hours of premium content supporting the
company's licensing and distribution activity, which provides
higher margins and recurring cash flows and serves as a natural
hedge to the more cyclical production activity. Finally, Mediawan
is strengthening its capabilities and portfolio in animation, which
also generates strong profits and cash flows and offers additional
monetization opportunities through merchandising and licensing.
Mediawan's focus on scripted content constrains its cash flow
generation. Mediawan's production revenue are skewed toward
scripted content (65% of production revenue and 43% of total
revenue in 2023 pro-forma), which is more capital intensive and
takes longer to produce than non-scripted content. S&P said, "We
understand that, on average, about 65% of the costs associated with
a new production are covered by advances from customers (accounted
for as change in working capital and included in our FOCF
calculation) and production loans (that we include below FOCF),
with the rest being funded through Mediawan's own cash flows. As
the company is investing in producing new scripted content, we
forecast a weaker cash flow profile than many of its peers,
including Banijay and Gold Rush BidCo (All3 Media), which focus
more on non-scripted content."
Mediawan's relatively small scale somewhat constrains the rating.
The company's operations are smaller and concentrated on a limited
number of key markets compared with larger global studios and
integrated producer/broadcaster groups, which, in S&P's view, could
leave the company more vulnerable to unexpected setbacks
(cancellation or postponement of shows for instance) or cost
overruns. Mediawan is smaller and less diversified than independent
studios like Banijay (B+/Stable/--) and Lions Gate (B/Stable) and
larger integrated medias companies such as ITV PLC
(BBB-/Stable/A-3; owner of ITV Studios) and Bertelsmann
(BBB/Stable/--, owner of Fremantle Studios), which benefit from the
vertical integration of their in-house content production and
linear broadcast and over-the-top (OTT) streaming operations.
Mediawan is comparable in size and scale to Gold Rush Bidco Ltd.
(All3Media) but has higher margins and slightly more diverse
operations thanks to its larger exposure to distribution and
animation.
High S&P Global Ratings-adjusted debt to EBITDA and negative FOCF
in 2024 constrain the rating. S&P said, "We expect Mediawan will
continue to invest in expanding scripted content production,
resulting in negative FOCF of EUR25 million-EUR30 million in 2024,
improving toward breakeven in 2025. We acknowledge this investment
will support future growth and cash flow generation, and a large
part of these investments are covered by customers advances and
cash inflows from production loans. We also forecast Mediawan's S&P
Global Ratings-adjusted debt (including production loans and put
options and earn-outs for past M&A) to EBITDA will be about 7.0x in
2024 and improve toward 6.5x in 2025, as EBITDA increases."
Sound EBITDA interest cover and solid liquidity support the rating.
S&P said, "The proposed debt structure will comprise the EUR500
million senior secured term loan and we expect the floating
interest will be largely hedged at least over the next two years.
We estimate this will translate into a sound EBITDA cash interest
coverage ratio of about 3.0x over 2024-2025, which compares well
with peers in the 'B' rating category. Mediawan's solid liquidity
also supports the rating given the company's large cash balance
estimated at about EUR175 million, pro-forma the acquisition of
Leonine, and the undrawn RCF of EUR225 million that will be
sufficient to cover the FOCF deficit we forecast over 2024,
intra-year working capital requirements, and cash outflow related
to already contracted acquisitions and earn-out payments."
S&P said, "We view KKR as having material influence over Mediawan's
strategy, financial policy, and cash flows. Mediawan Holding SAS is
owned, on one side, by its founders (Pierre-Antoine Capton, Xavier
Neil, and Matthieu Pigasse) and other minority shareholders (BPI,
MACSF, and Société Générale), through TopCo Breteuil, which has
50.01% voting rights in Mediawan. TopCo Breteuil--the shareholding
entity controlled by the Mediawan's founders--has operational
control of Mediawan as it retains 50.01% voting rights through a
golden share and appoints six out of the 12 board members,
including the chairman. On the other side, private-equity fund KKR
with co-investors have 41.4% voting rights in the company through
Show TopCo S.C.A. We believe KKR, through Show TopCo S.C.A., can
exercise material influence over Mediawan's strategy regarding M&A,
disposals, and its financial policy. This is because Show TopCo
S.C.A. holds significant economic rights in Mediawan. We also
understand that the shareholder agreement between KKR and the
founders provides for some reserved matters, which cannot be
decided without KKR.
"The final ratings will depend on our satisfactory review of all
final documentation and final terms of the proposed debt. The
preliminary ratings should therefore not be construed as evidence
of final ratings. If we do not receive final documentation within a
reasonable time, or if the final documentation and final terms of
the proposed TLB and RCF depart from the materials and terms
reviewed, we reserve the right to withdraw or revise the ratings.
Potential changes include, but are not limited to, utilization of
the proceeds, maturity, size and conditions of the facilities,
financial and other covenants, security, and ranking.
"The stable outlook reflects our view that Mediawan will continue
to deliver successful shows and will integrate Leonine, such that
its revenue and EBITDA will steadily increase on an organic basis.
We also consider that the higher-margin licensing and distribution
revenue will support Mediawan's solid profitability leading FOCF to
become breakeven and adjusted debt to EBITDA to reduce toward 6.5x
in 2025.
"We could lower the rating over the next 12 months if FOCF remained
negative for a prolonged period or if its liquidity deteriorated
because of higher-than-forecast working capital outflows. We could
also lower the rating if the company failed to reduce its adjusted
debt to EBITDA toward 6.5x." This could happen if:
-- The company's revenue and EBITDA fell significantly below our
base case due to weaker demand for its content or the company's
inability to deliver successful shows;
-- Its free cash flow deteriorated because of material cost
overruns, working capital outflows, or because production capital
expenditure (capex) were not sufficiently covered by cash inflows
from customer advances;
-- The company pursues material debt-funded acquisitions or
shareholder returns.
S&P is unlikely to upgrade Mediawan over the near term. Over the
longer term, S&P could raise the rating if Mediawan increased its
revenue and EBITDA and achieved sustainable positive free cash flow
generation, allowing it to reduce adjusted debt to EBITDA well
below 5.0x and maintain FOCF to debt above 5%. An upgrade would
also require Mediawan's financial policy to sustainably support
such improved credit metrics.
SEQUANS COMMUNICATIONS: Ernst & Young Raises Going Concern Doubt
----------------------------------------------------------------
Sequans Communications S.A. disclosed in a Form 20-F Report filed
with the U.S. Securities and Exchange Commission for the fiscal
year ended December 31, 2023, that its auditor has expressed
substantial doubt about the Company's ability to continue as a
going concern for the next 12 months.
Paris-La Defense, France-based Ernst & Young Audit, the Company's
auditor since 2008, issued a "going concern" qualification in its
report dated May 15, 2024, citing that the Company has suffered
recurring losses from operations, has a working capital deficiency,
and has stated that substantial doubt exists about the Company's
ability to continue as a going concern.
Sequans has a history of losses and it may not achieve or sustain
profitability in the future, on a quarterly or annual basis.
"We were established in 2003 and began operations in 2004, and have
incurred losses on an annual basis since inception. We experienced
net losses of $9 million and $41 million in 2022 and 2023,
respectively. At December 31, 2023, our accumulated deficit was
$93.4 million. If we are able to address our immediate liquidity
needs, we still expect to continue to incur significant expense
related to the development of our 5G products and expansion of our
business. Additionally, we may encounter unforeseen difficulties,
complications, product delays and other unknown factors that
require additional expense. As a result of these expenditures, we
will have to generate and sustain substantially increased revenue
to achieve profitability. If we do not, we may not be able to
achieve or maintain profitability, and we may continue to incur
significant losses in the future," Sequans said.
"The failure to raise additional equity may have a material adverse
effect on our business, results of operations and financial
position, and may adversely affect our ability to continue as a
going concern. If we do not become consistently profitable, our
accumulated deficit will grow larger and our cash balances will
decline further, and we will require further financings to continue
operations. Any such financings may not be accessible on acceptable
terms, if at all. If we are unable to stabilize our losses and
raise new financing, we could be required to significantly downsize
or discontinue our business or seek a court ordered restructuring,"
the Company said.
A full-text copy of the Company's Form 20-F is available at:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1383395/000138339524000034/sqns-20231231.htm
About Sequans Communications
Colombes, France-based Sequans Communications is a fabless
semiconductor company that designs, develops, and markets
integrated circuits and modules for 4G and 5G cellular IoT
devices.
As of December 31, 2023, the Company has $109.2 million in total
assets, $115.2 million in total liabilities, and $6.1 million in
total deficit.
=============
I R E L A N D
=============
EURO CLO 20218-2: Fitch Lowers Rating on Class F Notes to 'B-sf'
----------------------------------------------------------------
Fitch Ratings has upgraded Barings Euro CLO 2018-2 DAC's class B
notes to 'AAAsf' from 'AA+sf' and downgraded its class F notes to
'B-sf' from 'B+sf'. All other notes have been affirmed.
Entity/Debt Rating Prior
----------- ------ -----
Barings Euro
CLO 2018-2 DAC
A-1 A XS1857759762 LT AAAsf Affirmed AAAsf
A-1 B XS1859510221 LT AAAsf Affirmed AAAsf
A-2 XS1857760265 LT AAAsf Affirmed AAAsf
B-1 A XS1857761073 LT AAAsf Upgrade AA+sf
B-1 B XS1860319034 LT AAAsf Upgrade AA+sf
B-2 XS1857761586 LT AAAsf Upgrade AA+sf
C-1 XS1857762394 LT A+sf Affirmed A+sf
C-2 XS1860319620 LT A+sf Affirmed A+sf
D XS1857763012 LT BBB+sf Affirmed BBB+sf
E XS1857763525 LT BB+sf Affirmed BB+sf
F XS1857763871 LT B-sf Downgrade B+sf
TRANSACTION SUMMARY
Barings Euro CLO 2018-2 DAC is a cash flow-collateralised loan
obligation (CLO). The underlying portfolio of assets mainly
consists of leveraged loans and is managed by Barings (U.K.)
Limited. The deal exited its reinvestment period in October 2022
and has paid down 32.3% of its class A-1 notes.
KEY RATING DRIVERS
Transaction Deleveraging: Since the last review in July 2023,
around EUR74.4 million of the class A-1 notes have been repaid.
This deleveraging has resulted in increases in credit enhancement
across the class A-1 to D notes. As of the latest trustee report
dated 3 April 2024, it had EUR37.9 million cash in the principal
account, which Fitch expects will be used to further pay down the
class A-1 notes. The upgrade of the class B notes reflects the
current and expected increase in credit enhancement of the senior
notes.
Portfolio Deterioration: The transaction is currently around 6.1%
below par with around EUR12.0 million of defaulted assets in the
portfolio. Par loss is one of the drivers of the downgrade of the
class F notes and for maintaining the Negative Outlook on the class
E notes, as it is eroding default- rate cushions.
Reinvestment Unlikely: Following the CLO's exit from its
reinvestment period the manager is unlikely to reinvest unscheduled
principal proceeds and sale proceeds from credit-risk and
credit-improved obligations. This is due to the breach of the
weighted average life (WAL) test, the fixed-rate asset limit and
the failure of the class F notes in over-collateralisation (OC)
coverage test, which must all be satisfied to reinvest.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The reported weighted average rating
factor (WARF) of the current portfolio was 25.5 as of April 2024,
against a covenanted maximum of 29.
High Recovery Expectations: Senior secured obligations comprise
95.4% of the portfolio as calculated by the trustee. 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) reported by the trustee for
the current portfolio was at 62.7% as of April 2024, which compares
favourably with the covenanted minimum of 57.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top-10 obligor
concentration is 17.7%, as calculated by Fitch, and no single
obligor represents more than 2.9% of the portfolio balance, as
reported by the trustee.
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 this transaction.
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.
HARVEST CLO XII: Fitch Affirms B+ Rating on Class F-R Notes
-----------------------------------------------------------
Fitch Ratings has revised Harvest CLO XII DAC's class E-R and F-R
notes Outlook to Negative from Stable. Fitch has also resolved the
Rating Watch Positive (RWP) on the class C-R notes. The ratings are
affirmed on all the notes.
Entity/Debt Rating Prior
----------- ------ -----
Harvest CLO XII DAC
A-1R XS1692039206 LT AAAsf Affirmed AAAsf
B-1R XS1692040980 LT AA+sf Affirmed AA+sf
B-2R XS1692041525 LT AA+sf Affirmed AA+sf
C-R XS1692042259 LT A+sf Affirmed A+sf
D-R XS1692043067 LT BBB+sf Affirmed BBB+sf
E-R XS1692043737 LT BB+sf Affirmed BB+sf
F-R XS1692044388 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Harvest CLO XII DAC is a cash flow CLO mostly comprising senior
secured obligations. The portfolio is actively managed by
Investcorp Credit Management EU Limited. The transaction was reset
in October 2017 and exited its reinvestment period in November
2021.
KEY RATING DRIVERS
Par Erosion; Heightened Refinancing Risk: The structure is below
reinvestment target par of approximately 2.4%, with four defaulted
assets in the portfolio. The transaction is marginally failing its
obligor concentration tests. The Negative Outlooks on the class E-R
and F-R notes reflect a vulnerability to near-and-medium term
refinancing risk, with approximately 6.8% of the portfolio maturing
within the next 18 months, and 27.6% in 2026. In Fitch's opinion,
this may lead to further deterioration of the portfolio with an
increase in defaults. The Negative Outlooks indicate potential
downgrades but Fitch expects ratings to remain within the current
category.
Sufficient Cushion for Senior Notes: Although the par erosion has
reduced the default-rate cushion for all notes, the senior class
notes have retained sufficient buffer to support their current
ratings and should be capable of withstanding further defaults in
the portfolio. This supports the Stable Outlooks on the class A-1R
to D-R notes.
'B' Portfolio: Fitch assesses the average credit quality of the
obligors at 'B'. The weighted average rating factor (WARF) of the
current portfolio, as calculated by Fitch under its latest
criteria, is 23.6.
High Recovery Expectations: Senior secured obligations comprise 98%
of the portfolio. Fitch views the recovery prospects for these
assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate (WARR) of the
current portfolio as reported by the trustee was 60%, based on
outdated criteria. Under the current criteria, the Fitch-calculated
WARR is 61.6%.
Increasingly Concentrated Portfolio: The transaction has a top-10
obligor concentration limit of 20%. Concentration as calculated by
Fitch is 20.4%, which is above the limit, and the largest issuer
represents 3.2% of the portfolio balance.
Reinvesting Transaction: Although the transaction exited its
reinvestment period in November 2021, the manager can reinvest
unscheduled principal proceeds and sale proceeds from
credit-improved and credit-impaired obligations post the
reinvestment period subject to compliance with the reinvestment
criteria. Given the manager's ability to reinvest, Fitch's analysis
is based on a stressed portfolio using the agency's matrix
specified in the transaction documentation. 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 its latest CLO
Criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed, due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur if the portfolio quality remains stable and the
notes start amortising, leading to higher credit enhancement across
the structure.
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 this transaction.
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.
MADISON PARK VII: Fitch Affirms 'B+sf' Rating on Class F Notes
--------------------------------------------------------------
Fitch Ratings has affirmed Madison Park Euro Funding VII DAC. Fitch
has also resolved the Rating Watch Positive on the class C-1 and
C-2 notes (see 'Fitch Places 31 EMEA CLO Ratings on Rating Watch
Positive' on FitchRatings.com). The Outlooks remain Stable for all
notes.
Entity/Debt Rating Prior
----------- ------ -----
Madison Park Euro
Funding VII DAC
A XS1822369341 LT AAAsf Affirmed AAAsf
B-1 XS1822370273 LT AA+sf Affirmed AA+sf
B-2 XS1823155756 LT AA+sf Affirmed AA+sf
B-3 XS1823157299 LT AA+sf Affirmed AA+sf
C-1 XS1822370869 LT A+sf Affirmed A+sf
C-2 XS1823158180 LT A+sf Affirmed A+sf
D XS1822371594 LT BBB+sf Affirmed BBB+sf
E XS1822372139 LT BB+sf Affirmed BB+sf
F XS1822372568 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Madison Park Euro Funding VII DAC is a cash flow CLO comprising
mostly senior secured obligations. The transaction is managed by
Credit Suisse Asset Management Limited and exited its reinvestment
period in August 2022.
KEY RATING DRIVERS
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. As per the latest trustee report dated 12 April
2024, the transaction is currently below target par by 0.9%,
slightly improved from below par of 1.2% in April 2023. Exposure to
assets with a Fitch-derived rating of 'CCC+' and below is 6.1%,
versus a limit of 7.5%.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The weighted
average rating factor (WARF), as calculated by Fitch under its
latest criteria, is 24.0.
High Recovery Expectations: Senior secured obligations comprise
98.2% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate (WARR), as
calculated by Fitch, is 61.3%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. No obligor represents more than
2.7% of the portfolio balance. Exposure to the three-largest
Fitch-defined industries is 32.5% as calculated by Fitch.
Transaction Outside Reinvestment Period: Most senior notes are
deleveraging, leading to increased credit enhancement from closing
in May 2018, despite the portfolio erosion. The manager can
reinvest unscheduled principal proceeds and sale proceeds from
credit-improved or -impaired obligations after the reinvestment
period, subject to compliance with the reinvestment criteria.
Although the transaction is failing the WAL test the manager can
reinvest proceeds on a maintain-or-improve basis. While it is also
failing Moodys' WARF test and Moodys Caa test the manager may still
be able to reinvest if both tests are cured after reinvestment.
Given the manager's ability to reinvest, Fitch's analysis is based
on a stressed portfolio using the agency's collateral quality
matrices specified in the transaction documentation. Fitch used the
matrices with top-10 obligor limits of 20% and 16%. 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.
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 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 Madison Park Euro
Funding VII 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.
=========
I T A L Y
=========
GUALA CLOSURES: Moody's Cuts CFR to B2 & Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Ratings has downgraded Guala Closures S.p.A.'s long-term
corporate family rating to B2 from B1 and its probability of
default rating to B2-PD from B1-PD. Guala is a global manufacturer
of plastic and aluminium closures for the beverage industry.
Concurrently, Moody's has downgraded to B2 from B1 the rating on
the EUR500 million backed senior secured notes due 2028 and on the
EUR500 million backed senior secured floating rate notes (FRNs) due
2029, both issued by Guala. The outlook has changed to stable from
negative.
Proceeds from the EUR150 million tap on the existing EUR350 million
backed senior secured FRNs due 2029 will be used to fund the
acquisition of Astir Vitogiannis Bros S.A. (Astir), and pay fees
and expenses associated with the transaction, leaving EUR16 million
as cash overfund in the balance sheet for general corporate
purposes. Astir produces crown corks for the brewing and beverage
industries and operates two plants, one in Greece and one in South
Africa.
"The downgrade reflects Guala's weaker than anticipated operating
performance since July 2023 and Moody's expectation that the
trading environment will remain challenging in 2024 impacting the
company's EBITDA growth trajectory and not allowing for meaningful
deleveraging to a level consistent with the previous B1 rating, "
says Donatella Maso, a Moody's Vice President – Senior Credit
Officer and lead analyst for Guala.
"While the acquisition of Astir, albeit small, will be positive for
Guala's business profile and will not materially affect leverage,
it will weaken the company's interest and cash flow cover ratios
and adds incremental integration risk" – adds Ms Maso.
RATINGS RATIONALE
Since the end of H1 2023, Guala's operating performance has been
weaker than anticipated owing to prolonged customer destocking
which mainly hampered volumes for the wine and spirits segments,
exacerbated by softer consumer demand partially offset by price
increases and cost containment measures. As a result, revenue were
down by 5% in 2023 compared to 2022 and by 17% in Q1 2024 compared
to Q1 2023. Although the company's like-for-like EBITDA, as
adjusted by Moody's for some reorganization costs, only marginally
declined to EUR150 million in 2023 (or EUR157 million on a pro
forma basis) from EUR159 million in 2022, and remained at the same
level at LTM Q1 2024, it did not allow for any deleveraging.
The debt-funded acquisition of Astir, expected to close in H2 2024,
will likely enhance Guala's business profile by broadening its
product offering and geographic reach with the potential to achieve
revenue synergies in the medium term. Although the transaction is
broadly leverage neutral, Guala's leverage will remain high at 6.3x
based on LTM March 2024 Moody's adjusted EBITDA of EUR177 million
pro forma for Anacorks Lda, Astir Vitogiannis Bros S.A., and Yibin
Fengyi Packaging Co., Ltd, a level well above guidance for the
previous B1 rating category. Furthermore, the transaction will
increase the company's interest expenses weakening its interest and
cash flow cover ratios and adds further integration risk.
Moody's expects that market conditions will continue to be
difficult in 2024 impacting Guala's EBITDA growth trajectory
relatively to previous expectations and delaying the leverage
reduction. While customer inventory levels will gradually normalise
during 2024, the weak macroeconomic environment may continue to
hamper consumer demand, particularly the out-of-home consumption of
beverages. Guala may also face difficulties in maintaining current
prices amid declining input costs, notwithstanding that closures
represent a small component of the cost of the broader end product.
Furthermore, the rating takes into consideration the geopolitical
risk given its presence in Ukraine, which account for about 10% of
group's EBITDA.
That said, Moody's expects Guala to be able to gradually resume
volume and EBITDA growth from the second half of 2024. Earnings
will also be supported by benefits from the investments in
additional capacity and operational efficiency over the period
2022-24 and, over time, by potential revenue synergies with the
acquisition of Astir. Under Moody's forecasts, Guala will be able
to reduce its leverage ratio below 5.5x by 2026. Moody's does not
assume any further debt-funded acquisition in its forecasts but
notes that it remains a risk which may slow down the deleveraging
path.
Moody's also expects that the company's free cash flow (FCF)
generation will be weak in 2024 due to increasing interest expense,
working capital build-up, ongoing integration costs, and
approximately EUR31 million of special projects aiming at
increasing the existing capacity and improving production
efficiency. These investments include the completion of the
building of new plants in Scotland and in China, the construction
of a new facility in Nigeria, the expansion of its Mexican
facilities and the enhancement of the group's IT infrastructure.
Beyond 2024, Moody's anticipates improvement in FCF generation.
Guala's B2 rating remains constrained by its relatively small scale
compared with its much larger and consolidated customer base; the
fact that more than 50% of its revenue is derived from more
commoditised products (standard closures) that are subject to more
intense competition; a degree of customer concentration; its
exposure to raw material price volatility, particularly for
aluminium and plastic resins; and its exposure to foreign-exchange
fluctuations because of the currency mismatch between cash flow and
debt, which is mainly euro denominated.
On the positive side, the B2 rating is supported by Guala's solid
business profile, which is underpinned by its market-leading
position in the niche and less-standardised safety and luxury
closure segments; its presence in the less discretionary food and
beverage end markets; and by its good geographical diversification;
and the positive industry trends driven by the increased need for
safety closures in emerging markets where the risk of
counterfeiting is higher, ongoing premiumisation, and substitution
of cork with aluminium screw caps.
LIQUIDITY
Moody's views Guala's liquidity profile as good. The company will
have access to approximately EUR214 million of cash on balance
sheet as of March 2024 and pro-forma for the tap; full availability
under its increased EUR175 million super senior RCF maturing in
2028; and will not have significant debt maturities until 2028,
when the EUR500 million senior secured notes are due. These sources
of liquidity are sufficient to cover intra-year working capital
swings because of seasonality, integration costs, capital spending
(excluding IFRS 16 lease repayments but including growth capex) of
5-6% of revenue per year in 2024-2025, dividends to minority
shareholders, and deferred consideration liabilities.
STRUCTURAL CONSIDERATIONS
The B2 rating on the EUR500 million senior secured notes due 2028
and on the EUR500 million senior secured FRNs due 2029 is the same
as the CFR because they represent most of the debt in the capital
structure.
Both the notes and the super senior RCF are mainly secured against
share pledges of certain companies of the group, but the RCF ranks
ahead of the notes upon enforcement. Moody's typically view debt
with this type of security package to be akin to unsecured debt. As
of March 2024, the subsidiaries guaranteeing the notes represented
together with the issuer, 52% of consolidated adjusted EBITDA and
53% of total assets, which the rating agency considers to be weak.
STABLE RATING OUTLOOK
The stable outlook reflects Moody's view that the company's
operating performance will gradually improve from the second half
of 2024 allowing for a reduction in its leverage below 6.0x. The
outlook assumes that the company will not embark in material debt
funded acquisitions or further shareholders distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could develop if Guala demonstrates its
ability to continue to grow its EBITDA; its profitability (measured
as EBITDA margin) remains in the high teens; its financial leverage
(measured as Moody's-adjusted (gross) debt/EBITDA) falls below
5.0x; its Moody's adjusted FCF/debt ratio improves to around
mid-single digit % on a sustained basis; while maintaining a solid
liquidity profile.
Downward rating pressure could arise if Guala fails to improve its
operating performance so that its Moody's-adjusted (gross)
debt/EBITDA remains sustainably well above 6.0x; Moody's adjusted
FCF remains negative beyond 2024; its liquidity weakens; or there
is evidence for a more aggressive financial policy of its owners.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers published in
December 2021.
COMPANY PROFILE
Headquartered in Italy, Guala Closures S.p.A. (Guala) is a global
leader in the production of safety closures for spirits and
aluminium closures for wine. It is a major global company in the
production and sale of closures for the beverage industry. The
company operates 33 production facilities in 24 countries and
employs over 5,000 people.
For the last twelve months ending March 31, 2024, Guala generated
EUR874 million of revenue and EUR177 million of EBITDA (on a
Moody's-adjusted basis), pro forma for Anacorks Lda, Astir
Vitogiannis Bros S.A., and Yibin Fengyi Packaging Co., Ltd. The
company is majority owned by private equity sponsor
Investindustrial VII L.P. (Investindustrial).
GUALA CLOSURES: S&P Lowers LongTerm ICR to 'B', Outlook Stable
--------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Italy-based packaging product company Guala Closures SpA (Guala)
and its issue rating on the senior secured notes to 'B' from 'B+'.
The stable outlook reflects S&P's expectation that Guala's adjusted
leverage will remain well above 5.0x over the next 12 months. The
stable outlook also assumes that Guala's FOCF will remain positive
and that funds from operations (FFO) cash interest coverage will
continue to exceed 2.0x.
S&P said, "Guala's forecast adjusted leverage exceeds our previous
assumptions. The proposed EUR150 million tap issuance will increase
adjusted debt to EUR1.1 billion in 2024, from EUR965 million in
2023. Although we expect adjusted EBITDA will increase to EUR175
million-EUR185 million in 2024, from EUR157 million in 2023, as
volumes recover, we now forecast adjusted leverage above 6.0x in
2024, from 6.2x in 2023. We expect leverage will decrease to
5.3x-5.5x in 2025 as adjusted EBITDA improves to EUR200
million-EUR210 million, on the back of the full-year EBITDA
contribution of Astir and continued sales growth."
Guala's debt level will likely remain elevated over the medium
term, considering the company's aggressive financial policy. The
proposed tap issuance and the EUR350 million debt issuance in
October 2023--which funded a EUR250 million dividend payment to
shareholders and the acquisition of Fengyi Packaging Co.--will
increase adjusted debt by about 80% over a 12-month period. This,
in S&P's view, reflects Guala's more aggressive financial policy,
compared with its track record.
S&P said, "We expect FOCF generation will be modest, considering
increased debt levels. We expect that Guala will generate
marginally positive adjusted FOCF in 2024 and that FOCF will
improve to EUR30 million-EUR40 million in 2025, mainly due to
EBITDA growth. Although Guala has historically generated positive
FOCF--because of strong adjusted EBITDA margins and relatively low
working capital needs--we anticipate FOCF will remain weak,
considering the level of indebtedness. The downgrade reflects the
fact that we no longer view the company's indebtedness and cash
generation as commensurate with a 'B+' rating. At the same time, we
expect Guala's FFO cash interest coverage will remain well above 2x
over 2024-2025, despite the higher interest expense from higher
margins on recent issuances.
"The stable outlook reflects our expectation that Guala's adjusted
leverage will remain well above 5.0x over the next 12 months. The
stable outlook also assumes that Guala's FOCF will remain positive
and that FFO cash interest coverage will continue to exceed 2.0x.
"We would consider lowering our rating on Guala if the company
generated negative FOCF over a prolonged period or if FFO cash
interest coverage deteriorated below 2.0x.
"We would consider an upgrade if Guala's adjusted debt to EBITDA
dropped toward 5.0x on a sustained basis, while FOCF improved
materially on a sustainable basis, and the company's financial
policy supported such credit metrics.
"Governance factors are a moderately negative consideration in our
credit rating analysis of Guala. Our assessment of the company's
financial risk profile as highly leveraged reflects corporate
decision-making that prioritizes the interests of the controlling
owners, in line with our view of most rated entities owned by
private-equity sponsors. Our assessment also reflects generally
finite holding periods and a focus on maximizing shareholder
returns. Environmental factors have an overall neutral influence on
our credit rating analysis. We believe Guala's diversification into
aluminum, which can be recycled multiple times, compensates for its
exposure to plastics."
REKEEP SPA: S&P Affirms 'B' ICR, Outlook Remains Negative
---------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit and
issue rating on Italy-based facilities management service provider
Rekeep SpA and its EUR370 million senior secured notes. Recovery
ratings remain unchanged at '3' indicating meaningful recovery
(50%-70%; rounded estimate 55%) in the event of default.
S&P said, "The negative outlook reflects that we could lower the
rating if we believed the company would not be able to successfully
refinance its upcoming maturities before its senior secured notes
become current.
"We forecast expansion in EBITDA and weak but positive FOCF in 2024
and 2025.Despite a decline in revenue by about 1% in 2024 due to
lower energy prices affecting the company's sale of energy, we
expect the EBITDA margin will improve to about 9% (versus 8.4% in
2023) and S&P Global Ratings-adjusted EBITDA will rise to about
EUR107 million (+6.8% year on year). This is mainly driven by
growing operations in Poland, further supported by a reduction in
losses pertaining to the Saudi contract, and partially offset by an
absence of tax credits (versus EUR17.7 million in 2023). For 2025,
we expect low single-digit revenue growth and a small improvement
of about 10-20 basis points (bps) in Rekeep's EBITDA margin,
supported by operational efficiencies and lower fine payments. We
forecast modestly positive FOCF in 2024-2025 due to elevated
capital expenditure of about EUR45 million-EUR46 million annually,
mostly driven by investments in Poland, and declining but still
high cash interest costs. As a result, we forecast Rekeep's
leverage will decline to 6.0x-6.5x in 2024-2025, from 6.8x in 2023,
thanks to EBITDA growth, along with a significant reduction in
financial guarantees due to successful negotiations with energy
suppliers as prices decline. We no longer apply any haircut to
accessible cash, given the company no longer has restricted cash.
We also forecast FFO cash interest coverage to remain around 2.2x
despite high interest costs."
Rekeep faces a deteriorating capital structure and liquidity as its
debt maturity approaches. Rekeep's EUR370 million senior secured
notes become due in February 2026. S&P said, "We understand that
management has hired advisors for a strategic review. Nevertheless,
we believe that Rekeep's ability to refinance its debt on good
terms hinges on a favorable trading environment and continued
improvement in the company's operating and financial performance.
We could view the upcoming debt maturities as a constraint to the
current rating if Rekeep doesn't take tangible measures toward
refinancing before the senior notes become current."
S&P said, "We have revised our liquidity assessment to less than
adequate from adequate because we do not believe the company will
refinance its RCF before it becomes current in August 2024. This is
despite management's initiatives to boost its liquidity, including
extension of the EUR300 million nonrecourse factoring facility
until January 2028, securing a EUR12 million facility guaranteed by
the state-owned insurance company, SACE SpA until May 2029 and
extension and adjustment of monthly payments toward the FM4 fine
imposed by the Italian Competition Authority until 2029. However,
in our view, these initiatives do not fully offset the near-term
maturity of the RCF (in our liquidity assessment, we do not
consider committed credit facilities as a source of liquidity when
they mature within 12 months)."
The negative outlook on Rekeep reflects the possibility that the
company's liquidity could deteriorate further due to the looming
maturity of its senior secured notes in February 2026.
Nevertheless, S&P expects that EBITDA growth and tight management
of working capital will drive moderate deleveraging to 6.0x-6.5x,
FFO cash interest coverage of about 2.2x and modestly positive FOCF
in 2024-2025.
Downside scenario
S&P could lower the rating if Rekeep's FOCF remained negative in
the next 12 months, or its FFO cash interest coverage declined
below 2x for a prolonged period. This could happen if:
-- The company is not able to reduce its working capital
requirements;
-- S&P sees significant delay in onboarding new contracts or
higher-than-expected costs associated with this; or
-- Rekeep is involved in new litigation that gives rise to fines
or damages its reputation.
S&P could also lower the rating if the company does not make
meaningful progress toward refinancing its EUR75 million RCF and
EUR370 million senior secured notes in the next six months.
Upside scenario
S&P could revise the outlook to stable if:
-- S&P believes that the company will be able to sustain its S&P
Global Ratings-adjusted EBITDA margin at 9%-10%, generate positive
FOCF, and maintain FFO cash interest coverage above 2.0x
-- Rekeep refinances its debt at favorable terms such that its
FOCF after debt service remains positive on a sustained basis.
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Rekeep. The company
has undergone a number of legal investigations, and as of March 31,
2024, had about EUR55.2 million outstanding related to the FM4 fine
imposed by the Italian Competition Authority. We note that Rekeep
has reinforced governance by appointing three independent directors
and three board of director committees comprising these independent
directors. We also note that Rekeep's holding entity MSC is
currently involved in litigation based on the suspicion of serious
management irregularities. We will continue to monitor the
situation to assess if this may affect Rekeep's credit quality."
===================
L U X E M B O U R G
===================
ALTICE INT'L: Moody's Cuts CFR to Caa1 & Alters Outlook to Negative
-------------------------------------------------------------------
Moody's Ratings has downgraded to Caa1 from B3 the long-term
corporate family rating, and to Caa1-PD from B3-PD, the probability
of default rating of Altice International S.a.r.l. ("Altice
International"), a telecoms operator with operations in Portugal,
Israel, Dominican Republic and the owner of TEADS. Concurrently,
Moody's has downgraded to Caa3 from Caa2 the backed senior
unsecured instrument ratings of Altice Finco S.A. and to Caa1 from
B3, the backed senior secured and senior secured bank credit
facility instrument ratings of Altice Financing S.A. The outlook on
all entities has changed to negative from stable.
"The downgrade to Caa1 reflects the company's weakened liquidity
and the increasing risk that the capital structure may become
unsustainable as a result of continued shareholder distributions
and rising interest costs," says Ernesto Bisagno, a Moody's Vice
President -- Senior Credit Officer -- and lead analyst for Altice
International.
The downgrade reflects the corporate governance considerations
associated with the company's high leverage, that increases the
risk that the capital structure may become unsustainable. Financial
strategy and risk management is a governance consideration under
Moody's General Principles for Assessing Environmental, Social and
Governance Risk methodology.
RATINGS RATIONALE
The rating downgrade reflects the increasing risk of an
unsustainable capital structure as a result of continued
shareholder distributions and rising interest costs. Although there
are moderate refinancing needs over 2025-26, the company will face
a refinancing wall over 2027-28, which, at current funding rates,
would require a significant improvement in Altice International's
earnings profile for its capital structure to remain sustainable.
Moody's also expects that access to capital markets for Altice
International would likely be costlier and potentially more
complicated going forward, given that other credit pools controlled
by French entrepreneur Patrick Drahi, such as Altice France
Holding S.A. (Caa2 negative) or CSC Holdings, LLC (Altice US, Caa2
negative), have also experienced a deterioration in credit
quality.
The rating action also reflects that in the first quarter of 2024,
Altice International distributed a EUR390 million dividend, by
drawing an equivalent amount from its revolving credit facilites.
Although this distribution was in accordance with the company's
financial policy of maintaining net reported leverage in the
4.5x-5.0x range, it increased its reported net debt/EBITDA to 5.0x
at March 2024 (equivalent to around 7.0x on a Moody's adjusted
basis, or to 6.2x excluding fair value of derivatives and proceeds
from the refinancing of the EUR600 million notes due in Q1 2025) in
a sign that the company is prioritizing shareholder remuneration to
deleveraging and liquidity strengthening.
Altice International continues to guide steady EBITDA growth in
2024, because of its stronger performance in Portugal, partially
offset by weaker earnings from Israel and Dominican Republic.
Despite higher EBITDA, Moody's expects FCF to remain negative
because of higher interest costs and continued shareholder
distributions. As a result, the rating agency expects the company's
Moody's-adjusted debt/EBITDA to remain above 6.0x over 2024-25.
In addition to the high leverage, Altice International's Caa1
rating continues to reflect the complexity of the group structure
given that the company fully consolidates its fibre network in
Portugal (Fastfiber) but only owns 50.01%; and its large
refinancing needs from 2027 onwards, which will likely have to be
refinanced at higher rates.
The rating also reflects the company's geographical diversification
and strong market position in the countries in which it operates;
its large scale; its well-invested fibre-rich infrastructure; and
its steady operating performance.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Governance risk considerations are material to the rating action
owing to Altice International's aggressive financial strategy, with
tolerance for high leverage which increases the risk of a debt
restructuring. This factor has resulted in the company's Financial
Strategy and Risk Management score moving to 5 from 4, the
governance issuer profile score (IPS) to G-5 from G-4 and the
Credit Impact Score moving to CIS-5 from CIS-4.
LIQUIDITY
Altice International's liquidity is weak because of the negative
FCF resulting from the EUR390 million dividend payment. As of March
2024, it had — on a pro forma basis — cash of EUR324 million
(net of the EUR600 million bond due in Q1 2025), plus EUR128
million (out of EUR578 million) of revolving credit facilities
(RCFs) maturing in February 2027. The RCF is subject to a springing
(for drawings higher than 40%) net leverage covenant of 5.25x. Net
leverage as of the end of Q1 2024 was 5.0x (L2QA), implying limited
capacity under this covenant. In addition, availability under RCF
of only EUR128 million is small relative to the size of the
company.
The upcoming debt maturities include a $189 million senior secured
term loan issued by Altice Financing S.A. due in Q3 2025. The
company has a significant refinancing wall from 2027 when most of
its debt starts to mature.
STRUCTURAL CONSIDERATIONS
The ratings of Altice International group's senior secured notes
and secured term loans, which account for the bulk of the company's
financial debt incurred at its borrowing subsidiary Altice
Financing S.A., are in line with the Caa1 CFR.
The Caa3 rating of Altice International's senior notes, issued at
its borrowing vehicle Altice Finco S.A., reflects their unsecured
position compared with the Caa1-rated instruments in the capital
structure. Holding company guarantees for the Caa3-rated
instruments are provided on a senior subordinated basis, and the
instruments share (on a second-ranking pledge basis) only a part of
the security package available to the senior secured lenders.
RATIONALE FOR NEGATIVE OUTLOOK
The negative rating outlook reflects the company's high leverage
and the lack of cash flow generation because of a combination of
rising interest costs and continued shareholder distributions. This
increases the risk of the capital structure becoming
unsustainable.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Because of the negative outlook, there is limited upward pressure
on the rating. However, upward pressure could develop if the
company delivers a solid operating performance with sustainable
revenue and EBITDA growth that allows the company to afford higher
interest rates and leads to a more sustainable capital structure.
Altice International's rating could be downgraded if the risk of
default rises or Moody's assessment of recovery in a default
scenario deteriorates further.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was
Telecommunications Service Providers published in November 2023.
COMPANY PROFILE
Altice International S.a.r.l. (Altice International) is a
multinational fibre, telecommunications, content and media company,
with a presence in three key markets: Portugal (MEO), Israel (HOT
brand) and the Dominican Republic (Alice Domenicana). The company
also operates globally through Teads, a media platform. The
company's direct corporate parent is Altice Luxembourg S.A. (Altice
Luxembourg), which is fully controlled by French entrepreneur
Patrick Drahi through financial vehicles.
As of December 31, 2023, Altice International provided broadband,
pay-TV and telephony services to three million B2C customers. The
company also provides B2B telephony services and had 10.6 million
B2C mobile subscribers. In 2023, the company generated revenue and
EBITDA of EUR5.1 billion and EUR1.9 billion, respectively.
CPI PROPERTY: S&P Cuts ICR to 'BB+' on Ongoing Tight Credit Metrics
-------------------------------------------------------------------
S&P Global Ratings lowered its ratings on commercial real estate
company CPI Property Group S.A. (CPI) and its senior unsecured
notes to 'BB+' from 'BBB-', and our issue ratings on the
subordinated hybrid bonds to 'B+' from 'BB'. S&P also assigned a
recovery rating of '3' to the senior unsecured notes, indicating
its expectation of about 65% recovery (rounded estimate) in the
event of a default.
The negative outlook reflects a one-in-three likelihood of a
downgrade over the next 12 months if CPI does not manage to execute
its deleveraging plan in a timely manner and get closer to its
targeted financial policy.
S&P said, "CPI's EBITDA interest coverage dropped to 1.8x at
year-end 2023 versus our expectation of about 2.0x, following a
lack of progress in deleveraging and rising funding costs. We
expect CPI's gross debt to reduce significantly in 2024 as a result
of asset disposal proceeds of over EUR600 million year to date,
plus an additional forecast EUR1.1 billion by the end of this year
as part of a recently announced supplemental EUR2 billion asset
disposal program to be completed over the next 12 to 24 months.
However, we believe the higher cost of funding and lower expected
rental income base associated with the disposals will continue to
weigh on the company's interest servicing capacity, although we
understand this should be limited since the properties sold have
very low or no yields. Similarly, we forecast the average cost of
debt to rise toward 3.4% in the next 12-24 months from 3.12% as of
year-end 2023 and 2.45% in 2022. We have revised down our forecast
of EBITDA interest coverage to 1.8x-1.9x over the next 12 months,
which is lower than our previous projection of slightly above 2.0x
and therefore not commensurate with a 'BBB-' rating. This is even
though we forecast rental income growth of 3.5%-4.0% on a
like-for-like basis in 2024, partly owing to rental indexation,
stable occupancy levels, and rental contribution linked to its
capital expenditure (capex) program. The company's asset disposal
program, which focuses on selling mainly lower-yielding or vacant
assets, should partly offset higher funding costs and support
broadly stable EBITDA interest coverage in the future. Despite the
company's relatively high proceeds from asset disposals in 2023,
execution risks of its deleveraging strategy remain high, in our
view. This is because, although investor sentiment is improving,
asset sales are taking longer to close, which could result in
further delays in deleveraging.
"The company's high interest burden and sizable capex plans weigh
on cash flow generation and its internal capacity to deleverage
relies increasingly on asset sales. CPI's total interest expense
increased to EUR386 million in 2023 from EUR248.3 million in 2022,
resulting in cash flow from operations after interest payments
decreasing to EUR248 million in 2023 from EUR361 million in 2022.
We expect interest expense to continue weighing on the company's
cash flow generation capacity due to the higher cost of debt. This,
coupled with expected sizable capex investments of EUR400
million-EUR420 million in 2024, and EUR300 million-EUR350 million
in 2025, implies CPI's free operating cash flow (FOCF) will remain
negative. Therefore, despite CPI's large income-yielding asset base
worth EUR19.5 billion as of year-end 2023, the high interest burden
and sizable capex are hampering its cash flow generation and
capacity to reduce leverage, increasing its reliance on asset
disposals to reduce leverage.
"Shareholder distributions, alongside asset investments that
deviated from our previous base case and asset devaluations,
resulted in CPI's S&P Global Ratings-adjusted leverage rising to
59.8% in 2023 from 57.5% in 2022.¨This was despite EUR930 million
of asset disposals closed in 2023. Last year, CPI reported a 5.1%
like-for-like valuation decline, following a significant yield
expansion in 2023 because of the high-interest-rate environment.
The company was able to partly mitigate the yield expansion, thanks
to robust operating performance on the back of sustained rental
indexation and positive rental growth. However, asset devaluations
had a EUR1.1 billion negative impact on net income, resulting in
S&P Global Ratings-adjusted debt to debt plus equity rising to
59.8% at year-end 2023 from 57.5% at year-end 2022. Despite
significant asset disposals in 2023 with proceeds exceeding EUR930
million, the company's sizable capex of about EUR376 million,
cash-funded acquisitions of EUR111 million, and cash outflows via
share repurchases or loans to shareholders totaling about EUR326
million, limited the positive impact on leverage. We understand CPI
will not make further acquisitions and plans to limit shareholder
remuneration in favor of deleveraging. Nevertheless, further
potential asset devaluations, which we project at 3%-4% over the
next 12-24 months, may result in slower deleveraging than expected.
We expect total asset disposal proceeds of about EUR1.75 billion in
2024 and an additional EUR800 million in 2025 to result in debt to
debt plus equity improving to 58%-59% in 2024 and to 56%-57% in
2025. We also expect debt to EBITDA to improve to 14x-15x in 2024,
and reduce further to 13x-14x in 2025, after 15.9x at year-end
2023.
"The group's complex corporate structure, unanticipated asset
investments, and shareholder -friendly transactions, as well as
limited access to material cash at subsidiaries S Immo and
Immofinanz weigh on CPI's creditworthiness.CPI reported over EUR1.0
billion in cash and cash equivalents at year-end 2023, but still
had EUR608 million outstanding on its second EUR635 million bridge
loan; it also used close to EUR460 million of its revolving credit
facility (RCF) to repay part of the first bridge loan. Of the over
EUR1.0 billion of reported cash and cash equivalents, close to
EUR700 million were on the books of S Immo and Immofinanz, two
fully controlled subsidiaries. CPI has completed asset sales at its
subsidiaries to upstream cash to use for debt repayment. We
understand the company's objective is to streamline the
organizational structure to reduce complexity and liquidity
imbalances within the group. This is because about 65% of the
group's reported gross debt is owed by the holding company but 70%
of the cash is at the two subsidiaries, which have a significant
proportion of minority shareholders. Although plans for a squeeze
out at S Immo should reduce the group's organizational complexity,
it will delay deleveraging, since we expect a cash outflow of
EUR110 million to EUR130 million related to the share buyout. CPI
has a limited track record of successfully executing its
deleveraging plans. The company has expanded significantly over the
past few years with a series of large acquisitions, including the
takeover of Immofinanz and S Immo, and despite sizable disposal
proceeds in 2023, a large portion of its cash has been used for
non-deleveraging purposes. As a result, its credit metrics have
deviated from our previous base case. Similarly, CPI has not been
able to comply with its own financial policy target of reported
loan to value (LTV) of 40% for the few years.
"That said, we view as positive the group's recent EUR500 million
bond issuance, which provided liquidity to repay the remaining
bridge loan facility, reducing debt maturities in 2026 and
supporting liquidity in the short term. CPI's recently issued
EUR500 million bond not only demonstrates the company's access to
bond markets, albeit with a relatively high 7% coupon, but also
secures sufficient liquidity to repay the EUR530 million
outstanding amount on its bridge loan as of March 31, 2024, thereby
reducing the amount of debt maturing in 2026. Refinancing the
bridge loan with a five-year bond also lengthens the company's
weighted average debt maturity to 4.6 years-4.8 years pro forma the
repayment. This allows for a smoother debt repayment profile,
especially in 2026, when close to EUR2.5 billion (including the
bridge loan) was due to mature. But the high coupon will continue
to weigh on the company's interest burden. CPI's relatively weak
capital market standing, with spreads on bond trading wider than
those of peers at comparable rating levels, and current high
leverage puts additional pressure on its need to successfully
dispose of assets to reduce leverage and secure sufficient
liquidity to cover its upcoming debt maturities. As a result of
these constraints, we have applied a negative comparable rating
analysis modifier to our assessment of CPI's credit profile.
"The negative outlook indicates that we could lower the ratings
within the next 12 months if CPI fails to execute its deleveraging
plan in a timely manner, with its reported LTV approaching its own
financial policy of 40%.
"We could also lower the issuer credit rating if CPI fails to
maintain adequate liquidity buffers, such that upcoming debt
maturities are not refinanced in a timely manner or undrawn
available credit facilities are not rolled over."
S&P could lower its rating on CPI if:
-- The company fails to maintain a comfortable liquidity buffer;
-- Debt to debt plus equity increases to 60% or higher;
-- EBITDA interest coverage deteriorates to well below 1.8x; or
-- Debt to annualized EBITDA deviates materially from our base
case.
S&P said, "This could happen if CPI does not succeed in executing
its asset disposal plan, records portfolio devaluations beyond our
forecasts, or funding conditions deteriorate beyond our
expectations.
"We could also take a negative rating action if unexpected events
further weaken the company's creditworthiness, such that available
cash is used for non-deleveraging purposes such as substantial
share buybacks beyond our forecast, provision of shareholder loans,
or acquisitions involving future debt repayments to its main
shareholder."
S&P could revise the outlook to stable if the company restores its
credit metrics, with:
-- Debt to debt plus equity below 60%;
-- EBITDA interest coverage above 1.8x; and
-- Debt to annualized EBITDA in line with S&P's base case.
An outlook revision to stable is also contingent on CPI's financial
discipline, including adherence to its publicly stated financial
policy of 40% LTV, and whether it limits shareholder remuneration
via shareholder loans, dividends, or share repurchases. It is also
contingent on the company maintaining an adequate liquidity buffer
to cover its upcoming debt maturities.
SAPHILUX SARL: S&P Upgrades ICR to 'B', Outlook Stable
------------------------------------------------------
S&P Global Ratings raised its ratings on Luxembourg-based investor
services provider Saphilux S.a.r.l (IQ-EQ) and its senior secured
first-lien term debt to 'B' from 'B-'.
The stable outlook reflects S&P's view that IQ-EQ's organic growth
and financial policy will support adjusted leverage remaining less
than 8x, while generating positive FOCF and a funds from operations
(FFO) cash coverage ratio of about 2x.
IQ-EQ has continued to reduce its leverage in recent years. Given
strong EBITDA growth and the conversion of convertible preferred
equity certifications worth EUR406 million into common equity in
January 2022, adjusted leverage improved to 10x in 2022 from 14.3x
in 2021. Leverage reduced further in 2023 to 8x in 2023, and we
forecast it will approach about 6.3x in 2024, due to strong organic
growth and higher EBITDA margins. S&P said, "We expect S&P Global
Ratings-adjusted EBITDA margins of about 28% in 2024 compared with
25% in 2023, due to a reduction of exceptional costs and
realization of benefits from offshoring investments. We assume
exceptional costs will decline to about EUR30 million in 2024 from
about EUR50 million in 2023. The group reported revenue growth of
17% in 2023 due to strong double-digit organic growth across all
regions, notably in the funds and asset management (FAM) segment in
North America, Luxembourg, and Asia. In 2024, we forecast revenue
growth higher than 10%, underpinned by inflation-related price
increases, new business wins, and the full-year contribution from
acquisitions completed in 2023. Although FOCF remained negative in
2023 due to exceptional costs, we expect it to turn positive to
about EUR30 million from 2024. We also expect FFO cash interest
coverage to improve toward 2x from 2024 onward due to the
improvement in EBITDA."
S&P said, "We expect a reduced impact on leverage from mergers and
acquisitions (M&A) in future. IQ-EQ's financial-sponsor owner
Astorg Partners has partly funded several of IQ-EQ's purchases. It
made equity injections of about EUR160 million to fund the DGFM
acquisition and a deferred consideration for Greyline in the first
half of 2022. However, high acquisition multiples in the sector are
such that IQ-EQ's debt to EBITDA has remained elevated since the
group was created in 2018. As IQ-EQ expanded it built a track
record of deleveraging and we therefore see such leverage as
sustainable. We expect the group will continue to make
acquisitions, given the fragmented nature of the industry in which
it operates. Nevertheless, we believe the relative magnitude of
bolt-on M&A and associated exceptional costs could reduce in the
coming years, which could lead to sustainably lower leverage in
future. Although our leverage estimates from 2024 do not factor in
additional acquisitions, we do not rule out relatively small
opportunistic bolt-on M&A, which should not constrain permanent
deleveraging.
"Our upgrade is also supported by improvement in IQ-EQ's scale and
diversification.IQ-EQ has expanded through acquisitions that have
also improved its competitive position. The company has completed
several bolt-on purchases, as well as more meaningful acquisitions,
such as that of JGM Fund Services (JGM), DGFM, Greyline Partners
LLC (Greyline), Concord Trust, Blue River Partners, and
Constellation Advisors. As a result of the acquisitions, IQ-EQ's
revenue increased to EUR635 million in 2023 from EUR184 million in
2018 and the group's scale and geographic diversification improved,
especially in North America. The contribution of sales from
non-European regions also increased to about 43% in 2023 from 15%
in 2018, as did the revenue contributions from the high-growth FAM
segment, reaching 61% versus 31% in 2018. However, the improvement
in adjusted EBITDA has been constrained by exceptional costs
associated with these acquisitions.
"The stable outlook reflects our view that IQ-EQ can maintain
adjusted leverage of lower than 8x in the future, through organic
growth and financial policy, while generating positive FOCF and FFO
cash coverage ratio of about 2x."
Downside scenario
S&P said, "We could take a negative rating action if IQ-EQ
underperformed our forecasts, due to contract losses or
higher-than-expected exceptional costs, such that we no longer
believed it will generate positive FOCF or FFO cash coverage lower
than 2x. We could also consider a negative rating action if the
group pursued a more aggressive financial policy than we now
expect, such that, S&P Global Ratings-adjusted leverage exceeds 8x
on a sustained basis."
Upside scenario
S&P said, "Although unlikely in the near term, we could consider an
upgrade if operating performance improves substantially, such that
adjusted debt to EBITDA falls and remains below 5.0x, supported by
financial policy to keep leverage at that level.
"Governance factors are a moderately negative consideration in our
credit rating analysis of IQ-EQ. Our assessment of the group's
financial risk profile as highly leveraged reflects corporate
decision-making that prioritizes the interests of the controlling
owners, in line with our view of most rated entities owned by
private-equity sponsors. Our assessment also reflects the owners'
generally finite holding periods and focus on maximizing
shareholder returns."
===========
N O R W A Y
===========
ADEVINTA ASA: S&P Withdraws 'BB-' LongTerm Issuer Credit Rating
---------------------------------------------------------------
S&P Global Ratings withdrew its 'BB-' long-term credit ratings on
Norway-based Adevinta ASA and its senior secured debt at the
company's request.
S&P said, "We understand that the company has fully repaid the
debt. The debt repayment followed the closing of Adevinta's
acquisition by a private-equity consortium led by Blackstone and
Permira. At the time of the withdrawal, the ratings were on
CreditWatch with negative implications, reflecting our view that
the private-equity sponsors would likely implement a more
aggressive financial policy and debt capital structure at
Adevinta."
=========
S P A I N
=========
MBS BANCAJA 3: Fitch Affirms 'CCCsf' Rating on Class E Notes
------------------------------------------------------------
Fitch Ratings has upgraded MBS Bancaja 4, FTA's class B and C notes
and affirmed the others. Fitch has also affirmed MBS Bancaja 3,
FTA's notes.
Entity/Debt Rating Prior
----------- ------ -----
MBS Bancaja 3, FTA
Series A2 ES0361796016 LT AAAsf Affirmed AAAsf
Series B ES0361796024 LT AAAsf Affirmed AAAsf
Series C ES0361796032 LT AAAsf Affirmed AAAsf
Series D ES0361796040 LT Asf Affirmed Asf
Series E ES0361796057 LT CCCsf Affirmed CCCsf
MBS Bancaja 4, FTA
Class A2 ES0361797014 LT AAAsf Affirmed AAAsf
Class B ES0361797030 LT AA+sf Upgrade A+sf
Class C ES0361797048 LT AA+sf Upgrade A+sf
Class D ES0361797055 LT A+sf Affirmed A+sf
Class E ES0361797063 LT CCCsf Affirmed CCCsf
TRANSACTION SUMMARY
The transactions comprise fully amortising Spanish residential
mortgages serviced by CaixaBank, S.A. (BBB+/Positive/F2).
KEY RATING DRIVERS
Updated Interest Deferability Rating Approach: The upgrades of MBS
Bancaja 4's class B and C notes reflect the update of Fitch's
Global Structured Finance Rating Criteria on 19 January 2024 in
relation to interest deferability, which previously capped the
rating at 'A+sf'.
The removal of the deferral cap under the new criteria reflects its
assessment that interest deferability is permitted under
transaction documentation for all rated notes and does not
constitute an event of default, that any interest deferrals will be
fully recovered by the legal maturity date, deferrals are a common
structural feature in Spanish RMBS, and the transaction
documentation include a defined mechanism for the repayment of
deferred amounts. Its analysis shows that MBS Bancaja 4's class C
notes could defer interests for around five years and be recovered
ahead of the notes' legal final maturity date.
CE Trends: Fitch deems the notes sufficiently protected by credit
enhancement (CE) against projected losses at their respective
ratings. Fitch expects CE ratios to continue increasing for both
transactions driven by the sequential amortisation of the notes.
For MBS Bancaja 3, a mandatory sequential paydown of the
liabilities is in place until the final maturity date, in line with
transaction documentation as its portfolio factor is less than 10%
(currently 7.6%). For MBS Bancaja 4, Fitch expects this to occur on
the coming interest payment dates as the outstanding portfolio
balance currently represents 11% of the initial amount, close to
the 10% threshold for mandatory sequential amortisation.
Neutral Asset Performance Outlook: The rating actions reflect its
expectation of broadly stable asset performance for the portfolios,
in line with the neutral asset outlook for eurozone RMBS
transactions and Fitch's views on the Spanish housing sector for
the next few years (see "Iberian Mortgage Market Index - April
2024"). This is supported by the transactions' low share of loans
in arrears over 90 days (less than 2.2% of the current portfolio
balance as of the latest reporting dates for both transactions),
very high portfolio seasoning of more than 18 years and low current
loan-to-value ratios (26.6% and 30.1% for MBS Bancaja 3 and 4,
respectively).
Portfolio Risky Attributes: The portfolios are materially exposed
to loans for the acquisition of second homes (around 35% and 80% of
MBS Bancaja 3 and 4's portfolio balance, respectively), which Fitch
considers riskier than loans for the purchase of first residences,
and are therefore subject to a foreclosure frequency (FF)
adjustment of 150% in line with its European RMBS rating criteria.
Both transactions are exposed to loans granted to self-employed
borrowers (more than 20%) and loans originated via third party
brokers. These features carry a FF adjustment of 170% and 150%,
respectively.
Both transactions are also exposed to regional concentration risk,
mainly in the area of Valencia. In line with Fitch's European RMBS
rating criteria, higher rating multiples are applied to the base FF
assumption to the portion of the portfolio that exceeds two and a
half times the population share of this region relative to the
national count. To avoid rating volatility, Fitch has affirmed MBS
Bancaja 4's class D notes, notching down from the model-implied
rating and reflecting a -15% weighted average (WA) recovery rate
(RR) sensitivity. At the tail-end of the transaction, Fitch
believes that the RR may be lower than suggested by the seasoning
of the portfolio.
Excessive Counterparty Exposure: MBS Bancaja 3 class D notes'
rating is capped at the transaction account bank (TAB) provider's
deposit rating (Société Generale, S.A. Spanish Branch, A-/F1, A
deposit rating) as the cash reserves held at this entity represent
the main source of structural CE for these notes and the sudden
loss of these funds would imply a downgrade of 10 or more notches.
The rating cap reflects the excessive counterparty dependence on
the TAB holding the cash reserves in accordance with Fitch's
Structured Finance and Covered Bonds Counterparty Rating Criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- For notes that are rated 'AAAsf, a downgrade of Spain's Long-Term
Issuer Default Rating (IDR) that could decrease the maximum
achievable rating for Spanish structured finance transactions.
- 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 MBS Bancaja 3's class D notes, a downgrade of the TAB
provider's rating, as the notes' rating is capped at the bank's
ratings due to excessive counterparty risk exposure.
- 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 conducts sensitivity analyses by stressing both a
transaction's base-case FF and RR assumptions. For example, a 15%
increase in the WAFF and a 15% decrease in the WARR could imply a
downgrade of one notch for the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Notes rated 'AAAsf' are at the highest level on Fitch's scale and
cannot be upgraded.
- For mezzanine and junior notes, CE increases as the transactions
deleverage sufficient to fully compensate for the credit losses and
cash flow stresses that are commensurate with higher rating
scenarios.
- For MBS Bancaja 3's class D notes, an upgrade of the TAB
provider's rating, as the notes' rating is capped at the bank's
rating due to excessive counterparty risk exposure.
- Stable to improved asset performance driven by stable
delinquencies and defaults would lead to increasing CE and
potentially upgrades. Fitch tested an additional rating sensitivity
scenario by applying a decrease in the WAFF of 15% and an increase
in the WARR of 15%, implying upgrades of no more than three notches
for the 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
MBS Bancaja 3, FTA, MBS Bancaja 4, FTA
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. There were no findings that affected
the rating analysis.
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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
Because the latest loan-by-loan portfolio data sourced from the
European Data Warehouse did not include information about property
occupancy status, Fitch assumed 34.6% and 80.3% of the portfolio
for MBS Bancaja 3 and 4, respectively, to be linked to second homes
consistent with the exposure reported as of transactions' closing
dates. Fitch considers this assumption adequate as the granular
portfolios comprise fully amortising loans so exposure to second
homes is expected to remain stable over time.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
MBS Bancaja 3's class D notes' rating is capped at the TAB's
long-term deposit rating due to excessive counterparty dependency.
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 entities, either due to their nature or the way in which they
are being managed by the entities. 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.
===========================
U N I T E D K I N G D O M
===========================
ATLAS FUNDING 2024-1: S&P Assigns BB(sf) Rating on E-Dfrd Notes
---------------------------------------------------------------
S&P Global Ratings assigned credit ratings to Atlas Funding 2024-1
PLC's class A and B-Dfrd to X-Dfrd notes. At closing, the issuer
also issued unrated RC1 and RC2 certificates.
Atlas Funding 2024-1 PLC is an RMBS transaction that securitizes a
portfolio of GBP404 million (including GBP55 million of prefunding)
BTL mortgage loans secured on properties in England and Wales.
At closing, the issuer prefunded the acquisition of an additional
portfolio (subject to compliance with the respective eligibility
criteria) of up to 13.69% that may be purchased before and up to
the first interest payment date (IPD).
The loans in the pool were originated between 2018 and 2024 by
Lendco Ltd., a non-bank specialist lender.
The collateral comprises loans granted to experienced portfolio
landlords and private property investors, none of whom have had a
county court judgment in the two years before origination.
The class A and B-Dfrd notes benefit from liquidity support
provided by a liquidity facility (only for senior expenses and
class A notes) and an unfunded liquidity reserve fund (used to
mitigate any senior expenses shortfalls and interest on the class A
and B-Dfrd notes).
The transaction has no general reserve fund to provide liquidity
support for the class C-Dfrd to E-Dfrd notes.
Product switches are permitted under the transaction documentation
until the step-up date, subject to certain conditions. Product
switches are permitted up to a limit of 10.0% of the aggregate
amount of the portfolio's current balance at closing. Product
switches are only permitted subject to compliance with the
respective eligibility criteria.
Credit enhancement for the rated notes comprises subordination and
excess spread.
The transaction incorporates a swap to hedge the mismatch between
the notes, which pay a coupon based on the compounded daily
Sterling Overnight Index Average (SONIA), and the loans, of which
most pay fixed-rate interest until they revert to the SONIA-based
floating rate.
At closing, Atlas Funding 2024-1 used the notes' proceeds to
purchase and accept the assignment of Lendco's rights against the
borrowers in the closing portfolio and subsequently (within the
first IPD period) to purchase any additional portfolio. The
noteholders benefit from the security granted in the security
trustee's favor.
Counterparty, operational risk, or sovereign risk do not constrain
our ratings. The issuer meets our bankruptcy remoteness in
accordance with S&P's legal criteria at closing.
Ratings
CLASS RATING* AMOUNT (GBP)
A AAA (sf) 358,600,000
B-Dfrd AA (sf) 19,000,000
C-Dfrd A (sf) 16,200,000
D-Dfrd BBB (sf) 8,100,000
E-Dfrd BB (sf) 2,100,000
X-Dfrd BBB+ (sf) 4,040,000
RC1 residual
Certificate NR N/A
RC2 residual
Certificate NR N/A
*S&P said, "Our ratings address timely receipt of interest and
ultimate repayment of principal on the class A notes, and the
ultimate payment of interest and principal on all the other rated
notes. Our ratings also address timely receipt of interest on all
the rated notes other than class A notes when they become the most
senior outstanding notes."
NR--Not rated.
N/A--Not applicable.
GETTI LIMITED: Falls Into Administration
----------------------------------------
Business Sale reports that Getti Limited, a chain of Italian
restaurants and bars in London, fell into administration last
month, with Asher Miller and Stephen Katz of Begbies Traynor
appointed as joint administrators.
In the company's accounts for the period from December 29 2021 to
December 25, 2022, its fixed assets were valued at GBP1.88 million
and current assets at slightly over GBP1 million, Business Sale
states. However, its net liabilities totalled GBP244,359, Business
Sale notes.
GLOBAL SHIP: S&P Raises LongTerm ICR to 'BB+', Outlook Stable
-------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Global Ship Lease Inc. (GSL) to 'BB+' from 'BB'.
The stable outlook reflects S&P's expectation that GSL's leverage
will remain low thanks to its significant annual debt amortization,
even as its EBITDA normalizes after 2024.
S&P said, "We forecast continued deleveraging for GSL in 2024 from
mandatory debt amortization and higher EBITDA. We forecast that
GSL's adjusted FFO to debt will improve to 66%-69% in 2024 from 49%
in 2023, driven by $193 million of mandatory debt amortization and
higher adjusted EBITDA of about $490 million (compared with $464
million in 2023). About 92% of this EBITDA was already contracted
under time charters by March 31, 2024. We anticipate that it will
be nearly 100% contracted by the end of June, on the basis of the
company's guidance on its first-quarter earnings call that it is
capitalizing on the current supportive market conditions to agree
new charters. Moreover, we believe the risk of charter rate
amendments or defaults by container liners (GSL's customers) is
low, given their continued healthy cash balances and
much-firmer-than-expected container shipping rates this year. Rates
are largely benefitting from the absorption of capacity from
disruptions to the Red Sea and Suez Canal. Containerized freight
trade is also exceeding expectations this year, especially on
Transpacific and Asia-to-South America routes, partly reflecting a
pull forward of orders because of the uncertain geopolitical
outlook and an expectation that capacity disruptions will persist
in the third-quarter of 2024 (peak season), as well as improving
consumer demand for goods as inflation eases and restocking.
"We forecast slight further deleveraging in 2025, with continued
debt reduction more than offsetting lower EBITDA. We forecast FFO
to debt of about 70% in 2025, underpinned by our expectation that
another $145 million of scheduled debt reduction will offset a
normalization in GSL's adjusted EBITDA to about $395 million. About
half of this EBITDA was already contracted by March 31, 2024, and
we anticipate that it will be about 85% contracted by the end of
June. Although we think there might be a higher risk of charter
rate amendments by container liners in 2025 if shipping rates
plunge (we understand the company views amendments as highly
unlikely), we think this risk is mitigated by our anticipation that
container liner operators will continue to have healthy cash
balances. We anticipate that rates could fall by about 50% in 2025
on average if effective supply sharply increases from an easing of
disruptions to the Red Sea and Suez Canal and containerized freight
demand growth normalizes. Underlying ship capacity could also grow
by a further 5% in 2025 due to new deliveries, after about 9%
growth in 2024 according to the May 2024 Clarksons Research
report."
GSL is committed to maintaining low debt leverage consistent with a
'BB+' rating. GSL aims to maintain gross debt to EBITDA below 2x
and FFO to debt above 50% over the medium term, with ample headroom
to absorb downside risks from softer charter rates or contract
amendments leading to lower-than-expected EBITDA. This reflects
GSL's intention to refrain from embarking on any significant
debt-financed fleet replacement or expansion over the medium term.
GSL's fleet is relatively old at about 17 years on average,
compared with an industry average of about 14 years for
containerships. The company has managed to extend the economic life
of its ships and comply with environmental regulations through
significant investment in retrofitting, meaning it does not face an
imminent need to replace its ships with younger ones, but will
continue to do so on a selective and opportunistic basis. GSL
intends to explore next-generation fleet renewal only in the longer
term, once sustainable fuels become well established and
economically viable. Moreover, GSL's ample available cash of about
EUR100 million and significant free cash flow generation are more
than sufficient to cover its annual debt amortization and prudent
shareholder distributions. The annual debt amortization is the main
reason why GSL's gross leverage is expected to remain low, even as
its EBITDA continues to normalize beyond 2025.
GSL's high contracted earnings remain a key credit strength. GSL's
contracted revenue totaled $1.6 billion as of March 31, 2024, which
corresponds to 1.9 years of contract cover on a twenty-foot
equivalent unit (TEU) weighted basis. This was about $2.0 billion
with 2.6 years of contract cover including charterer options. S&P
anticipates that additional charter agreements with longer
durations will result in meaningfully higher contract cover by the
time the company releases results for the second quarter.
S&P said, "GSL's counterparty credit quality remains robust. We
note GSL's still significant customer concentration risk, with 68%
of its contracted revenue in aggregate from CMA CGM S.A.
(BB+/Stable/B), Hapag-Lloyd AG (BB+/Stable/--), and A.P. Moller -
Maersk A/S (BBB+/Stable/--). That said, these liners are
benefitting from unexpectedly firm container shipping rates this
year and we anticipate they will continue to have healthy cash
balances next year when rates are expected to fall significantly.
We also understand that none of GSL's counterparties has defaulted
historically. Furthermore, GSL has $75 million of advanced receipts
from charter hires on its balance sheet as of March 31, 2024.
"The stable outlook reflects our expectation that GSL's debt
leverage will remain low thanks to its significant annual debt
amortization, even as its EBITDA normalizes after 2024.
"We could lower the rating if GSL's adjusted FFO to debt falls
sustainably below 50%. This could result, for example, from an
unexpected significant deterioration in charter rate conditions, or
from weakening of container liners' credit quality that increases
the risk of amendments to existing contracts, delayed payments, or
nonpayment under charter agreements. It could also result from an
unforeseen deviation of financial policy, with GSL pursuing
significant debt-financed fleet replacement or expansion or
aggressive shareholder distributions, which would depress credit
metrics.
"Although unlikely in the short term, we could upgrade GSL if the
company strengthened its business risk profile, for example, by
materially increasing its scale and scope of operations. This would
need to be further supported by our conclusion that the fundamental
risk characteristics of the underlying container shipping industry
have improved, while GSL maintains its adjusted FFO to debt above
50%. An upgrade would also require a continued adherence to a
prudent financial policy to ensure this ratio level is sustainable,
and an ample liquidity cushion.
"Environmental factors are a negative consideration in our credit
rating analysis of GSL because the global shipping industry faces
increasingly stringent regulatory standards. In January 2024, the
EU's Emissions Trading System (ETS) was extended to cover carbon
emissions from all large ships (of 5,000 gross tonnage and above).
This increased costs for shipping companies due to the need to
purchase emission allowances and accelerate capital spending on
modern eco-friendly ships or retrofits to existing vessels. It is
also expected to gradually increase the use of more-expensive,
cleaner fuels. Regulations on ballast water treatment and sulfur
emissions also exist; the latter can either be met by using fuel
oil with low sulfur content (0.5%) or by employing exhaust gas
cleaning systems (scrubbers). Fuel and carbon ETS costs are the
responsibility of charterers under their contracts with ship
lessors such as GSL, though these costs indirectly affect ship
lessors through the rates that charterers are willing to pay. GSL's
fleet is relatively old at about 17 years on average, compared with
an industry average of about 14 years for containerships. However,
the company has managed to extend the economic life of its ships
and reduce its emissions footprint through significant investment
in retrofitting bulbous bows, eco-propellers, eco-valves, and
sensors, as well as applying high-specification hull coatings to
reduce underwater friction. Furthermore, thirty-six of GSL's 68
containerships are wide-beam Post-Panamax ships, including nine
latest-generation eco-vessels, which have lower greenhouse gas
emissions per unit of cargo carried."
GREENE KING: S&P Affirms 'BB+(sf)' Rating on Class B Notes
----------------------------------------------------------
S&P Global Ratings affirmed its 'BBB (sf)', 'BBB- (sf)', and 'BB+
(sf)' ratings on Greene King Finance PLC's class A, AB, and B,
notes, respectively.
Greene King Finance is a corporate securitization of the U.K.
operating business of the managed and tenanted pub estate operator
Greene King Retailing Ltd., the borrower. It originally closed in
March 2005 and has been tapped several times since, most recently
in February 2019.
The transaction features three classes of notes (A, AB, and B), the
proceeds of which have been on-lent by Greene King Finance, the
issuer, to Greene King Retailing, via issuer-borrower loans. The
revenues generated by the assets owned by the borrower, Greene King
Retailing, are available to repay its borrowings from the issuer
that, in turn, uses those proceeds to service the notes. Each class
of notes is fully amortizing and our ratings address the timely
payment of interest and principal due on the notes, excluding any
subordinated step-up interest.
Business risk profile
S&P said, "We have applied our corporate securitization criteria as
part of our rating analysis of the notes in this transaction. As
part of our analysis, we assess whether the operating cash flows
generated by the borrower are sufficient to make the payments
required under the notes' loan agreements by using a debt service
coverage ratio (DSCR) analysis under a base-case and a downside
scenario. Our view of the borrowing group's potential to generate
cash flows is informed by our base-case operating cash flow
projection and our assessment of its business risk profile (BRP),
which we derive using our corporate methodology.
Recent performance and events
In the fiscal year 2023 ended on Dec. 31, 2023, Greene King
Retailing had disposed of five tenanted pubs and three managed pubs
from the securitized portfolio, while closing six managed pubs and
one tenanted. In the same period, one tenanted pub was converted to
managed.
Overall, in fiscal year 2023, the tenanted segment decreased by
0.62% (by number of pubs) and the managed segment decreased by
about 1.08% (by number). Greene King Retailing's estate comprised
1,460 outlets at the end of fiscal year 2023, of which 823 were
managed and 637 were tenanted.
Total revenues were GBP1,008.7 million, a 19.9% increase from
fiscal year 2019 which is reflective of prior price increases
flowing through and a general trend of premiumization across the
sector which increased overall spending per head at their venues.
Greene King brews some of its own beers, which has also benefitted
from this premiumization trend. Increasing real wages and improving
consumer confidence should be supportive of this trend. At the same
time, high and persistent core inflation has remained a challenge
to growth, which has been reflected in high labor costs over the
last twelve months, even as energy prices fall. This materially
affected EBITDA. Reported EBITDA was 12.2% lower in fiscal year
2023 compared to fiscal year 2019, resulting in a decrease in the
EBITDA margin (to 18.9% from 19.2% in 2022 and down from 25.8% in
2019) based on the reported figures.
S&P said, "We expect Greene King Retailing's margins in 2024 to
grow slightly, driven by the company's efforts to optimize its
product and pub mix within their estate while also engaging in
general cost efficiency measures involving labor scheduling and
digitalization initiatives within pubs. Nonetheless, despite our
expectation for growth, we anticipate margins will remain subdued
compared to pre-pandemic levels.
"The EBITDA margin for the overall hospitality sector however sits
at a new, lower equilibrium, in our view, and will not fully
recover to pre-pandemic levels in our forecast periods. The cost
base has structurally changed since the pandemic, followed by
regional conflicts, weak growth, and a gradual reduction in
inflation in the U.K., that disrupted supply chains and set labor
and energy costs at new elevated levels. Inflation headwinds,
specifically on account of labor costs, continue to pose a major
challenge to the hospitality sector, even as energy and food prices
fall. We believe that inflation will stay elevated at around 2.9%
in Q4 2024 before dropping to about 2.3% in 2025 and then to around
the Bank of England's (BoE) 2% target in 2026-2027. Price increases
and cost efficiency initiatives have absorbed some of the cost
inflation for pub operators and helped topline expansion, but a
more gradual recovery in consumer confidence and tight
discretionary spending continues to suppress volumes. We think that
the soft volume trend will consume headroom in absorbing the higher
fixed costs as price increases slow and dampen the pace of earnings
and margin recovery. As such, we expect volatility of profitability
to remain higher than historical levels."
Specifically, visibility for fiscal 2025 and beyond remains opaque.
Part of the uncertainty derives from a probable change of
government in the U.K. and implications on national living and
minimum wage policy, on top of the 10% national living wage
increase per annum for the last two years. This could further delay
the pub industry's recovery in earnings and cash flows. While pub
operators that mostly run their own estates and employees and have
minimal franchise or tenanted portfolio are particularly exposed to
such cost risk, Greene King Retailing's mixed portfolio of tenanted
and managed pubs may cushion the impact, albeit slightly. The
forecast invisibility is coupled with heightened geopolitical
tensions that may continue to restrain consumer sentiment and
pressure global supply chains. S&P said, "At the same time, we have
considered in our forecasts for 2024 and 2025, a slight
improvement, based on the observed performance in fiscal year 2023,
despite the macro-economic challenges. Consequently, our forecasts
for these periods are slightly higher than those we considered
during our previous review, 12 months ago."
S&P continues to assess the borrower's BRP as fair, supported by
the group's strong position as one of the top-three pub operators
in the U.K., its well-invested estate, and the added flexibility of
its cost structure due to high levels of real estate ownership.
Issuer's liquidity position
Based on the fiscal year 2023 fourth quarter investor report, the
committed liquidity facility remains fully undrawn with GBP224
million available to the issuer.
Rating Rationale
Greene King Finance's primary sources of funds for principal and
interest payments on the outstanding notes are the loan interest
and principal payments from the borrower, which are ultimately
backed by future cash flows generated by the operating assets. Our
ratings address the timely payment of interest and principal due on
the notes, excluding any subordinated step-up coupons.
DSCR analysis
S&P said, "Our cash flow analysis serves to both assess whether
cash flows will be sufficient to service debt through the
transaction's life and to project minimum DSCRs in our base-case
and downside scenarios.
"Currently we estimate that the EBITDA per pub will recover to 2019
levels by 2025. We forecast weak growth and a gradual reduction in
inflation in the U.K. on the back of a tight labor market and our
expectation that the BoE will not cut rates before the second half
of 2024. As such, the economy will remain weak in 2024, and we
forecast GDP growth of 3.0%. The long-term creditworthiness of the
underlying companies in the sector will hinge on their ability to
expand on the top line without compromising profitability while
sustaining cash flow generation.
"Our downside analysis provides unique insight into a transaction's
ability to withstand the liquidity stress precipitated by the
current inflationary pressures on pubs in the U.K. Given those
circumstances, the outcome of our downside analysis alone
determines the resilience-adjusted anchor. As a result, our
analysis begins with the construction of a base-case projection
from which we derive a downside case. However, in this case we have
not determined our anchor. This is because the anchor does not
reflect the issuer's liquidity support, which we see as a
mitigating factor to liquidity stress from inflationary pressures
and the challenging macroeconomic conditions. Rather, we developed
the downside scenario from the base case to assess whether the
prevailing inflationary macroeconomic environment would have a
negative effect on the resilience-adjusted anchor for each class of
notes.
"That said, we performed the base-case analysis to assess whether,
after the current stressed economic period, the anchor would be
adversely affected given the long-term prospects currently assumed
under our base-case forecast."
Base-case forecast
S&P said, "We typically do not give credit to growth after the
first two years. However, in our previous review we considered the
growth period to continue through fiscal year 2025 to accommodate
both the duration of the effect from inflationary pressures and the
subsequent recovery. We continue to expect the growth period to
remain through fiscal year 2025. On this basis, we have now given
credit to growth only for the next two years.
Greene King Retailing's earnings depend mostly on general economic
activity and discretionary consumer demand. Considering the
economic outlook, S&P continues to forecast a delay in the
recovery.
S&P's current assumptions for the U.K. are:
-- The U.K. economic outlook continues to face challenges from
weakness in the supply side despite gradually improving consumers'
purchasing power amid a resilient labor market. S&P revised down
its GDP growth forecast for 2024 which now is only 0.35%, before
returning to an average 1.6% in 2025-2027.
-- The high labor costs along with elevated food and energy costs,
despite a sharp decline in inflation is still the main challenge to
profitability and cash generation, even as food inflation eases and
energy prices fall. S&P said, "We revised up our projection of
inflation for Q4 2024 to 2.9%, before dropping to an average of
about 2.3% in 2025 and slightly lower of about 2.0% in 2026-2027.
We expect the BoE to refrain from any potential rate cuts until
after the second half of 2024 to directly control core inflation."
S&P said, "Downside risks to our forecasts continue. Risks remain
elevated to global sentiment from the ongoing Russia-Ukraine
conflict and destabilization in the Middle East. Considering our
macroeconomic outlook and current expectations for the recovery
prospects of the sector, we revised our forecasts through to
financial year 2025.
"We expect fiscal year 2024 revenues to be about 24.8% higher than
2019 (pre-pandemic) levels. Revenue growth is expected to be
supported by a trend toward premiumization and increased spend per
head. A rise in costs may be offset to a certain extent by
increased prices. Sales volumes are expected to continue to
stabilize, supported by the company's strategy of estate rotation
and formatting. Revenue per pub is already higher than 2019 levels,
and we expect this trend to continue.
"However, considering the cost pressures, we expect the fiscal year
2024 S&P Global Ratings-adjusted EBITDA to be 4.8% lower and the
EBITDA margin 23.6% lower than 2019 (pre-pandemic) levels. We
expect the EBITDA to gradually recover to 7.4% higher than
pre-pandemic levels by 2025. We also expect this to be primarily
driven by a faster recovery on managed pubs, while the recovery on
tenanted pubs may take slightly longer. At the same time,
consolidated EBITDA margins could remain pressured for longer."
Downside DSCR analysis
S&P's downside DSCR analysis tests whether the issuer level
structural enhancements improve the transaction's resilience under
a moderate stress scenario. Greene King Retailing falls within the
pubs, restaurants, and retail industry. Considering U.K. pubs'
historical performance during the 2007-2008 financial crisis, in
its view, a 15% and 25% decline in EBITDA from its base case is
appropriate for the managed and tenanted pub subsectors,
respectively.
S&P said, "Cost pressures from the prevailing macroeconomic
environment have delayed recovery, causing EBITDA to remain close
to the 15% and 25% declines we would normally assume under our
downside stresses for managed and tenanted pubs, respectively.
Therefore, our downside scenario comprises both our short- to
medium-term EBITDA projections during the liquidity stress period
and our long-term forecast, but with the level of ultimate recovery
limited to 15% and 25% lower than what we would assume for a
base-case forecast over the long-term for managed and tenanted
pubs, respectively.
"Our downside DSCR analysis resulted in strong resilience scores
for the class A and AB notes and a satisfactory score for the class
B notes, which are unchanged from our previous review. This
reflects the headroom above a 1.80:1 and 1.30:1 DSCR threshold that
is required under our criteria to achieve strong and satisfactory
resilience scores, respectively, after considering the liquidity
support available to each class of notes.
"Each class's resilience score corresponds to rating
categories--excellent at 'AAA' through vulnerable at 'B'. Within
each category, the recommended resilience-adjusted anchor reflects
notching based on where the downside DSCR falls within a range (for
the class A, AB, and B notes). As a result, the resilience-adjusted
anchors for the class A, AB, and B notes would not be adversely
affected under our downside scenario."
Liquidity facility adjustment
As S&P has given full credit to the liquidity facility amount
available to each class of notes, a further one-notch increase to
any of the resilience-adjusted anchors is not warranted.
Modifiers analysis
S&P applied a one-notch downward adjustment to the class AB notes
to reflect their subordination and weaker access to the security
package compared to the class A notes, which is unchanged from its
previous reviews.
Comparable rating analysis
A comparison of the potential ratings (following the modifiers
analysis) for notes issued by Greene King Finance and the ratings
on the comparable class (by seniority) issued by Mitchells &
Butlers Finance PLC shows that the relative ratings for the class A
and AB notes are commensurate with the relative strengths and
weaknesses between the borrowers in each transaction, while the
relative ratings assigned to the class B notes show an inverse
relationship with the relative strengths and weaknesses between the
two borrowers. However, the class AB notes issued by Greene King
Finance are significantly thinner than the class AB notes issued by
Mitchells & Butlers Finance, resulting in a one-notch ratings
differential between the class AB and B ratings, in the case of
Greene King Finance, compared to a three-notch differential in the
case of Mitchells & Butlers Finance.
Based on those comparisons, S&P does not apply any additional
adjustment due to our comparable rating analysis.
Counterparty risk
S&P's ratings are not currently constrained by the ratings on any
of the counterparties, including the liquidity facility,
derivatives, and bank account providers.
S&P said, "The notes are supported by hedging agreements with the
London branch of Banco Santander S.A. (interest rate swaps for the
floating-rate class B1 and B2 notes). We assess the collateral
framework as weak under our counterparty criteria, notably due to
the type of collateral that can be posted, which we do not view as
eligible under our criteria, or lower haircuts for collateral
denominated in currencies other than British pound sterling. But
because the replacement commitment is sufficiently robust, based on
our counterparty criteria, we give credit to it. As the swaps in
this transaction are collateralized, we consider the resolution
counterparty rating (RCR) on the swap counterparty as the
applicable counterparty rating."
Outlook
S&P said, "We expect the pub sector's earnings volatility to remain
elevated over the next 12-24 months as the sector grapples with
several issues. The U.K. national living wage soared by another 10%
in April 2024 while food and energy costs remain elevated despite a
sharp decline in inflation compared to a year ago. We expect the
sector's EBITDA per pub to recover to 2019 levels by 2025, with pub
operators prioritizing agility to meet shifting consumer
preferences, efficiency of their operations, and cash generation.
We expect that it will take time to recover the covenant headroom
to 2019 levels. Our expectations of a recovery in profitability and
credit metrics in 2024 and 2025 will be the key factors in shaping
our views of issuers' underlying credit quality and will be the
main reason for any rating actions.
"For many rated pub operators, their significant freehold property
portfolios offer substantial operational and financial flexibility,
and proceeds generated from disposals provide an additional source
of funding for capital investment underpinning strategic
initiatives. In the case of Greene King Finance, in fiscal year
2023 the company made modest disposals within the securitized
estate of eight pubs, which generated GBP8.9 million in proceeds.
We do not envisage the group making significant near-term
disposals, and we expect that the quality of earnings will be the
defining factor in the pub operators' credit profile compared with
the amount of real estate ownership."
Downside scenario
S&P may consider lowering its ratings on the class A, AB, and B
notes if their minimum projected DSCRs in our downside scenario
have a material adverse effect on each class's resilience-adjusted
anchor.
S&P said, "We could also lower our ratings on the class A, AB, and
B notes if their minimum projected DSCRs in our base case analysis
fall below 1.40:1 for the class A and AB notes and below 1.30:1 for
the class B notes, or if our downside scenario worsens each class's
resilience-adjusted anchor. This could also happen if a
deterioration in trading conditions related to a general reduction
in consumers' disposable income reduce cash flows available to the
borrowing group to service its rated debt. However, the quality of
earnings will, in our view, be largely driven by the ability to
manage inflationary cost pressures. Consequently, should cost
pressures persist, a slower than expected recovery in trading
conditions by 2025 compared to our current forecasts could
potentially have a negative effect on our ratings on the notes. A
more tepid recovery than our forecasts may indicate that the
overall hospitality sector's performance could potentially sit at a
new, lower equilibrium, in our view, and may not fully recover to
pre-pandemic levels in our forecast periods."
Upside scenario
S&P said, "Due to the current economic situation, we do not
anticipate raising our assessment of Greene King Retailing's BRP
over the near to medium term. We could raise our ratings on the
class A, AB, or B notes if our assessment of the borrower's overall
creditworthiness improves, which reflects its financial and
operational strength over the short to medium term. In particular,
we would consider lower leverage and the ability to generate higher
cash flows, as well as higher covenant headroom, when evaluating
the scale of any improvement."
INT'L PERSONAL: Moody's Rates New EUR300MM Unsecured Notes 'Ba3'
----------------------------------------------------------------
Moody's Ratings assigned a Ba3 rating to International Personal
Finance plc's (IPF) new EUR300 million 5.5 year backed senior
unsecured notes.
IPF's other ratings and the issuer outlook are unaffected by the
rating action.
RATINGS RATIONALE
The announced EUR300 million backed senior unsecured notes will be
ranked pari passu with IPF's existing EUR341 million 9.75% notes
maturing in November 2025. The proceeds from the new issuance will
be used to partially repay the notes due in November 2025.
IPF's Ba3 corporate family rating (CFR) reflects its solid
loss-absorption capacity driven by its strong capitalisation and
profitability, which collectively provide a buffer against
unforeseen credit losses that could stem from the company's focus
on the non-prime consumer finance segment. The CFR also considers
the benefit of economic diversification to IPF's business model
from its international footprint.
At the same time, the CFR also incorporates IPF's reliance on
confidence-sensitive wholesale funding, mostly in the form of bonds
and bank credit facilities, which could present funding challenges
during a market downturn. The existence of the negative pledge
provision in credit agreements, which restricts IPF's access to
secured funding, further constrains its financial flexibility.
IPF's diversified borrowing sources under credit facilities
provided by a number of banks, partly mitigates this concern;
however, its limited long-term funding sources, together with bond
maturity concentrations in future years, present a refinancing
risk.
The Ba3 rating of IPF's backed senior unsecured notes reflects
their priorities of claim and asset coverage in the company's
current liability structure.
The stable outlook reflects Moody's expectation that IPF will
maintain solid financial performance and liquidity position over
the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
IPF's ratings could be upgraded following a material improvement in
its funding profile, as evidenced by significantly reduced debt
maturity concentrations and by substantially increased availability
under its credit facilities that could be used for general
corporate purposes.
IPF's CFR could be downgraded if IPF's asset quality meaningfully
weakens and its profitability deteriorates. The positioning of the
CFR could be reassessed if IPF becomes subject to significantly
adverse regulatory changes that would affect its business viability
in some of its markets.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Finance Companies
Methodology published in November 2019.
ISTIDAMA LIMITED: Goes Into Administration
------------------------------------------
Business Sale reports that Istidama Limited, a Cheshire-based
manufacturer and stockist of a unique patent pending four-wall
offsite construction system, fell into administration in late May,
with Simon Carvill-Biggs and Paul Allen of FRP Advisory appointed
as joint administrators.
According to Business Sale, in the company's accounts for the year
to June 30 2022, its fixed assets were valued at GBP2.7 million and
current assets at close to GBP3.1 million, with total equity
standing at GBP2.9 million.
LISTAWOOD PROMOTIONAL: Enters Administration, 77 Jobs Affected
--------------------------------------------------------------
Kris Johnston at Lynn News reports that a town business has
announced that it has gone into administration -- putting a high
number of jobs at risk.
Lynn-based Listawood Promotional Products, also known as
AT Promotions, appointed two administrators over the weekend on
June 3, Lynn News relates.
According to Lynn News, a statement on the business' website says
that Ben Peterson and Lee Causer of BDO LLP are currently handling
its affairs and property.
One source told the Lynn News that Listawood, which is located on
Rollesby Road in the Hardwick Industrial Estate, ceased trading on
May 31.
They believe that as many as 77 jobs could be lost, Lynn News
states.
The company's Facebook and LinkedIn pages appear to have been
deactivated, while its website now solely contains information on
the administrators being appointed, Lynn News notes.
It has previously provided promotional products such as ceramic
drinkware and office textiles.
MARSTON'S ISSUER: S&P Affirms 'B+(sf)' Rating on Class B Notes
--------------------------------------------------------------
S&P Global Ratings affirmed its 'BB+ (sf)' credit ratings on
Marston's Issuer PLC's class A2, A3, and A4 notes. At the same
time, S&P affirmed its 'B+ (sf)' rating on the class B notes.
Marston's Issuer is a corporate securitization of the U.K.
operating business of the managed and tenanted pub estate operator
Marston's Pubs Ltd. (Marston's Pubs; the borrower). The transaction
originally closed in August 2005, and was subsequently tapped in
November 2007.
The transaction features two classes of notes (class A and B), the
proceeds of which have been on-lent to Marston's Pubs, via
issuer-borrower loans. The operating cash flows generated by
Marston's Pubs are available to repay its borrowings from the
issuer that, in turn, uses those proceeds to service the notes.
Each class of notes is fully amortizing and our ratings address the
timely payment of interest and principal due on the notes,
excluding any subordinated step-up interest.
Business risk profile
S&P said, "We have applied our corporate securitization criteria as
part of our rating analysis on the notes in this transaction. As
part of our analysis, we assess whether the operating cash flows
generated by the borrower are sufficient to make the payments
required under the notes' loan agreements by using a debt service
coverage ratio (DSCR) analysis under a base-case and a downside
scenario. Our view of the borrowing group's potential to generate
cash flows is informed by our base-case operating cash flow
projection and our assessment of its business risk profile (BRP),
which we derive using our corporate methodology."
Recent performance and events
In the fiscal year 2023 ended Sept. 30, 2023, Marston's Issuer
disposed of 34 pubs from the securitized portfolio (four managed
and 30 tenanted). Consequently, the tenanted segment decreased by
around 4.5% (by number of pubs) and the managed segment decreased
by about 1.5% (by number of pubs). Marston's Issuer's estate
consisted of 908 outlets at the end of fiscal year 2023, of which
264 were managed and 644 were tenanted.
Total revenues were GBP421.9 million, 3.1% higher than fiscal year
2019. This is the first time that the company has surpassed these
pre-pandemic levels. Revenue per pub improved 25.3% during the same
period on the back of higher prices as a premiumization trend
benefitted average customer spending, and volumes remained stable.
Increasing real wages and improving consumer confidence should be
supportive of this trend. At the same time, reported EBITDA was
GBP86 million, 24.7% below 2019 levels as the EBITDA margin
contracted slightly to 20.4% (from 21.1% in 2022 and 27.9% in
2019), reflecting higher labor and input costs.
Half year trading results for fiscal 2024 (six months ended April
2024) were within our recovery trajectory for the company. Group
parent Marston's PLC reported a like-for-like sales increase of
7.3%. Strong trading over this period was characterized by the
continued premiumization trend and high trading volumes during the
festive period, particularly across its managed and franchised
pubs. This growth was reflected also in Marston's Pubs' trading
over the period with reported EBITDA increasing to GBP38.7 million
(12.8% higher than the same period in 2023), driven by the
company's adoption of cost-saving initiatives feeding through, such
as a head office restructuring, labor scheduling tools, and the
impact of lower energy costs. Going forward, S&P expects ongoing
cost-saving initiatives as well as Marston's Pubs' joint venture
with Carlsberg to spur some input synergies, which will support
continued EBITDA margin growth, albeit lower than pre-pandemic
levels.
S&P said, "The EBITDA margin for the overall hospitality sector
however sits at a new, lower equilibrium, in our view, and will not
fully recover to pre-pandemic levels in our forecast periods. The
cost base has structurally changed since the pandemic followed by
regional conflicts and stagflation in the U.K., that disrupted
supply chains and set labor and energy costs at new elevated
levels. Inflation headwinds, specifically on account of labor
costs, continue to pose a major challenge to the hospitality
sector, even as food and energy prices fall. We believe that
inflation will stay elevated at around 2.9% in Q4 2024 before
dropping to about 2.3% in 2025 and then to around the Bank of
England's (BoE) 2% target in 2026-2027. Price increases and cost
efficiency initiatives have absorbed some of the cost inflation for
pub operators and helped topline expansion, but weaker consumer
confidence and tight discretionary spending continue to suppress
volumes. We think that the soft volume trend will consume headroom
in absorbing the higher fixed costs as price increases slow and
dampen the pace of earnings and margin recovery. As such, we expect
volatility of profitability to remain higher than historical
levels."
Specifically, visibility for fiscal 2025 and beyond remains opaque.
Part of the uncertainty derives from a probable change of
government in the U.K. and implications on national living and
minimum wage policy, on top of the 10% national living wage
increase per annum for the last two years. This could further delay
the pub industry's recovery in earnings and cash flows. While pub
operators that mostly run their own estates and employees and have
minimal franchise or tenanted portfolio are particularly exposed to
such cost risk, Marston's mixed portfolio of tenanted and managed
pubs may cushion the impact, albeit slightly. The forecast
invisibility is coupled with heightened geopolitical tensions that
may continue to restrain consumer sentiment and pressure global
supply chains. At the same time, S&P has considered in our
forecasts for 2024 and 2025, a slight improvement, based on the
observed performance in fiscal year 2023, despite the
aforementioned macro-economic challenges.
S&P continues to assess the borrower's BRP as fair, which is
supported by the business benefitting from the suburban locations
of its portfolio of pubs and operations benefitting from a mix of
managed and tenanted pubs.
Issuer's liquidity position
In Q1 fiscal year 2024, the issuer repaid GBP10 million of the
liquidity facility previously drawn. Consequently, the liquidity
facility is fully available at GBP120 million. Of the total
liquidity facility, the class B notes can draw up to GBP17
million.
Rating Rationale
Marston's Issuer's primary sources of funds for principal and
interest payments due on the outstanding notes are the loan
interest and principal payments from the borrower, which are
ultimately backed by future cash flows generated by the operating
assets. S&P's ratings address the timely payment of interest and
principal due on the notes, excluding any subordinated step-up
coupons.
DSCR analysis
S&P's cash flow analysis serves to both assess whether cash flows
will be sufficient to service debt through the transaction's life
and to project minimum DSCRs in our base-case and downside
scenarios.
S&P said, "Currently we estimate that the EBITDA per pub will
recover to 2019 levels by 2024-2025. We forecast weak growth and a
gradual reduction in inflation in the U.K. on the back of a tight
labor market and our expectation that the BoE will not cut rates
before the second half of 2024. As such, the economy will remain
weak in 2024, and we forecast GDP growth of 0.35%. The long-term
creditworthiness of the underlying companies in the sector will
hinge on their ability to expand on the top line without
compromising profitability while sustaining cash flow generation.
"Our downside analysis provides unique insight into a transaction's
ability to withstand the liquidity stress precipitated by the
current inflationary pressures on pubs in the U.K. Given those
circumstances, the outcome of our downside analysis alone
determines the resilience-adjusted anchor. As a result, our
analysis begins with the construction of a base-case projection
from which we derive a downside case. However, in this case we have
not determined our anchor. This is because the anchor does not
reflect the issuer's liquidity support, which we see as a
mitigating factor to liquidity stress from inflationary pressures
and the challenging macroeconomic conditions. Rather, we developed
the downside scenario from the base case to assess whether the
effect from the prevailing inflationary macroeconomic environment
would have a negative effect on the resilience-adjusted anchor for
each class of notes.
"That said, we performed the base-case analysis to assess whether,
after the current stressed economic period, the anchor would be
adversely affected given the long-term prospects currently assumed
under our base-case forecast."
Base-case forecast
S&P said, "We typically do not give credit to growth after the
first two years. However in our previous review we considered the
growth period to continue through fiscal year 2025 to accommodate
both the duration of the effect from inflationary pressures and the
subsequent recovery. We continue to expect the growth period to
remain through fiscal year 2025. On this basis, we have now given
credit to growth only for the next two years.
"Marston's Pubs' earnings depend largely on general economic
activity and discretionary consumer demand. Considering the
economic outlook, we continue to forecast a delay in the
recovery."
S&P's current assumptions for the U.K. are:
-- The U.K. economic outlook continues to face challenges from
weaknesses in supply side despite gradually improving consumers'
purchasing power amid a resilient labor market. S&P revised down
our GDP growth forecast for 2024 which now is only 0.35%, before
returning to an average 1.6% in 2025-2027.
-- The high labor costs along with elevated food and energy costs,
despite a sharp decline in inflation, is still the main challenge
to profitability and cash generation, even as food inflation eases
and energy prices fall. S&P said, "We revised up our inflation
projection for Q4 2024 to 2.9%, before dropping to an average of
about 2.3% in 2025 and around the BoE's 2% target in 2026-2027.
Furthermore, we expect the BoE to refrain from any potential rate
cuts until after the second half of 2024, to directly control core
inflation."
-- S&P said, "Downside risks to our forecasts continue. Risks
remain elevated to global sentiment from the ongoing Russia-Ukraine
conflict and destabilization in the Middle East. Considering S&P's
macroeconomic outlook and current expectations for the recovery
prospects of the sector, we revised our forecasts through to fiscal
year 2025."
S&P said, "We expect total revenues for fiscal year 2024 to be
about 4.5% up from the prior year and 7.7% above 2019
(pre-pandemic) levels, with revenue per pub likely to improve by
35.4% compared to 2019. We expect revenue growth to be supported by
a trend toward premiumization and increased spend per head while
volumes remain steady as pubs prioritize estate optimization and
formatting. A rise in costs may be offset to a certain extent by
increased prices. Revenue per managed and tenanted pubs are already
higher than 2019 levels, and we expect this trend to continue.
"For fiscal year 2024, we expect the S&P Global Ratings-adjusted
EBITDA to be 12.4% lower and the EBITDA margin 17.9% lower than
2019 (pre-pandemic) levels. We expect EBITDA to remain lower due to
a decline in operational pubs, compared to fiscal year 2019. At the
same time, we expect EBITDA per pub to gradually recover to 16.2%
higher than pre-pandemic levels by 2025. We also expect this to be
primarily driven by a faster recovery on managed pubs, while the
recovery on tenanted pubs may take slightly longer. At the same
time, consolidated EBITDA margins could remain pressured for
longer."
Downside DSCR analysis
S&P said, "Our downside DSCR analysis tests whether the issuer
level structural enhancements improve the transaction's resilience
under a moderate stress scenario. The issuer falls within the pubs,
restaurants, and retail industry. Considering U.K. pubs' historical
performance during the 2007-2008 financial crisis, in our view, a
15% and 25% decline in EBITDA from our base case is appropriate for
the managed pub and leased and tenanted subsector.
"Cost pressures from the prevailing macroeconomic environment have
delayed recovery, causing EBITDA to remain close to the 15% and 25%
declines we would normally assume under our downside stresses for
managed and tenanted pubs, respectively. Therefore, our downside
scenario comprises both our short- to medium-term EBITDA
projections during the liquidity stress period and our long-term
forecast but with the level of ultimate recovery limited to about
19.3% lower than what we would assume for a base-case forecast over
the long term.
"Our downside DSCR analysis resulted in a resilience score of
strong for the class A and B notes which are unchanged from our
previous review. This reflects the headroom above a 1.80:1 DSCR
threshold that is required under our criteria to achieve a strong
resilience score after giving consideration for the liquidity
support available to each class."
The class B notes have limits on the amount of the liquidity
facility they may utilize to cover liquidity shortfalls. Moreover,
any senior classes may draw on those same amounts, which makes the
exercise of determining the amount of the liquidity support
available to the class B notes a dynamic process. For example, the
full GBP17 million that the class B notes may access could be
available and undrawn at the start of a rolling 12-month period,
but could be fully used to cover any shortfall on the class A notes
over that period. In effect, the class B notes were not able to
draw on any of the GBP17 million.
Each class's resilience score corresponds to rating categories from
excellent at 'AAA' through vulnerable at 'B'. Within each category,
the recommended resilience-adjusted anchor reflects notching based
on where the downside DSCR falls within a range for the class A and
B notes. As a result, the resilience-adjusted anchors for the class
A and B notes would not be adversely affected under S&P's downside
scenario.
Liquidity facility adjustment
Given that S&P has given full credit to the liquidity facility
amount available to each class of notes, a further one-notch
increase to any of the resilience-adjusted anchors is not
warranted.
Modifier analysis
S&P said, "We performed our base-case analysis to assess whether
the anchor would decrease given the long-term prospects currently
assumed in our base-case forecast.
"Our assessment of the borrower's overall creditworthiness has not
deteriorated since our previous review and, consequently, we do not
apply any additional adjustment due to our modifier analysis."
Comparable rating analysis
A comparison of the potential ratings (following the modifiers
analysis) for notes issued by Marston's Issuer and the ratings on
the comparable class (by seniority) issued by The Unique Pub
Finance Co. PLC (UPP) shows that the relative ratings for the class
A notes are commensurate to the relative strengths and weaknesses
between the borrowers in each transaction.
The BRP for both transactions is rather on the weaker side compared
with other pubcos with fair BRPs. On one hand, Marston's Issuer has
a better regional diversification than UPP, which benefits from the
superior size of its estate. On the other hand, UPP's leased and
tenanted model and a wet-led orientation lead to weak earnings and
cash flow generation per pub, which could expose the group to
weaker trading performance in a market with declining on-trade beer
consumption.
In S&P's view, Marston's Issuer's growing presence in the managed
segment outweighs UPP's larger estate size.
Based on those comparisons, S&P does not apply any additional
adjustment due to our comparable rating analysis.
Counterparty risk
S&P said, "We do not consider the liquidity facility or bank
account agreements to be in line with our counterparty criteria.
Therefore, in the case of Marston's Issuer's non-derivative
counterparty exposures, the maximum supported rating is constrained
by our long-term issuer credit rating (ICR) on the lowest rated
bank account provider.
"We have assessed the strength of the collateral framework as weak
under the criteria based on our review of the following items in
the collateral support annex: (i) a lack of volatility buffers;
(ii) we do not consider some types of collateral eligible under our
criteria; and (iii) currency haircuts are not specified.
"In the case of a collateralized hedge provider that is a U.K.
bank, the applicable counterparty rating under our counterparty
risk criteria is the resolution counterparty rating (RCR). As a
result, the maximum supported rating for the issuer's derivative
exposures is limited to a counterparty's RCR.
"However, our ratings are not currently constrained by our ICRs on
any of the counterparties, including the liquidity facility, and
bank account providers or the RCR on the derivative counterparty."
Outlook
S&P said, "We expect the pub sector's earnings volatility to remain
elevated over the next 12-24 months as the sector grapples with
several issues. The U.K. national living wage soared by a further
10% in April 2024, while food and energy costs remain elevated
despite the sharp decline in inflation compared to a year ago. We
think the sector's EBITDA per pub will recover to 2019 levels by
2024-2025, with pub operators prioritizing agility in meeting
shifting consumer preferences, efficiency of their operations, and
cash generation. We expect that it will take time to recover the
covenant headroom to 2019 levels. Our expectations of a recovery in
profitability and credit metrics in 2024 and 2025 will be the key
factors in shaping our views of issuers' underlying credit quality
and will be the main reason for any rating actions."
For many rated pub operators, their significant freehold property
portfolios offer substantial operational and financial flexibility,
and proceeds generated from disposals provide an additional source
of funding for capital investment underpinning strategic
initiatives. For example, in the first half of 2024 Marston's Pubs
generated GBP7.5 million from disposals as part of the broader
group's stated full-year 2024 objective of GBP50 million of
non-core asset sales. We still expect that the quality of earnings
will remain the defining factor in the pub operators' credit
profile compared with the amount of real estate ownership.
Downside scenario
S&P said, "We may consider lowering our rating on the class A notes
if their minimum projected DSCRs in our base case scenario fall
below 1.20x coverage or if our downside scenario deteriorates each
class's resilience-adjusted anchor.
"We could also lower our rating on the class B notes if the minimum
projected DSCR in our base-case scenario falls below a 1.10x
coverage or if our downside scenario worsens each class's
resilience-adjusted anchor. This could be brought about if we
thought Marston's Pubs' liquidity position had weakened, for
example, due to a material decline in cash flows, a tightening of
covenant headroom, or reduced access to the overall group's
committed liquidity facilities. This could also happen if a
deterioration in trading conditions related to a general reduction
in consumers' disposable income reduces cash flows available to the
borrowing group to service its rated debt. However, the quality of
earnings will, in our view, be largely driven by the ability to
manage inflationary cost pressures. Consequently, should cost
pressures persist, a slower than expected recovery in trading
conditions by 2025 compared to our current forecasts, could
potentially impact our ratings on the notes. A more tepid recovery
than our forecasts may indicate that the performance for the
overall hospitality sector could potentially sit at a new, lower
equilibrium, in our view, and may not fully recover to pre-pandemic
levels in our forecast periods."
Upside scenario
S&P said, "Due to the current economic situation, we do not
anticipate raising our assessment of Marston's Pubs' BRP over the
near to medium term. We could raise our ratings on the class A or B
notes if our assessment of the borrower's overall creditworthiness
improves, which reflects its financial and operational strength
over the short to medium term. In particular, we would consider
lower leverage and the ability to generate higher cash flows, as
well as higher covenant headroom, when evaluating the scale of any
improvement."
NOBLE TREE: Enters Administration After Defaulting on Rent
----------------------------------------------------------
Jane Croft at The Guardian reports that a homelessness charity has
gone into administration after a lengthy standoff with its property
fund landlord in which it refused to pay rent over the condition of
its properties, some of which had black mould and leaking
ceilings.
According to The Guardian, Home Reit, a London-listed real estate
investment trust, has been in dispute for more than a year with
Noble Tree Foundation, which leases 143 properties from the trust's
portfolio, after complaints about property repairs.
Home Reit, whose shares were suspended last year, said in a stock
exchange statement that Noble Tree Foundation, which represents 7%
of rent demanded in April, has entered into administration and was
not paying rent, The Guardian relates.
The charity had withheld several months' rent from Home Reit and
last year claimedit was owed millions of pounds for repairs and
insurance that have not been forthcoming, The Guardian recounts.
The charity said some properties were "unfit for people to live in"
and issues included black mould and leaking ceilings, The Guardian
notes.
The Charity Commission launched a statutory inquiry into Noble Tree
last October over alleged conflict of interest and related party
transactions, The Guardian discloses.
Homes leased by Noble Tree are let to private rented sector tenants
and, after the surrender of the charity's leases, the tenancies
will transfer to Home Reit so it can collect income from the
properties.
According to The Guardian, the company said it was working closely
with Noble Tree's appointed administrator, CBW Recovery, to arrange
the surrender of the charity's leases and a handover of its
tenancies. The company said residents of the properties would not
be affected, The Guardian relays.
CBW Recovery, as cited by The Guardian, said that, after the
presentation of a winding-up petition from one of the landlords, it
had been approached by the trustees and the company was placed into
administration.
"We are continuing to trade the charity whilst we work with the
landlords to negotiate exits from leases and, hopefully, to then
make a distribution to the unsecured creditors. We have previous
experience in these situations and from initial discussions with
the landlords, we are confident that a positive outcome can be
reached," The Guardian quotes John Dickinson, an insolvency partner
at CBW Recovery, as saying.
SHAUN LEANE: Collapses Into Administration
------------------------------------------
Ruth Faulkner at Retail Jeweller reports that eponymous designer
jewellery brand Shaun Leane has fallen into administration, with
Begbies Traynor appointed administrators on May 28.
According to Retail Jeweller, a statement on Shaun Leane's website
confirmed the news that the business and property of Thornrose
Limited, the trading name of the brand, are being managed by Paul
Appleton, Adam Shama and Robert Ferne of Begbies Traynor ppointed
as joint administrators.
A notice on the London Gazette website also confirmed the news,
Retail Jeweller discloses.
Shaun Leane jewellery is sold via the brand's website, through
concessions in Selfridges and Liberty and via a network of
approximately 30 wholesale stockists throughout the UK. The brand
also has limited wholesale distribution overseas.
TENET GROUP: Goes Into Administration
-------------------------------------
Anna Sagar at Mortgage Solutions reports that Interpath has been
appointed as the joint administrator of Tenet Group Limited, with
subsidiary firms Tenet Limited, Tenet Connect and Tenet Connect
Services also impacted.
Ed Boyle, Howard Smith and Rob Spence have been brought on as joint
administrators of Tenet Group, while Boyle and Spence will be the
joint administrators of the subsidiary companies, Mortgage
Solutions relates.
Tenet Mortgage Solutions and Tenet Compliance Service have ceased
to trade, but have not entered into administration, Mortgage
Solutions states. Tenet Financial Services has also stopped
regulated activity, but is not in administration, Mortgage
Solutions notes.
TenetEmployee Benefit Solutions will continue to operate as normal,
Mortgage Solutions says.
According to Mortgage Solutions, the administration firm said that
it employed approximately 147 staff across the UK at the time of
the appointment of administrators.
The joint administrators say they have kept on 52 staff with the
wind-down of the business and confirmed that 95 redundancies have
been made, Mortgage Solutions discloses.
They added that they will work with employees impacted over the
next few days to offer support.
"We're now focused on winding down the business and we are in
contact with the FCA, FSCS and stakeholders to ensure an orderly
process," Mortgage Solutions quotes Mr. Smith, managing director at
Interpath and joint administrator of Tenet Group Limited, as
saying.
Interpath, as cited by Mortgage Solutions, said that the group has
"substantially wound down its operations" by selling various
businesses and by transferring out of its network of independent
financial advisers.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2024. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *