/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240702.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, July 2, 2024, Vol. 25, No. 132 Headlines C Z E C H R E P U B L I C GEARWORKS OF THE WITKOWITZ: Withdraws Reorganization Proposal D E N M A R K SELUXIT: To File for Bankruptcy in Denmark Court F R A N C E PICARD BONDCO: Moody's Upgrades CFR to B2, Outlook Remains Stable PICARD GROUPE: S&P Affirms 'B' LT ICR on Proposed Refinancing G E R M A N Y NORD STREAM 2: Court Extends Moratorium on Bankruptcy Procedure SOLARNATIVE GMBH: Files for Insolvency Amid Funding Woes L I T H U A N I A [*] LITHUANIA: Number of Corporate Bankruptcies Up 20% in Q1 2024 L U X E M B O U R G FOUNDEVER GROUP: Moody's Cuts CFR to B2 & Alters Outlook to Neg. S L O V E N I A T-2: Telemach Concludes Deal with Garnol Acquire 98.06% Stake S P A I N BANCAJA 11: Moody's Raises Rating on EUR63MM Class B Notes to B3 S W E D E N KVALITENA: Court Extends Restructuring Process Until Aug. 23 U N I T E D K I N G D O M ALBION FINANCING: Moody's Rates New $250MM Term Loan Add-on 'B1' GLOBAL SHIP: Moody's Upgrades CFR to Ba2, Outlook Remains Stable ISLAND POKE: Bought Out of Administration, 104 Jobs Saved PATAGONIA BIDCO: Moody's Cuts CFR to Caa1, Outlook Stable ZEGONA COMMUNICATIONS: S&P Assigns Prelim 'BB' ICR, Outlook Pos. - - - - - =========================== C Z E C H R E P U B L I C =========================== GEARWORKS OF THE WITKOWITZ: Withdraws Reorganization Proposal ------------------------------------------------------------- CTK reports that engineering company Gearworks of the Witkowitz group has withdrawn its proposal for reorganisation. The reorganization was granted by the Regional Court in Ostrava last year after the creditors did not decide how to deal with the company's insolvency, CTK relates. The reorganisation was requested by the company itself and proposed by the insolvency administrator, CTK discloses. However, the company failed to find an investor, notes. Now that the company has withdrawn its proposal for reorganisation, its insolvency should be resolved by bankruptcy and sale of assets, Igor Krajdl, a spokesman for the court, told CTK. ============= D E N M A R K ============= SELUXIT: To File for Bankruptcy in Denmark Court ------------------------------------------------ Christian Wienberg at Bloomberg News reports that Seluxit, a Danish software developer, will file for bankruptcy at a court in Denmark. According to Bloomberg, the company said its German market never recovered after the Covid-19 pandemic. "Management has worked hard to try to find ways to strengthen the company's capital base," Bloomberg quotes the company as saying. "But a low share price, challenging market conditions due to inflation and rising interest rates, and delays in the company's order intake have unfortunately meant that these efforts have not been successful." The company's shares are suspended in Copenhagen trading, Bloomberg notes. They have lost 89% since July 2020 peak. Bloomberg states. =========== F R A N C E =========== PICARD BONDCO: Moody's Upgrades CFR to B2, Outlook Remains Stable ----------------------------------------------------------------- Moody's Ratings has upgraded to B2 from B3 the corporate family rating and affirmed the B2-PD probability of default rating of Picard Bondco S.A. (Picard). Moody's also assigned a B2 rating to Lion / Polaris Lux 4 S.A.'s new backed senior secured floating rate notes and a B2 rating to Picard Groupe S.A.S.'s new backed senior secured fixed rate notes, for a total amount, together with the backed senior secured floating rate notes, of EUR1,225 million due 2029. Moody's took no action on the existing backed senior secured debt of Lion / Polaris Lux 4 S.A. and Picard Groupe S.A.S., and expect to withdraw these ratings once the refinancing transaction closes. Concurrently Moody's affirmed the Caa1 rating to Picard's EUR310 million backed senior unsecured notes due 2027. The outlook remains stable for all entities. Net proceeds from the proposed new notes and EUR208 million of cash on balance sheet will be used to fully repay the EUR1,400 million existing senior secured notes and pay transaction fees and accrued interests. RATINGS RATIONALE The upgrade of the CFR reflects the EUR175 million reduction in debt combined with the solid performance of Picard in fiscal 2024 (year ending March 31, 2024) and Moody's expectation of a reduction in electricity costs in fiscal 2025 contributing to the rating agency's base case forecast of a Moody's Adjusted Debt / EBITDA of 6.3x in 2025 pro forma the refinancing transaction. Governance risks were key rating drivers for the rating action. Even if Moody's consider governance risks as still high (G-4) reflecting still high leverage and aggressive financial strategy, the rating action reflects the company's decision to reduce leverage, as opposed to previous refinancings, which were characterized by leverage increases and dividend recapitalizations. The B2 CFR reflects also Picard's track record of stable operating performance and high margins compared to other retailers; its strong brand image and leading position in the French frozen food market; its ability to constantly update its product offering, with about 200 products launched every year; and its adequate liquidity, supported by a long track record of positive free cash flow (FCF). However, Picard's CFR is still constrained by the company's high leverage; its limited long-term growth prospects in the mature French frozen food market; and the geographical concentration of the company's sales in France, with limited contribution from international markets. In fiscal 2024, Moody's-adjusted Debt / EBITDA remained flat at 7.1x with Moody's-adjusted EBITDA at EUR302 million (EUR299 million in 2023) reflecting around 5% sales growth which was offset by a temporary EUR20 million increase in electricity costs compared to fiscal 2023. The higher electricity costs are due to the higher electricity prices which were locked in in 2022 and have since come down significantly. Moody's expect Picard's electricity costs to reduce by around EUR20 million in fiscal 2025, thanks to lower electricity costs that the company has already locked in. Moody's expect the company to generate positive free cash flow (FCF) of around EUR55 million per year, in line with its solid historic track record. Moody's also expect that despite the higher interest rate environment at the time of refinancing compared to the last refinancing in June 2021, the company's interest expense will not increase thanks to the lower debt quantum. LIQUIDITY Picard has adequate liquidity, with EUR310 million cash as of March 31, 2024, out of which EUR175 million will be used to repay debt and EUR30 million for transaction fees and accrued interests. Picard also has access to an undrawn revolving credit facility of EUR60 million maturing four years and six months after the issue date of the new notes or by April 1, 2027 if the EUR310 million senior unsecured notes are not redeemed by then. Pro forma the refinancing transaction, the company does not have any debt maturity until the EUR310 million senior unsecured notes are due in July 2027. Moody's expect the company to refinance or repay the instrument well ahead of its maturity. Moody's forecast that Picard will post Moody's-adjusted FCF of about EUR50 million in 2025. There are significant swings in working capital during the year, with outflows in the first and second quarters of the fiscal year (March-September), a large inflow of about EUR80 million to EUR90 million in the third quarter (September-December), followed by a sizeable outflow in the fourth quarter (January-March). However, Picard's cash position is sufficiently large to cover these variations. STRUCTURAL CONSIDERATIONS Picard's EUR1,225 million proposed new backed senior secured notes are rated B2, at the same level as the corporate family rating, reflecting the structural subordination to around EUR380 million operating subsidiaries' debt, balanced by the EUR310 million of subordinated debt in the overall debt structure providing a cushion. These instruments are guaranteed by material subsidiaries and secured by shares, material intercompany receivables and material bank accounts of these subsidiaries. However, there are limitation on the amounts that the operating subsidiaries can guarantee. The company's EUR310 million senior unsecured notes are rated Caa1, two notches below the B2 CFR, reflecting their subordination to the senior secured notes. These notes are not guaranteed by operating companies with material EBITDA generation. Moody's Loss Given Default analysis is based on an expected family recovery rate of 50%, reflecting Picard's covenant-lite bank debt and the rather weak security package of the secured notes. The PDR is in line with the CFR at B2-PD. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's view that Picard will keep generating positive Moody's-adjusted free cash flows and sustain a deleveraging trajectory. Moody's also expect the company to maintain a cautious approach to cost control and store expansion, both in France and internationally. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade Picard if it increased meaningfully and sustainably its EBITDA, such that its Moody's-adjusted Debt / EBITDA moves sustainably below 5.5x. A positive rating action would also require the company to demonstrate a track record of a more prudent and balanced financial policy and maintain a good liquidity and positive Moody's-adjusted FCF. Moody's could downgrade Picard's rating if its earnings decline, resulting in Moody's-adjusted Debt / EBITDA exceeding 6.5x or Moody's-adjusted (EBITDA - Capex) / Interest Expense below 1.5x. A weakening of Moody's-adjusted FCF or a deterioration in liquidity could also trigger a negative rating action. Further, Moody's could downgrade Picard's rating if it pays another significant dividend to its shareholders or makes a large debt-financed acquisition, reflecting a more aggressive financial policy than is currently factored into the rating. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail and Apparel published in November 2023. COMPANY PROFILE Picard Bondco S.A. is a leading specialist retailer of private-label frozen foods in France and it generated EUR1.8 billion revenue in the 12 months that ended March 31, 2024. The company operates a network of 1,158 stores in France (including 86 franchised stores), 15 stores in Belgium, one store in Luxembourg and 11 franchised stores in Japan. Most of the company's stores are located in or near city centres and metropolitan areas. Picard has been owned since 2010 by funds managed or advised by private equity firm Lion Capital LLP. In 2015 Lion Capital sold a stake of 49% to Aryzta AG, a Switzerland-based group specialised in frozen bakery products. In January 2020, Aryzta sold most of its stake to Invest Group Zouari (IGZ), a French retail investment firm, which now owns 45.4% of the company. As of, Lion Capital LLP remains the majority shareholder with a stake of 51.8%. PICARD GROUPE: S&P Affirms 'B' LT ICR on Proposed Refinancing ------------------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term issuer credit rating on France-based frozen food retailer Picard Groupe. S&P said, "We also assigned our 'BB-' issue rating and '1' recovery rating (rounded recovery estimate: 95%) to the proposed EUR60 million super senior RCF, our 'B' issue rating and '3' recovery rating (rounded recovery estimate: 65%) to the EUR1,225 million senior secured notes, and we affirmed our 'CCC+' issue on the existing EUR310 million senior unsecured notes. "The stable outlook reflects our view that Picard will continue to deliver resilient operating performance, with sustained growth in topline and earnings. It also reflects its strong free operating cash flow (FOCF) generation, that will be partly used to reduce gross debt. Under our base case, we expect the group's S&P Global Ratings-adjusted debt to EBITDA will decrease toward 6.3x in fiscal 2025 and 6.1x in fiscal 2026." Picard Groupe plans to issue EUR1,225 million senior secured notes due 2029 and use EUR208 million of cash in the balance sheet to repay its existing EUR1,400 million senior secured notes, and finance EUR15 million transaction fees. The group also plans to issue a new super senior revolving credit facility (RCF) of EUR60 million to refinance the existing EUR60 million RCF. S&P said, "Picard posted resilient operating performance over fiscal 2024. As of March 31, 2024, Picard reported year-on-year sales growth of 5%, exceeding our expectations. Topline growth stemmed from the group's continuing focus on premium quality offerings at affordable prices and on its brand recognition. This has cemented Picard's strong positioning in the French frozen food market, despite tough economic conditions. Revenue in France increased by 3% on a like-for-like basis, while the company achieved rapid store expansion, with 32 openings in fiscal 2024, 16 of which are franchises. The group's online sales represented around 5% of total revenue, reflecting the company's increasing focus on digital development, albeit the latter still represents a small proportion of overall sales. From fiscal 2025, we expect sales growth will stabilize at about 2.5%-3.5% per year, bolstered by store openings (including franchises), the recovery in store traffic, and the acceleration of digital activities. "We expect Picard's profitability to progressively recover in fiscal years 2025-2026 after a drop in fiscal 2024, on surging energy costs. In fiscal 2024, profitability suffered from cost inflation, with material increases in energy prices that almost doubled to reach around EUR50 million. We forecast the group's S&P Global Ratings-adjusted EBITDA will rebound to EUR300 million-EUR310 million in fiscal 2024, from EUR286 million in fiscal 2024, as the group has fully hedged electricity costs until December 2024. Therefore, we believe that management's focus on cost discipline, alongside its strong operating performance record, underpin our view of the group's ability to preserve its EBITDA margin above 16.5% over the next two years. We also consider that Picard's resilient business model, differentiated positioning, and more affluent customer base, provide it with good capacity to absorb and pass increased costs to customers compared with its peers. "As a result, we expect FOCF after leases will continue to increase. Strong profitability, limited capital expenditure (capex) needs (at about 3.0% of sales), and neutral working capital flows over the medium term, should result in structurally positive FOCF over the medium term. We forecast the group will generate FOCF after lease payments of about EUR55 million in fiscal 2025 and EUR60 million in fiscal 2026. In our base case, given Picard's sustainably positive FOCF and the absence of dividend payment plans, it should be able to strengthen its liquidity buffer of EUR106 million expected after the refinancing transaction. "Picard has demonstrated restraint in its financial policy by using its cash flow to repay some debt, thereby decreasing its leverage. The group plans to use EUR208 million of cash available to repay a portion of existing debt. Including this planned debt reduction, we now forecast the group's S&P Global Ratings-adjusted debt to EBITDA will decline toward 6.3x in fiscal 2025, versus 7.5x in fiscal 2024. We believe that Picard's debt reduction demonstrates that the group has somewhat moderated its financial policy, which leaves some headroom under the current rating. "The stable outlook reflects our view that Picard will continue to deliver resilient operating performance, with sustained growth in topline and earnings. It also reflects its expected strong FOCF. Under our base case, we expect the group's S&P Global Ratings-adjusted debt to EBITDA will decrease toward 6.3x in fiscal 2025 and 6.1x in fiscal 2026." Downside scenario S&P said, "We could lower the rating if Picard's operating performance deteriorates such that it posts lower growth and profitability than we anticipate. This could result from intensified competition in the French grocery market, a food-safety scare damaging Picard's brand, a supply chain disruption, or an inability to pass on cost inflation to customers or adapt to changing consumer behavior." Specifically, S&P could lower the ratings if: -- S&P Global Ratings-adjusted debt to EBITDA remains sustainably above 7.5x or EBITDAR cash interest coverage weakens toward 1.8x. -- FOCF after lease payments weakens and approaches a neutral level; or -- Picard's credit metrics deteriorate because of a more aggressive financial policy, either through increasing debt or continuing shareholder distributions. Upside scenario S&P could raise the ratings over the next 12-18 months if: -- On the back of strong trading and cash conversion and positive discretionary cash flow stemming from a more prudent financial policy, Picard deleverages such that its S&P Global Ratings-adjusted debt to EBITDA improves sustainably to below 6.0x. -- Management and shareholders show a commitment to a more conservative financial policy. ============= G E R M A N Y ============= NORD STREAM 2: Court Extends Moratorium on Bankruptcy Procedure --------------------------------------------------------------- Interfax reports that a court in Zug, Switzerland, has extended the moratorium on the bankruptcy procedure for the Nord Stream 2 gas pipeline operator, Nord Stream 2 AG, for another six months until January 10, 2025, the court said in its ruling. The Nord Stream 2 underwater pipeline, with capacity to transport 55 billion cubic meters of gas per year, runs from the Slavyanskaya compressor station in the Kingisepp district of Russia's Leningrad region across the Baltic Sea to Germany. The German authorities suspended the process of certifying the pipeline, and the United States imposed sanctions on project company Nord Stream 2 AG, Interfax relates. The company had to terminate contracts with staff due to the sanctions, Interfax notes. Both strings of the Nord Stream 2 pipeline were full of gas and ready to operate. One of its strings was damaged as a result of powerful explosions in September 2022, Interfax discloses. SOLARNATIVE GMBH: Files for Insolvency Amid Funding Woes -------------------------------------------------------- Renewables Now reports that German PV micro-inverter maker Solarnative GmbH said on June 21 it has decided to file for insolvency as it will not be able to secure fresh financing within the legal deadlines. The news comes days after Solarnative revealed it is seeking a buyer because it urgently needs funds to support the global roll-out of its product, which is considered to be the smallest inverter worldwide, Renewables Now relates. "Although the company has received generally positive feedback from potential investors, it is not possible to secure new financing within the legal deadlines," Renewables Now quotes Solarnative as saying. The firm became in dire straits as a result of the intensifying price war in the segment which is dominated by Chinese manufacturers and has been dealing with oversupply over the past year, Renewables Now discloses. ================= L I T H U A N I A ================= [*] LITHUANIA: Number of Corporate Bankruptcies Up 20% in Q1 2024 ----------------------------------------------------------------- BNS reports that the number bankruptcies in Lithuania is growing but has not reached the pre-pandemic level, according to data from the first quarter of this year, cited by the vz.lt business news website on June 28. A total of 282 corporate bankruptcy proceedings were launched in Lithuania in the first quarter, a 20% increase compared to the same period in 2023, BNS relays, citing the Authority of Audit, Accounting, Property Valuation and Insolvency Management under the Ministry of Finance. Preliminary data from the Insolvency Processes Information Portal showed 591 insolvency proceedings for legal entities were opened between January 1 and June 24, compared to 541 in the same period last year, BNS states. A review presented by data analytics company Scorify in late May points out that this April saw the highest number of insolvencies since May 2023 as 98 companies were declared bankrupt, BNS discloses. =================== L U X E M B O U R G =================== FOUNDEVER GROUP: Moody's Cuts CFR to B2 & Alters Outlook to Neg. ---------------------------------------------------------------- Moody's Ratings downgraded Foundever Group S.A.'s (dba "Foundever") corporate family rating to B2 from B1 and its probability of default rating to B2-PD from B1-PD. Concurrently, Moody's downgraded Foundever Group S.A.'s senior secured bank credit facility (consisting of a $250 million multicurrency revolving credit facility expiring 2026 and EUR1.0 billion term loan B due 2028) to B2 from B1 and the $1.4 billion senior secured term loan B due 2028 issued by Foundever Worldwide Corporation to B2 from B1. The outlook was changed to negative from stable. Foundever is a global leader in the customer experience business process outsourcing ("CX BPO") industry. The downgrade of the CFR to B2 from B1 is driven by Moody's revised expectation for the company's future growth prospects and cash flow generation amid a challenging operating environment. The CX BPO industry is experiencing a cyclical slowdown due to macroeconomic uncertainty and the rapid evolution of generative AI (GenAI) that have elongated sales cycles and softened volumes for global industry leaders. Compared to major industry competitors like Teleperformance (unrated) and Concentrix Corporation (Baa3 stable), Foundever hasn't performed as well due to its smaller global presence and traditional CX BPO operating model with limited product line diversification. Weak revenue growth and higher cost have substantially elevated Foundever's financial leverage with debt-to-EBITDA (based on Moody's calculations) increasing to mid-6.0 times for the last twelve months ended March 31, 2024 from around 4.5 times in fiscal 2023. Moody's anticipate that Foundever's revenue and EBITDA growth will remain tepid over the next 12-18 months, and it will struggle to generate meaningful free cash flow. Moody's believe that Foundever's business risk will remain high as it navigates a difficult operating environment, including transforming its business to meet evolving customer needs and continuing technology investments. Moody's project modest EBITDA growth, principally driven by a decrease in restructuring costs and offshoring work to lower-cost regions, but Moody's expect debt-to-EBITDA leverage will remain above 6.0 times by end of 2025. Moody's consider governance a significant factor in the rating action. Governance risk considerations are driven by the company's execution risk and management's track record reflected in significantly higher financial leverage and weaker liquidity. This is further exacerbated by the one-time share buyback of around $171 million completed in the first quarter 2024. Moody's have revised Foundever's Governance Issuer Profile Score (IPS) to G-4 (highly negative) from G-3 (moderately negative). Concurrently, Moody's have also revised the company's Credit Impact Score (CIS) to CIS-4 (highly negative) from CIS-3 (moderately negative). RATINGS RATIONALE Foundever's B2 CFR reflects the company's: (1) high debt-to-EBITDA (based on Moody's calculations) leverage in the mid-6.0 times range for the twelve months ended March 31, 2024, which Moody's project will remain above 6.0 times over the next 12-18 months; (2) Moody's expectation for tepid revenue and EBITDA growth expected through 2025 due to macroeconomic uncertainty that brings prolonged decision-making client cycles and a pressure to reduce client cost, partially offset by profitability improvements from lower restructuring cost; (3) its concentrated operations within the highly competitive and fragmented industry that requires considerable investment in technological innovation and value-added capabilities to maintain strong market position and to address client's increasingly complex next generation needs; (4) the uncertainty around the rapid evolution of GenAI and the potential disruption on the CX BPO market, which could erode the company's revenue and reduce margins; and (5) high employee attrition rates, a characteristic of the industry, and moderate customer concentration. The rating is supported by the company's: (1) strong global footprint with a diversified portfolio of service offerings and technical capabilities, placing it among the top three global CX BPO providers as measured by total revenue; (2) long-standing relationships with large customers across attractive industry verticals and geographies; (3) favorable growth fundamentals for outsourcing end-to-end CX BPO solutions; (4) Moody's expectation for gradual EBITDA margin improvement over the next 12-18 months from ongoing strategy to move client volumes to nearshore and offshore delivery systems, as well as work automation; and (5) Moody's expectation that the company will maintain adequate liquidity over the next 12-15 months to fund business transformation initiatives and technology investments. Moody's expect Foundever to maintain adequate liquidity over the next 12-15 months. Sources of liquidity consist of cash balances of around $316 million as of March 31, 2024 and Moody's expectation the company will generate breakeven to slightly positive free cash flow over the next 12-15 months. The company has full access to its $250 million multicurrency revolving credit facility expiring 2026 and $150 million availability under its $300 million accounts receivable securitization facility. The company's $1.4 billion and EUR1.0 billion of floating rate debt leaves the company vulnerable to high benchmark interest rates that could pressure cash flow from operations, somewhat mitigated by EUR700 million of interest rate hedges in place that will expire in 2024-25. Access to the revolver is subject to compliance with a springing consolidated first lien debt to consolidated EBITDA ratio covenant that cannot exceed 6.7x and is tested when borrowings exceed 40% of availability. Moody's do not expect the covenant to be triggered over the near term and believe there is enough cushion within the covenant based on Moody's projected earnings levels for the next 12-15 months. There are no financial maintenance covenants applicable to the term loans. The negative outlook reflects the potential impact of prolonged economic weakness or disruptions by GenAI on the CX BPO industry, and that Foundever will be challenged to generate positive free cash flow and improve its credit metrics through the end of 2025. The outlook may be stabilized if the company can reverse negative operating trends, restore its credit metrics, and maintain healthy liquidity including positive free cash flow generation. The downgrade of Foundever's senior secured debt rating (revolver and term loans) to B2 from B1 reflects both the PDR of B2-PD and Moody's loss given default assessment. As there is no other meaningful debt in the capital structure, the facility is rated in line with the B2 CFR. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade is unlikely over the next 12-18 months, given the current negative outlook. Over time, Foundever's ratings could be upgraded if the company demonstrates healthy organic revenue growth and margin expansion, while generating meaningful free cash flow on an annualized basis. Quantitatively, an upgrade would require Foundever to sustain debt-to-EBITDA (based on Moody's adjustments) below 5.0 times and free cash flow to debt (based on Moody's adjustments) above 5%. The ratings could be downgraded if business fundamentals weaken as evidenced by sustained negative revenue growth, higher operating expenses and higher than anticipated cash flow deficits. A deterioration in liquidity or lack of meaningful progress in deleveraging could also pressure the ratings. Quantitatively, the ratings could be downgraded if Moody's anticipate the company's debt-to-EBITDA (based on Moody's calculations) to remain above 6.0 times or EBITA-to-interest expense (based on Moody's calculations) to fall below 1.5 times. Foundever Group S.A., domiciled in Luxembourg, is a leading global provider of CX products and solutions. Foundever generated $3.7 billion revenue for the twelve months ended March 31, 2024. The company is owned by the Creadev Investment Fund (Creadev), which is controlled by the Mulliez family of France. The principal methodology used in these ratings was Business and Consumer Services published in November 2021. =============== S L O V E N I A =============== T-2: Telemach Concludes Deal with Garnol Acquire 98.06% Stake ------------------------------------------------------------- bne IntelliNews reports that Telemach Slovenia has concluded a deal with Garnol to acquire a minimum 98.06% stake in the telecommunications operator T-2, rescuing it from impending bankruptcy, RTV SLO reported on June 18. Founded in 2004, T-2 offers fixed internet, mobile telephony and television services. Telemach said following due diligence, both parties plan to finalize the share purchase agreement in the coming weeks, pending regulatory approval, bne IntelliNews relates. According to bne IntelliNews, this move aims to prevent T-2's bankruptcy proceedings initiated by Slovenian State Holding (SDH), which claims outstanding debts totaling at least EUR65 million. The Ljubljana District Court is set to hear the case on June 20, bne IntelliNews discloses. Telemach stressed the strategic benefits of the acquisition for Slovenian customers and the economy. "The intended investment will bolster our network capabilities and enable more effective investments in cutting-edge technologies and superior user experiences," bne IntelliNews quotes Tomislav Cizmic, president of Telemach Slovenia, as saying. Jurij Krc, founder of Garnol and owner of T-2, highlighted the positive impact on T-2's future development within an international group. "Joining forces with Telemach Slovenia, part of the United Group, promises mutual benefits for customers, employees, and business partners," he said. ========= S P A I N ========= BANCAJA 11: Moody's Raises Rating on EUR63MM Class B Notes to B3 ---------------------------------------------------------------- Moody's Ratings has upgraded the ratings of the Class B and Class C notes in Bancaja 11, FTA. The rating action reflects an increase in credit enhancement for the affected tranches following the curing of the principal deficiency ledger of the transaction. EUR440M Class A3 Notes, Affirmed Aa1 (sf); previously on Oct 26, 2023 Upgraded to Aa1 (sf) EUR63M Class B Notes, Upgraded to B3 (sf); previously on Oct 26, 2023 Affirmed Caa2 (sf) EUR24M Class C Notes, Upgraded to Caa3 (sf); previously on Sep 22, 2014 Downgraded to C (sf) EUR20M Class D Notes, Affirmed C (sf); previously on Sep 22, 2014 Affirmed C (sf) EUR22.9M Class E Notes, Affirmed C (sf); previously on Sep 22, 2014 Affirmed C (sf) Moody's affirmed the ratings of the notes that have an expected tranche loss commensurate with their current ratings. RATINGS RATIONALE The rating action is prompted by an increase in credit enhancement for the affected tranches following the curing of the principal deficiency ledger (PDL) of the transaction. Increase in Available Credit Enhancement Sequential amortization and the trapping of excess spread (including recovery proceeds) to pay down outstanding PDL led to the increase in the credit enhancement available in this transaction. For instance, the credit enhancement for Class B affected by rating action increased to 10.29% from 8.49% since the last rating action. Moody's note that as of latest IPD an amount of EUR1.76 million of past interest due remains unpaid for Class B notes, down from EUR2.69 million on October 2023. The payments of interest on Class B, C and D remain subordinated to the principal of Class A3 given that interest deferral triggers are permanently hit. Therefore payment of interest on Class B are reliant on excess spread and recoveries after curing any PDL. The notes don't accrue interest on unpaid interest. No Revision of Key Collateral Assumptions: As part of the rating action, Moody's reassessed its lifetime loss expectation for the portfolio reflecting the collateral performance to date. The performance of the transaction has continued to be stable albeit with a moderately high level of ongoing defaults. Total delinquencies have modestly increased in the past year, with 90 days plus arrears currently standing at 4.63% of the current pool balance. Cumulative defaults currently stand at 13.39% of original pool balance up from 13.33% a year earlier, with an increase of EUR1.6 million. Moody's maintained the expected loss assumption of 7.91% as a percentage of original pool balance. The revised expected loss assumption corresponds to 3.32% as a percentage of current pool balance. Moody's have also assessed loan-by-loan information as a part of its detailed transaction review to determine the credit support consistent with target rating levels and the volatility of future losses. As a result, Moody's have maintained the MILAN Stressed Loss assumption at 9.80%. The principal methodology used in these ratings was "Residential Mortgage-Backed Securitizations" published in May 2024. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Please see Residential Mortgage-Backed Securitizations methodology for further information on Moody's analysis at the initial rating assignment and the on-going surveillance in RMBS. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include (1) performance of the underlying collateral that is better than Moody's expected, (2) an increase in available credit enhancement and (3) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the notes' available credit enhancement and (4) deterioration in the credit quality of the transaction counterparties. =========== S W E D E N =========== KVALITENA: Court Extends Restructuring Process Until Aug. 23 ------------------------------------------------------------ Christopher Jungstedt at Bloomberg News reports that privately-owned landlord Kvalitena has received a court approval to extend its ongoing restructuring process by three months, until Aug. 23. According to Bloomberg, the Swedish company requested an extension on May 20, "with the purpose of divesting sufficient assets in a controlled manner in order to be able to square Kvalitena's debts in full as soon as possible". =========================== U N I T E D K I N G D O M =========================== ALBION FINANCING: Moody's Rates New $250MM Term Loan Add-on 'B1' ---------------------------------------------------------------- Moody's Ratings assigned a B1 rating to the proposed $250 million add-on to $1000 senior secured term loan due August 2026, issued by Albion Financing 3 S.à.r.l., subsidiaries of Albion HoldCo Limited (Aggreko). Other ratings of Aggreko and its subsidiaries are not affected. These include Aggreko's corporate family rating at B1 and probability of default rating at B1-PD, as well as the B1 rating of senior secured revolving credit facilities (RCF) due February 2026 issued by Albion Midco Limited, B1 ratings of backed senior secured notes issued by Albion Financing 1 S.à.r.l. due October 2026 and senior secured term loan B issued by Albion Financing 3 S.à.r.l. due August 2026, and the B3 rating of backed senior unsecured notes issued by Albion Financing 2 S.à.r.l. due April 2027. The rating outlook is stable for all entities. The proceeds from the proposed add-on will be used to finance growth opportunities including primarily growth capex and a pipeline of acquisitions. Along with the proposed add-on, Aggreko is planning to extend the maturities of its senior secured term loan by three years to August 2029 and to reduce the margin on the loan facilities. RATINGS RATIONALE The rating action reflects moderately negative impact of the proposed add-on on Aggreko's credit metrics and Moody's expectation that the proceeds from the add-on will be invested into growing the business. This rating action also takes into account Aggreko's consistently strong performance including top-line growth and margin expansion underpinned by its leading position in mobile modular power, temperature control and energy services markets. Aggreko's resilient track record continued into 2024: the company reported 8% underlying revenue growth and 18% adjusted EBITDA increase in the first quarter of the year. Aggreko's revenue grew across geographies globally with the exception of Africa where the company has been strategically exiting less attractive contracts. As a result, Aggreko's contract portfolio is becoming more focused on North America and Europe, as well as larger corporate customers and longer contract durations, which improves its earnings quality. Aggreko's adjusted EBITDA margin increased by 3.6% year-over-year to slightly above 40% in the first quarter of 2024 reflecting a more profitable contract portfolio, as well as the company's cost discipline. Moody's expect Aggreko to maintain its strong profitability going forward. From the cash flow perspective, Aggreko reduced its working capital outflows in the first quarter of 2024 in part by improving its cash collections as a result of exiting certain contracts. The proposed repricing of the term loans will also help bolster Aggreko's cash flow by reducing its interest cost. At the same time Aggreko's capital expenditures of $119 million in the quarter (excluding Eurasia) remain material and Moody's do not expect them to decline significantly as the company needs to maintain and refurbish its fleet on an ongoing basis. Aggreko's Moody's adjusted gross leverage was 4.6x for the twelve months ended March 31, 2024; pro forma for the proposed $250 million add-on, Aggreko's leverage will increase to 4.9x. Moody's expect that Aggreko's continued profitable revenue growth accompanied by strong EBITDA margin will allow the company to deleverage gradually towards 4.0x in the next 12-18 months. Still, Moody's expect Aggreko's capex needs to pressure its free cash flow such that it is slightly negative on a sustained basis. While Moody's believe that marginally negative free cash flow could be supported while Aggreko is growing quickly, Moody's also note that consistent increases in free cash flow deficit could put a strain on the company's liquidity and capital structure thereby pressuring the ratings. LIQUIDITY Aggreko's liquidity remains adequate, with $155 million of cash and an undrawn GBP300 million RCF (equivalent to $380 million), issued by Albion Midco Limited, at March 31, 2024. The company has no debt maturities until 2026 and Moody's view its proposed extension of the term loans to 2029 positively, although it will still have to address the maturities of its senior secured notes in 2026. STRUCTURAL CONSIDERATIONS Aggreko's senior secured debt, issued through subsidiaries, is rated B1 in line with the CFR, as is the proposed $250 million senior secured add-on. The company's debt includes GBP300 million RCF issued by Albion Midco Limited, $1,030 million and EUR1,075 million TLB (including EUR300 million add-on issued in October 2023) issued by Albion Financing 3 S.à.r.l. and $565 million and EUR450 million backed senior secured notes issued by Albion Financing 1 S.à.r.l. The RCF, the TLB (including the add-on) and the secured notes share the same security package, and rank pari passu. The company's $450 million backed senior unsecured notes issued by Albion Financing 2 S.à.r.l. are rated B3, reflecting their junior position in the capital structure. The term loan is covenant lite, and the revolver has a springing financial covenant tested if it is 40% drawn. RATING OUTLOOK The stable outlook reflects Moody's expectation that continued organic growth of Aggreko's underlying business will lead to a decline in leverage and to a reduced free cash flow burn. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Positive rating momentum would result from Aggreko's leverage measured as debt/EBITDA reducing below 3.5x including Moody's standard adjustments, as well as EBITDA/Interest expense increasing above 4.5x. Adequate liquidity would also be needed for an upgrade. Downward rating pressure could arise if Aggreko's debt/EBITDA increases above 5.0x or EBITDA/Interest expense remains below 3.0x for a sustained period of time. Any liquidity challenges could also lead to a rating downgrade. The principal methodology used in this rating was Equipment and Transportation Rental published in February 2022. COMPANY PROFILE Headquartered in Glasgow, Albion HoldCo Limited (Aggreko) is a leading global provider of modular power generation and temperature control equipment, offering critical equipment rental and energy services to a diverse mix of end-markets, clients and countries. The company operates over 216 sales and services centres, serving customers in around 68 countries. In 2023, Aggreko reported revenue of $2.5 billion and adjusted EBITDA of $950 million. GLOBAL SHIP: Moody's Upgrades CFR to Ba2, Outlook Remains Stable ---------------------------------------------------------------- Moody's Ratings has upgraded the corporate family rating of Global Ship Lease, Inc. (GSL, the company) to Ba2 from Ba3 and the probability of default rating to Ba2-PD from Ba3-PD. The outlook remains stable. RATINGS RATIONALE The Ba2 corporate family rating of GSL reflects (1) the company's business model, which provides for high revenue and profit visibility; (2) its fleet of medium-sized and smaller container ships that typically have value-added components; and (3) the steady improvement in credit metrics over the last years and Moody's expectation that Moody's-adjusted debt/EBITDA will remain around 1.0x at least for the next three years absent any larger vessel acquisitions and likely even in case of a weak market environment. The rating also takes into account (1) scale, niche focus and degree of customer concentration; (2) the market risk associated with rechartering vessels during weaker market conditions; (3) likely continued, partially debt-funded investments in the fleet; and (4) rising regulation and ongoing uncertainty given the industry's carbon transition. The company has substantial ongoing debt amortisation, which commits significant cash flow towards debt repayment but also requires a strong cash flow profile. Moody's expect the company to continue pursue a conservative financial policy and to preserve a strong liquidity profile. RATING OUTLOOK The stable outlook reflects Moody's expectation that metrics are likely to remain strong for the Ba2 rating over the next 12-18 months given the very supportive market environment for chartering companies. Furthermore, the outlook is anchored in GSL continuing to show a balanced capital allocation strategy with regards to shareholder returns and vessel acquisitions. LIQUIDITY PROFILE Moody's view the liquidity profile as good. The company had a Moody's-adjusted cash balance of $204 million (including time deposits) as of March 2024. GSL has been and is expected to continue to remain free cash flow positive absent any larger vessel acquisitions post 2024. GSL has no material balloon maturities until 2026 but around $200 million of regular debt maturities during the next 18 months. The company currently has five unencumbered vessels, which provide additional funding potential and differs from its fully encumbered asset base historically. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive rating pressure would be supported by: (1) Improved business profile in the form of increased scale, diversification or revenue visibility (2) Moody's-adjusted debt / EBITDA below 2.0x on a sustained basis (3) FFO coverage sustainably above 7.0x (4) Retained Cash Flow / Net debt at least in the high-30s in percentage terms (5) Free cash flow remaining positive (6) Limited rechartering risk (7) Well managed debt maturity profile Negative ratings pressure could arise if operating and credit metrics weaken on a sustained basis, such as: (1) Moody's-adjusted debt / EBITDA increasing above 2.5x on a sustained basis (2) FFO coverage sustainably below 6.0x (3) Retained Cash Flow / Net debt falling towards 20% (4) Free cash flow generation weakening significantly (5) Deteriorating liquidity (6) Failure to recharter vessels at adequate rates when contracts expire PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Shipping published in June 2021. COMPANY PROFILE Global Ship Lease, Inc. is a Republic of the Marshall Islands corporation, with administrative offices in Athens. GSL owns a fleet of 68 mostly small to medium-sized container vessels. The company's shares have been publicly traded on the New York Stock Exchange since 2008. During the last 12 months that ended in March 2024, GSL generated revenue of $695 and a Moody's-adjusted EBITDA of $480 million. ISLAND POKE: Bought Out of Administration, 104 Jobs Saved --------------------------------------------------------- Business Sale reports that Island Poke, a Hawaiian themed restaurant chain with locations in England and France, has been acquired in a pre-pack administration. The sale to IP Topco Limited, a subsidiary of White Rabbits Projects, has secured more than 100 jobs at the London-based chain, Business Sale relates. The chain was founded by James Porter, initially trading at street food markets before opening its first site in Soho in 2016. It has since expanded to 16 locations in London, with a further restaurant in Brighton and 10 international locations in France. Last month, Island Poke reportedly planned to enter a company voluntary arrangement (CVA) in order to restructure the business, Business Sale recounts. However, administrators from Begbies Traynor stated that these efforts had failed, Business Sale notes. According to Business Sale, in a statement, administrators said: "Whilst the CVA had been put to creditors, and was widely supported by them, it became apparent to the directors from daily trading that the forecasts on which the CVA was built were not likely to be deliverable thereby undermining the viability of the proposal which was scheduled to continue for five years." "In the circumstances, and in parallel with the CVA procedure, the directors engaged BTG Advisory to run an accelerated marketing campaign with a view to identifying a buyer for the business. Throughout this period, a constant dialogue was maintained with the secured creditor, NatWest, who approved both the appointment and sale by way of a pre-pack administration. "Island Poke possesses a robust underlying business, with its core sites generating profits. However, the company has been hindered by substantial COVID-19-related debts, inflation, and exceptionally inclement weather at the beginning of 2024. The acquisition will empower us to fortify the business, safeguard 104 jobs, and continue operations with our suppliers," Business Sale quotes Chris Miller, founder and Chief Executive of the White Rabbit Fund, as saying. PATAGONIA BIDCO: Moody's Cuts CFR to Caa1, Outlook Stable --------------------------------------------------------- Moody's Ratings has downgraded the long-term corporate family rating of Patagonia Bidco Limited (Huws Gray or the company) to Caa1 from B3 and probability of default rating to Caa1-PD from B3-PD. Concurrently, Moody's have downgraded to Caa1 from B3 the rating of the company's guaranteed senior secured bank credit facilities, comprising term loan B (TLB) tranches totalling equivalent GBP950 million and a GBP125 million revolving credit facility (RCF), borrowed by Patagonia Bidco Limited. The outlook changed to stable from negative. RATINGS RATIONALE The rating action reflects the continued uncertainty around both the timing and pace of the UK Repair Maintenance and Improvement (RMI) market recovery. It also reflects a more pronounced than previously expected deterioration of the company's key ratios. In addition, the company's liquidity position, although still adequate and supported by lack of near-term maturities, has somewhat weakened by the expectation of negative free cash flows in both 2024 and 2025 as well as a likely reduced RCF availability due to the springing covenant. Huws Gray's Moody's adjusted debt / EBITDA more than doubled over the last 15 months to 13.7x in Q1 2024 from 6.4x in Q4 2022. Interest cover is also very weak having reduced to 0.4x in Q1 2024, raising questions over the sustainability of the capital structureThe deterioration has been driven predominantly by weak demand and intense price competition, which resulted in 11% revenue decline year-on-year in Q1 2024 following 12% decline for the full 2023. The company has managed to protect its gross margin thanks to its cost savings and procurement programme. However, the EBITDA margin reduced significantly to 4% in Q1 2024 from 5.8% in Q1 2023 and 8.8% in the year before due to relatively high fixed overhead costs, including rents and staff costs. Moody's expect that challenging market conditions will continue into Q2 before the market starts to stabilise in the second half of the year and returning to growth, although gradual, in 2025. Moody's expect volumes for RMI and new build products to be down by low single-digit rate for the whole 2024 and then to recover in 2025. Moody's forecast Huws Gray's Moody's adjusted debt / EBITDA to remain very high at around 10x-11x in 2024 before gradually improving to 9x 2025. Moody's expect the company's EBITA interest cover to remain weak at around 0.6x in 2024 and 0.8x in 2025 due to a combination of broadly flat earnings and ongoing high interest on the floating rate portion of the TLB. Huws Gray's Caa1 CFR is also supported by (1) the solid scale and nationwide coverage in the UK; (2) focus on more stable RMI segment; and (3) adequate liquidity buffer and potential for positive free cash flow generation in the medium term. Less positively, the CFR also factors in (1) the company's still relatively small size compared with some other peers and high geographical concentration, linked to the economic health of a single country; (2) some execution risks on the integration of Fleming and in the longer run with its strategy, which is based on debt-funded M&A; and (3) a very highly leveraged capital structure. ESG CONSIDERATIONS Moody's take into account the impact of environmental, social and governance (ESG) factors when assessing companies' credit quality. Huws Gray benefits from the ongoing focus of politicians on energy efficiency of buildings and sustainability which supports demand for renovation and improvement of building stock. Moody's governance assessment for Huws Gray factors in its control by one major shareholder. Moody's nevertheless acknowledge the sizeable minority stake still in the hands of the Huws Gray founders and management as a credit positive. The company has, however, demonstrated a tolerance for high leverage and debt funded acquisitions. LIQUIDITY Huws Gray's liquidity is adequate, supported by approximately GBP76 million of cash. In addition, the company's GBP125 million RCF maturing in 2028 remains fully undrawn, however, Moody's expect its availability to be restricted by 40% or GBP50 million by the springing covenant. Moody's expect Huws Gray to be free cash flow negative by around GBP25-30 million per annum in 2024 and 2025 due to low earnings and anticipated pick up in the inventory levels once demand starts to gradually recover. More positively, Huws Gray's liquidity benefits from more than GBP300 million in freehold branches which can be sold piecemeal if necessary. The RCF is subject to a consolidated senior secured debt springing covenant when the RCF is drawn above 40%. STRUCTURAL CONSIDERATIONS The Caa1 rating of the TLB and RCF, both due in 2028, is in line with the CFR, reflecting the fact that these bank credit facilities rank pari passu among themselves and form the majority of the debt in the capital structure. The facilities have only modest security, comprising primarily share pledges and a floating charge over the assets of the borrower, which is a holding company. Guarantees are provided by all material subsidiaries with a guarantor coverage of at least 80% of the group's EBITDA. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that Huws Gray will be able to preserve its adequate liquidity and recover its revenue and EBITDA margin from the lows of Q4 2023 and Q1 2024 resulting in gradual improvement of the key credit ratios. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive rating pressure will require a sustained improvement in credit metrics, with (1) EBITA / interest ratio improving above 1x; (2) sustainable improvement in operating margins; and (3) at least adequate liquidity, supported by improving free cash flow generation. Conversely, negative rating pressure could arise if (1) company fails to stabilise its revenue and EBITDA in the second half of 2024; (2) liquidity profile deteriorates; or (3) there is an increasing risk of a distressed exchange. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Distribution and Supply Chain Services published in February 2023. CORPORATE PROFILE Huws Gray is one of the UK's leading independent general builders merchants (GBM). With 2023 revenues of around GBP1.4 billion and over 300 branches (60% owned freehold), the group has fairly wide national coverage, providing a broad range of building materials to both trade and retail customers. Blackstone acquired a 75% stake in Huws Gray in June 2021 with its managers and founders holding the remaining 25%. ZEGONA COMMUNICATIONS: S&P Assigns Prelim 'BB' ICR, Outlook Pos. ---------------------------------------------------------------- S&P Global Ratings assigned a preliminary 'BB' long-term issuer credit rating to Zegona Communications PLC, as well as a preliminary 'BB' rating to Zegona's proposed term loan B (TLB) due 2029. The positive outlook reflects S&P's expectation that S&P could upgrade Zegona if its debt to EBITDA falls below 3.5x and FOCF to debt improves toward 15%, in line with, or faster than, our current projections. The preliminary rating reflects the group's position as the third-largest telecoms operator in Spain, its moderate leverage profile, and a degree of execution risk. S&P said, "We consider Zegona's competitive position is supported by its right to operate the well-known Vodafone brand, its position as No. 3 in a largely three-player Spanish market, and its sound diversity of revenue streams coming from several retail brands and sound business-to-business (B2B) offering, as well as its now entering the wholesale market. We also think the preliminary rating is supported by the group's moderate leverage profile over the medium term, coupled with its commitment to improving credit metrics. At the same time, our rating on Zegona is constrained by our view of the execution risk associated with the turnaround plan presented by the new management, which hinges on the stabilization of group revenue and a material improvement in profitability and cash flow metrics after years of underperformance. We also consider that the Spanish market will remain competitive, despite recent consolidation trends, especially in the value segments. We believe this will limit average revenue per unit (ARPU) growth in that segment over the next few years." Zegona's turnaround plan for Vodafone Spain includes material cost and capex savings, as well as a potential revenue opportunity from entering the wholesale market. S&P said, "As a result, we forecast Zegona's adjusted EBITDA margin could reach 40% and FOCF to debt increase above 15% by the end of fiscal 2026. Key cost-saving initiatives include the digitalization of sales channels, outsourcing of equipment financing and bad debt management, network and tech savings, renegotiation of fixed-access agreements, and a reduction in headcount among support functions. We anticipate capex intensity will also decline, thanks to its advanced stage in the investment cycle (both in terms of fixed line infrastructure and 5G investment)." This is also supported by general savings in IT and a planned reduction in subscriber acquisition costs from the simplification of sales commissions and retail branch incentive plans." Zegona intends to capitalize on growth from its value retail brands, while stabilizing indicators in the premium Vodafone brand and in the B2B segment. S&P said, "We forecast this will lead to a stabilization in revenue over the next 12 months, after two years of declines. We anticipate 1%-3% annual revenue growth over the medium term. Our forecast reflects improving trends in the consumer segment, such as a reduction in customer churn in the premium Vodafone brand due to an increased focus on customer care and digitalization, and sound subscriber growth at the Lowi brand thanks to improved product offering (5G and content). It also reflects our expectation that B2B revenue will benefit from increased focus in the retail-like small-office/home-office segment, a sound position among small and midsize enterprises and large corporate clients, and the revenue opportunity from entering the wholesale market." Zegona's financial policy will support significant deleveraging over the next two to three years. The group has a public target leverage of 1.5x-2.0x, which translates to about 2.5x-3.0x on an S&P Global Ratings-adjusted basis. This is materially lower than our expectation of about 4.2x debt to EBITDA at the close of the transaction and reflects Zegona's commitment to improving credit metrics over the next few years. S&P said, "We consider Zegona's deleveraging profile is supported by our expectation of improving earnings and FOCF generation, which should allow the group to repay debt ahead of maturities. We understand Zegona intends to focus on improving leverage toward its target range and will therefore only distribute modest dividends and will not pursue any material acquisitions over the next two to three years." S&P said, "We think the Spanish telecom market is in flux, adding uncertainty to its competitive dynamics in the longer term. In the short term, the consolidation between MasMovil and Orange Spain will lead to a decline in the competitive pressures we've seen over the past few years, characterized by high churn and strain on ARPU. That said, over the medium term, the consolidation will strengthen Digi, now the fourth-largest operator behind the MasOrange joint venture, Telefonica, and Zegona, since it will receive the remedies from the merger, including mid- and high-band spectrum and the option to enter into a national roaming agreement with MasOrange in 2026. We therefore consider that the value end of the market is likely to remain highly competitive over the next few years. "The final rating will depend on a satisfactory review of all final documentation and terms of the proposed debt. The preliminary rating should therefore not be construed as evidence of the final rating. If we do not receive final documentation within a reasonable time, or if the final documentation and final terms of the proposed senior secured debt and revolving credit facility (RCF) depart from the materials and terms reviewed, we reserve the right to withdraw or revise the rating. Potential changes include, but are not limited to, use of proceeds, maturity, size and conditions of the facilities, financial and other covenants, security, and ranking. "The positive outlook reflects our expectation that we could upgrade Zegona over the next 12-18 months if its debt to EBITDA falls below 3.5x and FOCF to debt improves toward 15%, in line or with or faster than our current projections. "We could upgrade Zegona if its debt to EBITDA falls below 3.5x and its FOCF to debt improves toward 15%. This could occur if the group releases the planned cost-saving measures ahead of schedule, or if it achieves significant revenue synergies currently not incorporated in our forecast. "We could revise our outlook to stable if we expect debt to EBITDA will remain above 3.5x or if FOCF remains below 15% on a consistent basis, or if the group abandoned its clear commitment to reducing leverage to its financial policy target." ESG factors are an overall neutral consideration on S&P's preliminary ratings analysis of Zegona. ********* 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. 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