/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240705.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, July 5, 2024, Vol. 25, No. 135 Headlines A R M E N I A UNIBANK OJSC: Moody's Alters Outlook on B2 Deposit Ratings to Pos. C Z E C H R E P U B L I C SBERBANK CZ: Creditors Recovers 99.6% of Money Owed F I N L A N D [*] FINLAND: 3,270 Bankruptcy Proceedings Concluded in 2023 [*] FINLAND: 327 Bankruptcy Proceedings Instigated in May 2024 [*] FINLAND: 446 Business Restructuring Petitions Concluded in 2023 F R A N C E EUTELSAT COMMUNICATIONS: Egan-Jones Retains BB+ Sr. Unsec. Ratings G E O R G I A MFO CRYSTAL: Fitch Hikes LongTerm IDR to 'B', Outlook Stable G E R M A N Y ANHEUSER-BUSCH INBEV: Egan-Jones Retains BB+ Sr. Unsecured Ratings KAEFER SE: S&P Upgrades LongTerm ICR to 'BB', Outlook Stable SPEEDSTER BIDCO: Moody's Ups CFR to B2 & 1st Lien Term Loans to B1 TECHEM VERWALTUNGSGESELLSCHAFT: Fitch Gives B+ Rating on Sec. Notes G R E E C E ALPHA BANK: Moody's Ups Rating on Unsecured MTN Program to (P)Ba2 I R E L A N D HARVEST CLO XXXII: S&P Assigns B-(sf) Rating on Class F Notes INVESCO EURO XII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes INVESCO EURO XII: S&P Assigns B-(sf) Rating on Class F Notes JAMES HARDIE: Moody's Alters Outlook on 'Ba1' CFR to Positive JUBILEE CLO 2019-XXIII: S&P Assigns B-(sf) Rating on F-R Notes JUBILEE CLO 2024-XXVIII: S&P Assigns B-(sf) Rating on Cl. F Notes RRE 19: S&P Assigns BB-(sf) Ratings on EUR15 Class D Notes TEXAS DEBT 2024-I: S&P Assigns B-(sf) Rating on Class F Notes TRINITAS EURO VII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes TRINITAS EURO VII: S&P Assigns B-(sf) Rating on Class F Notes I T A L Y ENEL SPA: Egan-Jones Retains BB Senior Unsecured Ratings GOLDEN GOOSE: Fitch Alters Outlook on 'B+' LongTerm IDR to Stable MANUFACTURES DIOR: Put Under Judicial Administration for One Year PRO-GEST SPA: Moody's Cuts CFR to Caa3 & EUR250MM Sr. Notes to Ca K A Z A K H S T A N BASEL INSURANCE: S&P Affirms 'B+' LongTerm ICR, Outlook Stable KASPI BANK: S&P Raises LongTerm ICR to 'BB+', Outlook Stable L U X E M B O U R G SIGNA PRIME: Schoeller Group Takes Over Luxembourg Unit TRINSEO MATERIAL: Calamos CSQ Marks $912,256 Loan at 30% Off TRINSEO MATERIALS: Calamos CCD Marks $193,319 Loan at 30% Off TRINSEO MATERIALS: Calamos CHI Marks $778,403 Loan at 30% Off TRINSEO MATERIALS: Calamos CHW Marks $158,599 Loan at 30% Off TRINSEO MATERIALS: Calamos CPZ Marks $158,599 Loan at 30% Off S P A I N GRIFOLS SA: Fitch Alters Outlook on 'B+' LongTerm IDR to Stable T U R K E Y CUMHURIYETI ZIRAAT: Fitch Affirms 'B' LongTerm IDR, Outlook Pos. TURKIYE HALK: Fitch Keeps 'B-/B+' LongTerm IDRs on Watch Negative TURKIYE VAKIFLAR: Fitch Affirms 'B' LongTerm IDR, Outlook Positive ULKER BISKUVI: S&P Upgrades LongTerm ICR to 'BB', Outlook Stable YAPI KREDI: Fitch Affirms 'BB+' Rating on Debt Classes U N I T E D K I N G D O M AMBER HOLDCO: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable AVON FINANCE 3: Fitch Affirms CCC Rating on Class X Debt BEAUFORT HOUSE: Collapses Into Administration BUSINESS DOCTORS: Goes Into Administration EDENBROOK MORTGAGE: Moody's Assigns (P)Ba1 Rating to Class E Notes NAILSEA ELECTRICAL: Falls Into Administration PROJECT GRAND: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable PUNCH PUBS: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable RAY ACQUISITION: S&P Assigns 'B' ICR, Outlook Stable SHERWOOD PARENTCO: Fitch Lowers LongTerm IDR, Outlook Stable SOUTHERN PACIFIC 06-1: S&P Affirms 'B-(sf)' Rating on E1c Notes SUBSEA 7: Egan-Jones Retains BB+ Senior Unsecured Ratings SUSSEX EXCHANGE: Goes Into Liquidation X X X X X X X X [*] BOOK REVIEW: Taking Charge - - - - - ============= A R M E N I A ============= UNIBANK OJSC: Moody's Alters Outlook on B2 Deposit Ratings to Pos. ------------------------------------------------------------------ Moody's Ratings has affirmed Unibank OJSC's (Unibank) B2 long-term local and foreign currency bank deposit ratings and changed the outlook on these ratings to positive from stable. At the same time, Moody's affirmed the bank's b3 Baseline Credit Assessment (BCA) and Adjusted BCA, NP short-term local and foreign currency bank deposit ratings, the bank's B2/NP long-term and short-term local and foreign currency Counterparty Risk Ratings (CRRs) and the B2(cr)/NP(cr) long-term and short-term Counterparty Risk Assessments (CR Assessments). RATINGS RATIONALE The affirmation of the bank's BCA and Adjusted BCA at b3 and the long-term bank deposit ratings at B2, as well as the change of outlook on the long-term bank deposit ratings to positive from stable, reflect improved quality of the loan portfolio and profitability recently as well as expected further improvement of the bank's standalone credit profile in the next 12-18 months. In 2023 Unibank materially decreased the share of its problem loans and improved provisioning coverage thanks to partial repayments and write-offs of its legacy corporate and retail portfolio. As a result, the problem loan ratio declined to 6.9% as of year-end 2023 from 18.9% at the end of 2022. Meanwhile the coverage of problem loans improved to 53% but remains modest compared to local peers. Moody's expect that Unibank's problem loan ratio will further decline over the next 12-18 months given planned aggressive loan book growth as well as favorable economic conditions that support borrowers' debt-servicing capacity. Unibank also significantly improved its profitability in terms of return on tangible assets to 1.4% in 2023 from 1.1% in 2022. The net financial result of AMD3.9 billion last year was supported by higher net interest income, driven by growth in the loan portfolio. Moody's expect moderation of trading gains through 2024-2025 although the net financial result will be supported by stronger net interest margin (NIM) thanks to loan book expansion and moderate credit costs amid robust economic growth in the next 12-18 months. Unibank's capital adequacy has strengthened over the previous two years, but remains weak compared to local peers with a Tangible Common Equity (TCE)/Risk-Weighted Assets (RWA) ratio of 11.1% as of year-end 2023 up from 10.4% as of year-end 2022. The bank's capital position remains challenged by the existing gap between problem loans and loan loss reserves, as well as aggressive growth plans for the 2024-2025. Moody's expect the bank's capital adequacy will somewhat decrease in the next 12-18 months. Unibank's ample liquidity cushion of 32% of tangible banking assets as of year-end 2023 and its granular funding base and loan portfolio mitigate the risks stemming from its relatively short-term customer funding and potential sudden non-resident deposits outflow, which is not currently expected by us. Unibank's long-term deposit ratings of B2 are based on the bank's BCA of b3 and Moody's assessment of a moderate probability of government support for the bank in the event of need, based on the bank's market share of about 5% in customer deposits and retail deposits, which translates into one notch of rating uplift to Unibank's long-term deposit ratings. The positive outlook on the bank's long-term deposit ratings reflects Moody's expectation of further improvements of the bank's standalone credit profile in the next 12-18 months, in particular, profitability given its recently relaunched business model with more focus on retail lending including mortgages. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The BCA and the long-term bank deposit ratings of Unibank could be upgraded if there is a sufficient track record of consistent improvement in the bank's profitability. The outlook on Unibank's long-term bank deposit ratings could be changed to stable if it fails to improve recurring revenues or contain credit risks stemming from rapid loan portfolio expansion. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks Methodology published in March 2024. =========================== C Z E C H R E P U B L I C =========================== SBERBANK CZ: Creditors Recovers 99.6% of Money Owed --------------------------------------------------- Creditors of the bankrupt Sberbank CZ have received 99.6% of all the money to be paid out through Komercni banka, that is CZK54.5 billion, and 12,145 creditors out of a total of 15,000 came for the payout, which ended on Friday, June 14, Sberbank insolvency administrator Jirina Luzova told CTK According to CTK, Ms. Luzova said most of the claims of the creditors who did not collect their payouts are very low in value. Sberbank CZ was declared bankrupt at the end of August 2022 after the Czech National Bank revoked its banking license in early May, CTK relates. ============= F I N L A N D ============= [*] FINLAND: 3,270 Bankruptcy Proceedings Concluded in 2023 ----------------------------------------------------------- According to Statistics Finland's data, a total of 3,270 bankruptcy proceedings were concluded by courts in 2023. A total of 521 of these ended with certification of the disbursement list, Statistics Finland states. In other cases, bankruptcy proceedings were discontinued at different stages of the bankruptcy proceedings, Statistics Finland notes. [*] FINLAND: 327 Bankruptcy Proceedings Instigated in May 2024 -------------------------------------------------------------- According to Statistics Finland, 327 bankruptcy proceedings were instigated in May 2024, which is 84 more than in the corresponding period one year earlier. The number of staff-years in enterprises that filed for bankruptcy totalled 1,110, which is 135 staff-years more than in May 2023, Statistics Finland discloses. In May 2024, the 12-month moving annual change in instigated bankruptcy proceedings was 17%, Statistics Finland states. In May 2024, the number of instigated bankruptcy proceedings was lowest in the industry of agriculture, forestry and fishery, Statistics Finland notes. Nine bankruptcy proceedings were instigated in the industry, according to Statistics Finland. In May 2024, most bankruptcy proceedings were instigated in the industries of construction and other service activities, Statistics Finland relates. In the industry of other service activities, 122 bankruptcy proceedings were instigated, and in construction 70 bankruptcies, Statistics Finland relays. [*] FINLAND: 446 Business Restructuring Petitions Concluded in 2023 ------------------------------------------------------------------- According to Statistics Finland's data, district courts concluded 446 business restructuring petitions during 2023. This is 113 business restructuring petitions more than in 2022, Statistics Finland states. Of the petitions for restructuring proceedings, the payment schedule was confirmed in 142 cases, Statistics Finland notes. =========== F R A N C E =========== EUTELSAT COMMUNICATIONS: Egan-Jones Retains BB+ Sr. Unsec. Ratings ------------------------------------------------------------------ Egan-Jones Ratings Company, on June 3, 2024, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Eutelsat Communications. Headquartered in Paris, France, Eutelsat Communications own and operates satellites. ============= G E O R G I A ============= MFO CRYSTAL: Fitch Hikes LongTerm IDR to 'B', Outlook Stable ------------------------------------------------------------ Fitch Ratings has upgraded JSC MFO Crystal's Long-Term Issuer Default Ratings (IDR) to 'B' from 'B-'. The Outlook is Stable. KEY RATING DRIVERS The upgrade reflects Crystal's strengthened profitability, supported by its improved net interest margin, good cost control and adequate asset quality. The ratings also factor in Crystal's niche franchise, focused on largely unsecured micro and consumer lending to under-banked borrowers in Georgia, and its reliance on wholesale funding sources. Niche Microfinance Franchise: Crystal has a niche but established franchise among Georgian microfinance lenders (banks and non-banks), with a market share of 12% of loans at end-2023. However, microfinance lending represents a small part of the wider Georgian financial sector, accounting for under 10% of the sector's total loans. Crystal relies on its wide branch network in Georgia's rural areas to provide consumer, micro and agricultural loans to under-banked borrowers, often with informal incomes. Transformation to Micro-Bank: Crystal has applied for a micro-bank license in December 2023 and management expects to obtain it in 3Q24. In its view, obtaining a banking license will be positive for Crystal's funding and liquidity profile as it will provide access to direct funding from the National Bank of Georgia (NBG) and retail deposits in the medium term. Fitch also views more stringent prudential regulation as positive for Crystal's risk profile and corporate governance. Acceptable Asset Quality: Impaired (Stage 3 under IFRS 9) loans accounted for 3.8% of gross loans at end-2023 (slightly up from 3.2% at end-2021), while loans overdue by 30 days or more plus restructured and written-off loans were just under 8% at end-April 2024. Impaired loan origination (defined as an increase in Stage 3 loans plus write-offs, divided by average performing loans) was 4.2% in 2023, which Fitch deems acceptable for Crystal's business model. Coverage of impaired loans by loans loss allowances declined to 78% at end-2023 (end-2022: 95%), which Fitch still considers adequate, given availability of collateral for some exposures and recovery assumptions. Higher Loan Yields; Cost Control: Profitability improved in 2023 with a pre-tax income/average assets ratio of 3.7%, compared with 1.8% in 2022. This was largely due to strengthened loan yields and well-controlled operating expenses, with Crystal's cost/income ratio improving to 68.5% in 2023 (2022: 77.6%). Pre-impairment profitability strengthened to 6.2% of average loans in 2023, while loan impairment charges remained well contained at 2.2% of gross loans. Adequate Capitalisation: Crystal's gross debt/tangible equity ratio was 5.1x at end-2023, comparing well with peers. Its total capital ratio improved to 19.8% at end-April 2024, supported by an additional issuance of subordinated debt, translating into moderate headroom above the minimum requirement of 18%. Fitch expects Crystal to maintain reasonable headroom above regulatory requirements. Wholesale Funding: Crystal is reliant on wholesale funding sources, including loans from international financial institutions (62% of funding at end-4M24), local banks (32%), and to a lesser extent, bonds and promissory notes (6% combined). Obtaining a banking license would provide Crystal with access to NBG funding and the possibility of raising deposits. However, Fitch expects Crystal will remain largely wholesale-funded as its retail deposit franchise will be only gradually developed. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Pressures on profitability, including from higher loan impairment charges, narrower net interest margin or increased operating expenses, with pre-tax income below 2% of average assets on a sustained basis. Materially higher leverage with gross debt/tangible equity above 7x, or maintaining only thin headroom above regulatory capital requirements, or evidence of funding access pressures. A marked deterioration of asset quality or risk appetite, including from an increase in unreserved impaired loans relative to tangible equity. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Materially increased business scale and diversification, without compromising risk profile and asset quality. More diversified funding profile by sources, including a material share of retail deposits in the funding mix. ESG CONSIDERATIONS JSC MFO Crystal has an ESG Relevance Score of '4[+]' for Exposure to Social Impacts due to its business model being focussed on lending to under-banked population in rural areas, as well as social-focused lending, e.g. to women-owned businesses. Its positive social impact facilitates Crystal's access to funding from IFIs. This has a positive impact on its credit profile and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- JSC MFO Crystal LT IDR B Upgrade B- ST IDR B Affirmed B LC LT IDR B Upgrade B- LC ST IDR B Affirmed B ============= G E R M A N Y ============= ANHEUSER-BUSCH INBEV: Egan-Jones Retains BB+ Sr. Unsecured Ratings ------------------------------------------------------------------ Egan-Jones Ratings Company, on June 5, 2024, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Anheuser-Busch InBev NV. Headquartered in Belgium, Germany, Anheuser-Busch InBev NV brews beer. KAEFER SE: S&P Upgrades LongTerm ICR to 'BB', Outlook Stable ------------------------------------------------------------ S&P Global Ratings raised its long-term issuer credit rating on Germany-based Kaefer SE & Co. KG (Kaefer) to 'BB' from 'BB-' and its issue rating on the term loan, accordingly. The stable outlook is based on S&P's expectation that Kaefer will maintain an EBITDA margin of more than 7%, an FFO-to-debt ratio comfortably above 30%, and robust positive free cash flow generation. S&P said, "We expect Kaefer's operating performance to benefit from favorable end-market development and profitability enhancement measures. Oil and gas customers are the group's most important end-market. Kaefer benefits from increasing investments in liquefied natural gas (LNG) infrastructure and higher production in the Middle East, Asia-Pacific, and Norway. Prominent examples of major contracts won include a long-term maintenance contract in Qatar, the largest LNG exporter in the world, and the Gladstone LNG maintenance contract in Australia, among others. Order intake has grown to EUR2,630 million over the last 12 months, bringing order backlog to EUR2,777 million as of end of March 2024, providing sound visibility on revenue development for the next 12-18 months. At the same time, we expect the recently acquired Brazil-based Teckma Group and TestTorque Engineering to positively contribute to the company's sales, allowing it to establish a presence in the market and gain new orders starting from 2024. We forecast Kaefer's revenue will significantly increase to about EUR2.6 billion by 2025 (also driven by EUR75 million of acquisition spending annually in 2024 and 2025). This follows broadly flat revenues in 2024 because a few major projects will be completed. We also note that performance in 2023 was negatively affected by one-off operational challenges, including strikes in France and the closure of sites in Germany. Upon entering a partnership with SMS Group and private-equity owner Altor, Kaefer is focusing on internal operational efficiency measures--like overhead optimization--that should help mitigate such operational setbacks going forward. We anticipate that Kaefer will enjoy positive scale effects from growing volumes, both organically and externally, over the next two years. Therefore, we forecast S&P Global Ratings-adjusted EBITDA margin to increase by about 70 basis points (bps) in 2024 reaching 8% and a further 30 bps in 2025 to more than 8%." Kaefer's free cash flow potential has materially improved, but growth-related working capital and capital expenditure (capex) investments weigh on FOCF generation. Improved operating performance allows the company to reach 8% of S&P Global Ratings-adjusted EBITDA margin in 2024, compared with the historic average of 5.9%. The company's sustained earnings growth is a key driver for a better free cash flow generation. The company generated about EUR50 million of S&P Global Ratings-adjusted free operating cash flow (FOCF) in 2023, from negative EUR12 million in 2022 which was affected by high working capital investments of EUR55 million. S&P said, "We understand working capital requirements are about 15% of revenues, which moderates FOCF in a period of strong organic growth. Additionally, capex amounted to about 3.3%--approximately half is directed to scaffolding equipment which is growth-related and which the company can cut during periods of operating setbacks. Nevertheless, we anticipate a solid adjusted FOCF generation of more than EUR50 million in 2024, and more than EUR30 million in 2025 because we expect stronger organic growth. We estimate stable dividend payments and only moderate spending on acquisitions of EUR150 million over the next 24 months. We also forecast S&P Global Ratings-adjusted debt to remain between EUR200 million and EUR300 million, only slightly changed from the EUR192.6 million in 2023. Therefore, we estimate that the S&P Global Ratings-adjusted FFO-to-debt ratio will remain strong at about 50% in the next two years (on the back of enhanced earnings and little changed indebtedness)." The conservative financial policy supports the rating. The partnership with SMS Group and Altor does not alter Kaefer's financial policy and is aligned with the strategic interests of the company, namely external growth via acquisitions and the focus on operational improvement. Currently, Kaefer targets a conservative net debt to EBITDA of less than 1.0x on a reported basis (with a maximum 1.5x leverage tolerance), which corresponds to the S&P Global Ratings-adjusted FFO to debt of at least 30% and in line with the 'BB' rating. As of Dec. 31, 2023, reported net leverage stands at about 0.3x. S&P said, "We view the partnership as credit positive due to the company's stronger balance sheet and improved financial headroom. We understand the recent acquisition of Teckma Group was financed with the company's own cash. We anticipate that the group will prioritize internal investments over returning capital to shareholders and external growth in the next few years." S&P said, "The stable outlook reflects our expectations that Kaefer will continue to strengthen its operations in its core end-markets in the next 12-18 months, supported by inorganic growth and increasing the scale of its operations. This will allow Kaefer to improve its cost structure and increase its EBITDA margin to about 8%, as well as maintain an FFO-to-debt ratio of comfortably above 30% and robust positive FOCF generation. "We could lower the rating if the company's operating and financial performance did not improve as expected, for example, because of a pronounced dent in profitability from the uncertain economic environment or individual end-markets." S&P could also lower the rating if: -- S&P considered the company unlikely to maintain an adjusted FFO-to-debt ratio of at least 30% on a sustainable basis; -- The company posted materially lower cash generation than S&P currently expect; -- The EBITDA margin fell below 7%; or -- The group adopted a more aggressive financial policy, or if the ownership structure changed, leading to a higher influence of the private-equity owner Altor. S&P could raise the rating if: -- The company materially gained in scale and scope, and further sustainably improved its EBITDA margins; -- The FFO-to-debt ratio stays sustainably above 45% supported by an even more conservative financial policy; and -- S&P observed stronger free cash flow generation, translating into FOCF to debt above 25% on a sustainable basis. SPEEDSTER BIDCO: Moody's Ups CFR to B2 & 1st Lien Term Loans to B1 ------------------------------------------------------------------ Moody's Ratings has upgraded to B2 from B3 the long term corporate family rating and to B2-PD from B3-PD the Probability of Default Rating of Speedster Bidco GmbH, the owner of AutoScout24 ("AS24"), a leading European online car classifieds provider. Concurrently, Moody's have upgraded to B1 from B2 the rating on the senior secured first lien term loans and the senior secured first lien revolving credit facility (RCF), and to Caa1 from Caa2 the rating on the EUR225 million senior secured second lien term loan rating, all borrowed by Speedster Bidco GmbH. The outlook remains stable. "The rating upgrade reflects AutoScout24's increased scale and diversification since the initial rating assignment, as well as its strong operating performance which has resulted in significant leverage reduction" says Agustin Alberti, a Moody's Ratings Vice President - Senior Analyst and lead analyst for AS24. RATINGS RATIONALE AutoScout24's scale and diversification has increased since the initial rating assignment in 2020, supported by strong organic growth as well as the successful integration of LeasingMarkt.de GmbH (LeasingMarkt) and Auction Group A/S (AutoProff), two assets acquired in 2020 and 2022, respectively. Moody's expect AS24 to maintain a strong operating performance over the next 12-18 months, with organic revenue growth slightly above 10% (was 20% in 2023) from a combination of price increases, strong car leasing demand and continued recovery in listings (which still remain below 2019 levels in some markets) and advertising. The company also keeps investing in its platforms and products to enhance user experience, and increase engagement and leads, which are key to support growth. Moody's project gross revenues of EUR405 million in 2024 (compared to EUR363 million in 2023) and EUR425 million in 2025. Moody's estimate that the company will achieve a Moody's adjusted EBITDA of EUR205 million in 2024 (compared to around EUR190 million in 2023) and around EUR220 million in 2025, with its Moody's adjusted EBITDA margin remaining at a very solid level of around 50%. Moody's therefore expect that Moody's-adjusted gross debt/EBITDA ratio will improve to 6.2x in 2024 (from 6.8x in 2023) and to 5.8x in 2025. Moody's base case scenario does not factor in any distribution to shareholders or large debt-financed acquisitions. Moody's forecast AS24's annual FCF (as adjusted by Moody's) will be around EUR50 million - EUR60 million in 2024 and 2025, with FCF/debt in the mid digit rate. Free cash flow generation is supported by AS24 high margins and low capital spending requirements, despite high interest rates with only a portion of its debt being hedged. This strong FCF generation has allowed the company to repay the EUR57.7 million put option related to LeasingMarkt, without drawing under the RCF. AutoScout24's ratings are supported by (1) the company's established brand and good position in the automotive online classified marketplace in Germany, Italy, the Netherlands, Belgium, and Austria, (2) its large customer base with low churn rates, (3) the high level of recurring subscription-based revenues which supports revenue visibility, and (4) its high margins and asset light business model resulting in solid free cash flow (FCF) generation. Conversely, the ratings are constrained by (1) the company's narrowly-focused business, (2) the highly competitive environment and embedded threat of new disruptive technologies and business models, (3) the exposure to the cyclical automotive sector and discretionary marketing spending of the dealers, and (4) the company's track record of debt-funded acquisitions. LIQUIDITY AutoScout24's liquidity is adequate supported by (1) cash and equivalents of EUR32.4 million as of March 2024; (2) Moody's projected annual FCF of around EUR50 million - EUR60 million, and (3) the EUR83.5 million undrawn RCF that matures in September 2026. The RCF is subject to a net leverage springing covenant of 10.5x, with ample headroom at closing, tested only in case the RCF is drawn by more than 50%. STRUCTURAL CONSIDERATIONS The capital structure of Speedster Bidco GmbH primarily consists of a EUR927.5 million senior secured first lien term loan due in March 2027, a EUR225 million senior secured second lien term loan due in March 2028, a EUR85 million additional senior secured first lien term loan due in March 2027, and a EUR83.5 million senior secured first lien revolving credit facility due in September 2026. The collateral package includes certain share pledges, intercompany receivables and bank accounts. The guarantor coverage is set at a minimum level of 80% of consolidated EBITDA. The B2-PD probability of default rating is at the same level as the long term corporate family rating reflecting the use of a 50% recovery rate as typical for these structures. The senior secured first lien term loan, the additional senior secured first lien term loan and the senior secured first lien revolving credit facility are rated one notch higher than the corporate family rating at B1, while the senior secured second lien term loan is rated at Caa1 reflecting their subordinated position in the capital structure. RATING OUTLOOK The stable outlook reflects Moody's expectation that AutoScout24 will maintain its current market positioning, with no major disruption in the current competitive environment, while the company will continue to reduce leverage and follow a disciplined capital allocation policy. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The rating could be upgraded if (1) the company further grows its scale and diversification, (2) continues to report steady revenue growth while maintaining high margins and leading market shares, (3) maintains at least adequate liquidity, and (4) improves its credit metrics on a sustainable basis such that its Moody's-adjusted debt/EBITDA ratio remains below 5.0x, and its FCF/ Debt ratio (Moody's adjusted) improves towards 10%. Negative rating pressure could develop should (1) the company's competitive profile weaken, for example, as a result of a material erosion in the company's market share, (2) its Moody's-adjusted debt/EBITDA ratio remains sustainably above 6.25x and its FCF turns negative, or (3) the company fails to address its refinancing needs well in advance or its liquidity weakens. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Services published in November 2021. COMPANY PROFILE Founded in 1998, AutoScout24 is the largest online car market in Europe, offering private customers, dealers and manufacturers a comprehensive platform for online car trading. The company has leading market position in Germany, Italy, the Netherlands, Belgium and Austria. AutoScout24 also operates in Spain, Luxembourg and France and offers local language versions in 11 additional countries. The company has also presence in Denmark, Norway, Sweden through AutoProff. In 2023, the company reported EUR363 million of revenues and EUR180 million of company adjusted EBITDA. The company is owned by funds advised by Hellman & Friedman since 2020. TECHEM VERWALTUNGSGESELLSCHAFT: Fitch Gives B+ Rating on Sec. Notes ------------------------------------------------------------------- Fitch Ratings has assigned Techem Verwaltungsgesellschaft 674's (B/Stable) EUR1.850 billion term loan B (TLB) and EUR500 million new senior secured notes (SSNs) - both issued by Techem Verwaltungsgesellschaft 675 mbH's - final long-term ratings of 'B+' with a Recovery Rating of 'RR3'. The proceeds of both issuance were used to address its 2025 senior secured debt maturities. The final ratings are in line with the expected ratings Fitch assigned to the TLB and to the new SSNs on 7 February 2024 and 8 April 2024, respectively (see Fitch Affirms Techem's IDR at 'B' on TLB Amendment and Extension and Fitch Assigns Techem's Proposed Senior Secured Notes 'B+(EXP)' Rating). The terms of the both instruments conform to the information already received. Techem's IDR and Stable Outlook mainly reflect its robust operating performance, which Fitch expects to continue through to FY26 (year-end September). This should result in EBITDA leverage gradually decreasing to below its positive sensitivity for a 'B' rating in the sector by FY26. Fitch expects Techem's free cash flow (FCF) to be only marginally negative for FY24-FY28 due to high capex and increased interest expenses and working capital outflows. The 'B+' rating of EUR1.145 billion TLB due 2025 is withdrawn due to its repayment under the amend-and-extend TLB. KEY RATING DRIVERS Senior Secured Debt Refinanced: The proceeds from both the EUR1.850 billion TLB and the SSNs have been used to address the upcoming maturities of the EUR1.145 billion TLB and EUR 1.145 billion SSNs, both due in 2025. This will leave only EUR359 million of the not tendered 2025 SSNs outstanding, which will be repaid on 17 April 2025 (the related cash for repayment is held in an escrow account). The refinancing has extended the maturity of a large part of Techem's debt to 2029. The transaction is overall neutral to leverage. Techem has not refinanced its EUR364 million senior unsecured notes due in 2026, which will now mature before the secured debt. Adequate Coverage Ratios: Despite higher interest as a result of the amend-and-extend of the TLB and the new SSNs, EBITDA interest coverage will retain comfortable rating headroom. The metric should improve towards the upper end of the band for the 'B' rating from 2026, on an expected decrease in the base rate. The increase in interest expense was not as material as Fitch had anticipated at the outset of the refinancing, resulting in only marginally negative FCF margins of 0.5%-1.5% until 2027. Margin Expansion Leads Deleveraging: Techem's Fitch-adjusted EBITDA leverage improved to 6.4x in FY23 (adjusted for one-off severance costs) from 7.4x in FY21. This was mainly driven by an improvement in EBITDA, reflecting price increases, new product launches and cost-saving measures. EBITDA growth should allow the company to further deleverage to within its rating sensitivities by FY26. Techem's leverage may, however, come under pressure again from higher-than-expected drawdowns under its revolving credit facility (RCF), for example to finance its growth ambitions. Capex Weighs on FCF: Fitch expects Techem to invest EUR200 million a year for FY24-FY26 in its energy sub-metering and energy contracting businesses. This, together with expected interest cost increases, will drive FCF generation mildly negative. However, Fitch assumes capex to be partially discretionary, leaving the company room to scale back or postpone part of the expenses. Upside to its FCF expectations could be driven by capex savings or refinancing of the senior unsecured debt at better terms than currently anticipated. This may include a refinancing of the outstanding senior unsecured notes with senior secured debt. Continued Strong Operating Performance: In FY23, Techem's revenue increased 12.5%, driven by higher billing and rental revenue in Germany and abroad, new product launches, as well as pass-through of higher energy prices in energy contracting. Fitch-defined EBITDA increased 6.6% year-on-year, which Fitch adjusted for unusually high severance costs in FY23. In 1H24, Techem's reported EBITDA increased 11% while revenue rose only 3%, which was mainly driven by higher billing and rental revenues in energy services and higher margins in energy-efficiency solutions. High Non-Recurring Costs to Reduce: Fitch has adjusted Techem's FY23 and FY22 EBITDA for around EUR17 million of one-off costs. An extra EUR20 million of one-off severance costs was recognised by Fitch for FY23. The costs are non-recurring and relate to the Energize-T and operational excellence cost-saving programmes. Fitch expects this amount to be around EUR17 million per year over FY24-FY25, and to gradually decline year-on-year to FY27. Infrastructure-Driven Value Proposition: Fitch expects Techem's medium-term strategy to target wider coverage of dwellings in Germany and abroad and to focus on higher-value cash-generative segments in an adverse interest-rate environment. Together with technological upgrades to smart readers and product expansions, this may lead to higher cost efficiencies, potentially covering the full energy value chain for homes. Fitch believes that Techem shareholders see more value enhancement in infrastructure development, over maximising cash flow generation in the short term. Favourable Operating Environment: The adoption of sub-metering is supported by the EU Energy Efficiency Directive. However, adoption by member states within the EU is slow and affects the timing of revenue expansion for operators like Techem. Stricter market regulations may require additional investments, including potential technical enhancements to allow inter-operability. Despite the risk of stricter regulation, Fitch views Techem's operating environment as stable and supportive in the medium term. DERIVATION SUMMARY Techem's business profile is similar to infrastructural and utility-like peers and corresponds to the 'BBB' category. It has proved resilient through the pandemic and has shown stable performance through the cycle. It is constrained by high gross leverage and pressured FCF generation. Compared with smaller sub-metering peers within its private rating coverage, Techem has a stronger business profile but also higher gross debt. Its focus on the expansion of its smart reader network lends itself to comparison with pure telecommunication networks, such as Cellnex Telecom S.A. and Infrastrutture Wireless Italiane S.p.A. (both BBB-/Stable) and TDC NET A/S (BB/Stable). These entities have comparable leverage, and their high capex is demand-driven and led by infrastructural expansion, as is most of Techem's. However, their sector, scale and tenant stability provide for a higher debt capacity. Techem is also comparable with highly-leveraged business services operators, such as Nexi S.p.A. (BB+/Stable), which has a similar billing model on a wide portfolio of customers in a favourable competitive environment. Fitch believes Nexi's secular growth prospects are stronger than Techem's. Nexi also has lower leverage and higher FCF conversion. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer -Revenue CAGR of 4% for FY23-FY26 - EBITDA margins, adjusted for non-recurring expenses, improving to over 44% by FY26, driven by growth in digital services, price revisions and cost-efficiency programmes - Capex on average at about 18% of revenue a year until FY26 - M&A averaging around EUR47 million a year up to FY26 - No dividend payments in line with stated financial policy - Refinancing of all debt in 2024, with the effective interest rate increasing towards 6.5%-7.0% post-refinancing RECOVERY ANALYSIS Key Recovery Assumptions The recovery analysis assumes that Techem would be reorganised as a going concern in bankruptcy rather than liquidated, based on its strong cash flow generation through the cycle and asset-light operations. Its installed base and contractual portfolio are key intangible assets of the business, which are likely to be operated post-bankruptcy by competitors with higher cost efficiency. Fitch has assumed a 10% administrative claim. Fitch estimates a going-concern EBITDA of about EUR275 million, unchanged from the last review. At this level of EBITDA, Fitch expects Techem to generate mildly positive FCF after corrective measures are taken, in particular on central costs and capex, in response to financial distress. Fitch assumes a distressed multiple of 7.0x, considering Techem's stable business profile and comparing it with similarly cash-generative peers with infrastructure and utility-like business models. Its debt waterfall includes a fully drawn upsized RCF of EUR398 million. This results in ranked recoveries of 63% in the 'RR3' band for the senior secured debt with the senior unsecured notes ranking 'RR6' with 0% recovery. RATING SENSITIVITIES Factors That Will, Collectively or Individually, Lead to Positive Rating Action/Upgrade: - EBITDA leverage below 6.0x on a sustained basis - EBITDA interest coverage trending to or above 3.0x - Ongoing commitment to financial policy of zero dividends or no debt-funded M&A - FCF trending towards neutral to positive territory Factors That Will, Collectively or Individually, Lead to Negative Rating Action/Downgrade: - EBITDA leverage above 7.0x with no sign of deleveraging - EBITDA interest coverage trending to or below 2.0x on a sustained basis - Departure from financial policy of debt reduction, zero dividends or no debt-funded M&A activity - Reduced EBITDA leading to an inability to return to positive FCF on a sustained basis - Evidence of deterioration in refinancing conditions or opportunities LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Fitch assesses Techem's liquidity as satisfactory. It had a cash balance of about EUR48 million at end-March 2024 and EUR30 million drawn out of its upsized RCF of EUR398 million. Techem uses its RCF during the year to finance intra-year working capital swings. Fitch restricts Techem's cash by EUR20 million, the estimated minimum operating cash. ISSUER PROFILE Techem is a German-based heat and water sub-metering services operator active in submetering installation and services in Europe. The company also has a presence in energy contracting. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS Techem has an ESG Relevance Score of '4[+]' for Energy Management due to the company's role in energy efficiency initiative as a metering service provider, which is one of the drivers of demand for its service in its key markets of operations. This has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Techem has an ESG Relevance Score of '4[+]' for GHG Emissions & Air Quality as the company provides solutions to optimise energy costs, increase energy efficiency and minimise CO2 emissions. This has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are creditneutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Techem Verwaltungsgesellschaft 675 mbH senior secured LT B+ New Rating RR3 B+(EXP) senior secured LT WD Withdrawn B+ =========== G R E E C E =========== ALPHA BANK: Moody's Ups Rating on Unsecured MTN Program to (P)Ba2 ----------------------------------------------------------------- Moody's Ratings has upgraded the long- and short-term deposit ratings of Alpha Bank S.A. (Alpha Bank) to Baa3/P-3 from Ba1/NP, its long-term senior unsecured rating by two notches to Baa3 from Ba2, as well as the standalone Baseline Credit Assessment (BCA) and Adjusted BCA of the bank to ba2 from ba3. The bank's long- and short-term Counterparty Risk Ratings (CRR) were upgraded to Baa2/P-2 from Baa3/P-3 and its long- and short-term Counterparty Risk Assessments (CR Assessment) were affirmed at Baa3(cr)/P-3(cr), while its long-term junior senior unsecured (senior non-preferred) MTN program ratings were upgraded to (P)Ba2 from (P)Ba3, the senior unsecured MTN program ratings were upgraded to (P)Baa3 from (P)Ba2 and the subordinated (Tier 2) MTN program ratings were upgraded to (P)Ba2 from (P)B1. In addition, Alpha Services and Holdings S.A.'s long-term issuer ratings were upgraded to Ba2 from Ba3, as well its senior unsecured MTN program ratings were upgraded to (P)Ba2 from (P)Ba3. In addition, the holding company's long-term junior senior unsecured (senior non-preferred) MTN program ratings were upgraded to (P)Ba2 from (P)Ba3, while its subordinated (Tier 2) debt rating was upgraded to Ba2 from B1, and its subordinate MTN program ratings were also upgraded to (P)Ba2 from (P)B1. The holding company's preferred stock non-cumulative (Additional Tier 1 notes) rating was upgraded to B2 (hyb) from B3 (hyb). The outlook for the senior unsecured debt and long-term deposit ratings of Alpha Bank remains positive following its ratings upgrade, as well as the outlook for the holding company's long-term issuer ratings remains positive. RATINGS RATIONALE BCA UPGRADE DRIVEN BY IMPROVING FINANCIAL PERFORMANCE AND SUSTAINABLE EARNINGS GOING FORWARD The BCA of Alpha Bank was upgraded to ba2 from ba3, considering the bank's further progress in reducing its nonperforming exposures (NPE) to 6% of gross loans in March 2024 from 7.6% in March 2023. Although this ratio is still higher than its local peers, Moody's recognize that around half of Alpha Bank's stock of legacy NPEs are residential mortgages, with good collateral value in place. Moody's rating action also takes into account the bank's plans to further improve its asset quality by decreasing its NPE ratio to lower than 4% by the end of 2026. The bank's BCA upgrade also captures its improving recurring earnings profile, its lower cost base and Moody's expectation for sustainable earnings going forward, especially amid a normalised interest rate environment. Moody's also expect gradual benefits for the bank in its asset management and bancassurance business supporting its non-interest income, from its recent commercial partnership with UniCredit S.p.A (BCA of baa3, long-term deposits of Baa1 stable). This improving financial performance has enhanced the bank's solvency with a pro-forma common equity Tier 1 (CET1) ratio of 16.2% in March 2024, incorporating the sale of a majority stake in its Romanian subsidiary to UniCredit that is expected to be completed by year-end. Alpha Bank expects to further increase its CET1 ratio towards 17.5% by the end of 2026 based on its business plan, incorporating potential dividend payments with the first one commencing this year. Nonetheless, Moody's still believe that the quality of this capital is undermined by the high level of deferred tax credits (DTCs), which comprised around 54% of the bank's CET1 capital as of March 2024 and is common feature among Greek banks. The bank's BCA upgrade also considers its comfortable liquidity with a Moody's-adjusted liquid banking assets over tangible banking assets of approximately 26% in 2023, and a liquidity coverage ratio (LCR) of 186% combined with loans-to-deposits ratio of 77% in March 2024. Concurrently, Alpha Bank's funding profile and capacity has improved further with a Moody's-adjusted market funds over tangible banking assets of around 13.6% in 2023 from 22.5% in 2022, following significant repayment of its ECB funding to EUR5 billion in 2023 from EUR13 billion in 2022, and further reduction to EUR4 billion in March 2024. LGF ANALYSIS POINTS TO LOWER LOSSES FOR SENIOR DEBT CREDITORS Alpha Bank's long-term deposit ratings were upgrade to Baa3 from Ba1 due to the BCA upgrade, and are positioned two notches above its BCA indicating very low losses in a resolution scenario based on Moody's Advanced Loss Given Failure (LGF) analysis. The bank's long-term senior unsecured debt rating was upgraded by two notches to Baa3 from Ba2, driven by the BCA upgrade and also from the rating agency's LGF analysis that points to lower losses than before. Based on its funding plans, Moody's expects Alpha Bank to issue sufficient bail-in-able instruments to meet its minimum requirement for own funds and eligible liabilities (MREL) by the end of 2025 (27.96%), which will provide ample loss absorbing cushion to senior creditors and depositors. The bank's MREL ratio was at 25.73 % in March 2024, well above both the interim non-binding targets of 2024 (22.51 %) and 2025 (25.24%). POSITIVE RATING OUTLOOK MAINTAINED The positive outlook on the long-term deposit and senior unsecured ratings is maintained, reflecting Moody's expectation that Alpha Bank will continue to improve its credit profile in the next 12-18 months. The bank is likely to increase further its earnings and capital levels, and will reduce its problem loans ratio, although at a slower pace than before. These factors exert upward pressure on the bank's BCA (ba2), which is still positioned one notch lower than the Government of Greece rating (Ba1 stable). FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The deposit and senior debt ratings could be upgraded if there is any further improvement in the bank's asset quality and profitability, while it maintains solid capital metrics and complies with its MREL requirements. These trends will improve its solvency and loss absorbing capacity. Given the current positive outlook on the long-term deposit and senior unsecured ratings, a downgrade is unlikely at this point. However, Alpha Bank's ratings could be downgraded in the event of a sharp increase in its new NPEs formation, without any significant improvement in its recurring profitability. Any deterioration in the operating environment will also exert downward pressure on the bank's ratings. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks Methodology published in March 2024. ============= I R E L A N D ============= HARVEST CLO XXXII: S&P Assigns B-(sf) Rating on Class F Notes ------------------------------------------------------------- S&P Global Ratings assigned credit ratings to Harvest CLO XXXII DAC's class A to F European cash flow CLO notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes pay quarterly interest unless a frequency switch event occurs. Following this, the notes will permanently switch to semiannual payments. The portfolio's reinvestment period will end in December 2028, while the non-call period will end in March 2026. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with S&P's counterparty rating framework. Portfolio benchmarks CURRENT S&P weighted-average rating factor 2,806.65 Default rate dispersion 441.94 Weighted-average life including reinvestment (years) 4.92 Obligor diversity measure 123.24 Industry diversity measure 19.01 Regional diversity measure 1.28 Transaction key metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.00 Target 'AAA' weighted-average recovery (%) 37.13 Target weighted-average spread (net of floors; %) 4.04 Target weighted-average coupon (%) 4.29 S&P said, "The portfolio is ramped up by EUR475.65 million of assets versus the target par of EUR500 million. The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR500 million target par amount, the covenanted weighted-average spread (4.04%), and the covenanted weighted-average coupon (4.00%) as indicated by the collateral manager. We have assumed the covenanted weighted-average recovery rate (36.75%) at the 'AAA' rating level and the actual targeted weighted-average recovery rates at all other rating levels, as indicated by the collateral manager. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Our credit and cash flow analysis show that the class B to F notes benefit from break-even default rate and scenario default rate cushions that we would typically consider to be in line with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings on the notes. The class A notes can withstand stresses commensurate with the assigned rating. "Until the end of the reinvestment period, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, if the initial ratings are maintained. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "The transaction's legal structure and framework are bankruptcy remote, in line with our legal criteria. "The operational risk associated with key transaction parties (such as the collateral manager) that provide an essential service to the issuer is in line with our operational risk criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for the class A to F notes. "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category--and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met--we have not included the above scenario analysis results for the class F notes." Environmental, social, and governance S&P said, "We regard the exposure to ESG credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. "Since the exclusion of assets from certain industries such as controversial weapons; nuclear weapon programs; illegal drugs or narcotics etc. does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings list BALANCE CREDIT CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§ A AAA (sf) 306.50 38.70 Three/six-month EURIBOR plus 1.45% B AA (sf) 53.50 28.00 Three/six-month EURIBOR plus 2.05% C A (sf) 35.00 21.00 Three/six-month EURIBOR plus 2.50% D BBB- (sf) 32.50 14.50 Three/six-month EURIBOR plus 3.60% E BB- (sf) 22.50 10.00 Three/six-month EURIBOR plus 6.62% F B- (sf) 16.25 6.75 Three/six-month EURIBOR plus 8.24% Sub. Notes NR 44.60 N/A N/A *The ratings assigned to the class A and B notes address timely interest and ultimate principal payments. The ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. INVESCO EURO XII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes ------------------------------------------------------------------ Fitch Ratings has assigned Invesco Euro CLO XII DAC final ratings. Entity/Debt Rating Prior ----------- ------ ----- Invesco Euro CLO XII DAC Class X XS2821782229 LT AAAsf New Rating AAA(EXP)sf Class A-1 XS2821782732 LT AAAsf New Rating AAA(EXP)sf Class A-2 XS2821782906 LT AAAsf New Rating AAA(EXP)sf Class B XS2821783466 LT AAsf New Rating AA(EXP)sf Class C XS2821783540 LT Asf New Rating A(EXP)sf Class D XS2821784191 LT BBB-sf New Rating BBB-(EXP)sf Class E XS2821784274 LT BB-sf New Rating BB-(EXP)sf Class F XS2821784357 LT B-sf New Rating B-(EXP)sf Subordinated Notes XS2821786568 LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Invesco Euro CLO XII DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds were used to fund a portfolio with a target par of EUR400 million that is actively managed by Invesco CLO Equity Fund IV LP. The CLO has a 4.5-year reinvestment period and a 7.5-year weighted average life (WAL). The transaction can extend the WAL by one year on the step-up date, one year after closing and subject to conditions. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor of the identified portfolio is 24.3. High Recovery Expectations (Positive): At least 90% of the portfolio comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate of the identified portfolio is 63.2%. Diversified Portfolio (Positive): The transaction includes two Fitch matrices effective at closing with a maximum 7.5-year WAL test. They all correspond to a top 10 obligor concentration limit at 25% and fixed-rate asset limits of 5% and 10%. The transaction also includes various concentration limits, including the maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. WAL Step-Up Feature (Neutral): The WAL test covenant can step up one year on the first anniversary of the closing date, subject to all tests being passed and the aggregate collateral balance (defaults at Fitch-calculated collateral value) being no less than the reinvestment target par balance. Portfolio Management (Neutral): The transaction has a 4.5 year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash-flow Modelling (Positive): The WAL used for the transaction's Fitch-stressed portfolio analysis is 12 months shorter than the WAL covenant. This reflects the strict reinvestment criteria after the reinvestment period, which includes satisfaction of Fitch 'CCC' limitation and coverage tests, as well as a WAL covenant that steps down linearly over time. In Fitch's opinion, these conditions reduce the effective risk horizon of the portfolio during stress periods. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) at all rating levels in the identified portfolio by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels would have no impact on the class A-1, A-2, C and D notes, lead to downgrades of one notch for the class B and E notes, and to below 'B-sf' for the class F notes. 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. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio as well as the model-implied rating (MIR) deviation, the class B, D and E notes display a rating cushion of two notches, and the class C and F notes of three notches. There is no rating cushion for the class A-1 and A-2 notes. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of three notches for the class A-1, C and D notes, four notches for the class A-2 notes, and to below 'B-sf' for the class E and F notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction of the RDR at all rating levels in the Fitch-stressed portfolio by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels would result in upgrades of up to three notches for all notes, except the class A-1 and A-2 notes, which are rated at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may 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 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 Invesco Euro CLO XII 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. INVESCO EURO XII: S&P Assigns B-(sf) Rating on Class F Notes ------------------------------------------------------------ S&P Global Ratings assigned its credit ratings to Invesco Euro CLO XII DAC's class X, A-1, A-2, B, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes pay quarterly interest unless a frequency switch event occurs, upon which the notes pay semiannually. This transaction has a 1.6-year non-call period, and the portfolio's reinvestment period will end approximately 4.6 years after closing. The ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. Portfolio benchmarks CURRENT S&P Global Ratings weighted-average rating factor 2,893.49 Default rate dispersion 612.36 Weighted-average life (years) including reinvestment period 4.55 Weighted-average life (years) excluding reinvestment period 4.29 Obligor diversity measure 103.41 Industry diversity measure 25.06 Regional diversity measure 1.18 Transaction key metrics CURRENT Total par amount (mil. EUR) 400.00 Defaulted assets (mil. EUR) 0 Number of performing obligors 128 Portfolio weighted-average rating derived from our CDO evaluator B 'CCC' category rated assets (%) 3.45 'AAA' target portfolio weighted-average recovery (%) 37.04 'AAA' portfolio weighted-average recovery (%) – identified pool 37.17 'AAA' portfolio weighted-average recovery (%) – modeled 36.04 Modeled weighted-average spread (%) 3.90 Actual weighted-average spread (%) – Identified pool 4.19 Modeled weighted-average coupon (%) 5.00 Rating rationale S&P said, “Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. In line with our closing analysis, we consider that the portfolio will primarily comprise broadly syndicated speculative-grade senior secured term loans and senior secured bonds on the effective date. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR400 million par amount, the covenanted weighted-average spread of 3.90%, the covenanted weighted-average coupon of 5.00%, the covenanted portfolio weighted-average recovery rates at 'AAA' and actuals for all other rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category." The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our counterparty criteria S&P said, "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "The operational risk associated with key transaction parties (such as the collateral manager) that provide an essential service to the issuer is in line with our operational risk criteria. "Our credit and cash flow analysis indicate that the available credit enhancement for the class B to E notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we capped our ratings on the notes. The class X, A-1, A-2, and F notes can withstand stresses commensurate with the assigned ratings. "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we also included the sensitivity of the ratings on the class A-1 to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." Invesco Euro CLO XII is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Invesco CLO Equity Fund IV LP manages the transaction. Environmental, social, and governance "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to certain activities, including, but not limited to the production of controversial weapons; tobacco or tobacco related products; weapons or firearms etc. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings list AMOUNT CREDIT CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§ X AAA (sf) 2.00 N/A Three/six-month EURIBOR plus 0.50% A-1 AAA (sf) 236.00 41.00 Three/six-month EURIBOR plus 1.46% A-2 AAA (sf) 12.00 38.00 Three/six-month EURIBOR plus 1.75% B AA (sf) 44.00 27.00 Three/six-month EURIBOR plus 2.25% C A (sf) 22.10 21.48 Three/six-month EURIBOR plus 2.85% D BBB- (sf) 28.60 14.33 Three/six-month EURIBOR plus 4.10% E BB- (sf) 17.30 10.00 Three/six-month EURIBOR plus 7.01% F B- (sf) 12.80 6.80 Three/six-month EURIBOR plus 8.37% Sub. Notes NR 29.50 N/A N/A *The ratings assigned to the class X, A-1, A-2, and B notes address timely interest and ultimate principal payments. The ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. JAMES HARDIE: Moody's Alters Outlook on 'Ba1' CFR to Positive ------------------------------------------------------------- Moody's Ratings changed the outlook for James Hardie International Finance Designated Activity Company's (James Hardie) to positive from stable. Moody's also affirmed the company's Ba1 corporate family rating, Ba1-PD probability of default rating, and Ba1 ratings on its senior unsecured notes. The company's Speculative Grade Liquidity Rating was upgraded to SGL-1 from SGL-2. The positive outlook reflects James Hardie's track record of maintenance of strong credit metrics, including debt leverage, and its conservative financial policies that result in a strong balance sheet, despite shareholder friendly actions. "The company's sustained excellent operating margin profile compares favorably to its peers in the manufacturing sector and contributes to its robust cash flow generation," says Natalia Gluschuk, Moody's Ratings Vice President – Senior Credit Officer. The rating action also reflects James Hardie's strong positioning in the fiber cement sector globally, and Moody's expectation that over the next 12 to 18 months the company will continue to generate strong operating results and grow its scale, while funding the asbestos liability, which remains manageable. James Hardie's Speculative Grade Liquidity Rating was upgraded to SGL-1 from SGL-2 reflecting Moody's expectations that the company will maintain very good liquidity over the next 12 to 15 months and generate strong free cash flow. Liquidity is also supported by the ample availability under its $600 million revolving credit facility expiring in 2026, significant covenant cushion, and availability of alternate sources of liquidity given the unsecured capital structure. RATINGS RATIONALE James Hardie's Ba1 CFR is supported by the company's: 1) established industry expertise and strong market position in the fiber cement product category, and operating strategy that focuses on growth and expansion; 2) meaningful revenue scale of $3.9 billion and global presence across four continents; 3) conservative financial policies and disciplined balance sheet management, including a stated long term net debt to EBITDA leverage target of below 2.0x during various industry conditions, and maintenance of leverage around 1.0x over the last four years; 4) sustained strong operating margins and EBITA to interest coverage metrics; and 5) a track record of robust cash flow from operations. However, the company's credit profile is constrained by: 1) high level of capital expenditures targeted on capacity expansions throughout its regions that constrain free cash flow to a degree and entail execution risk; 2) risks related to shareholder-friendly returns in a form of share repurchases and complexity of the organizational and debt guarantee structure; 3) concentration of the majority of revenue in one niche product category, fiber cement; 4) exposure to an asbestos liability, which is an ESG consideration, and the annual obligation to utilize up to 35% of operating cash flow after deducting the prior year's Asbestos Injuries Compensation Fund (AICF) contribution to fund the liability; and 5) cyclicality of residential new construction and repair & remodeling end markets and the associated variability in demand. The Ba1 ratings on James Hardie's senior unsecured notes, at the same level with CFR, reflect the unsecured capital structure of the company. ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS Moody's have changed the governance risk score for James Hardie to G-2 from G-3 and the Credit Impact Score (CIS) to CIS-2 from CIS-3. The change in the governance risk score reflects the company's track record of conservative financial policies and disciplined balance sheet management, which includes maintenance of debt leverage at low levels and well below its stated operating target. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if the company maintains conservative financial policies, sustains leverage below 2.0x during various industry cycles along with robust operating margins, and continues to expand scale. Strong liquidity, including positive free cash flow generation, a manageable asbestos liability, prudent approach to acquisitions, and stable end market conditions would also be important considerations for an upgrade. The ratings could be downgraded if the company changes its financial policy to be more shareholder friendly or is expected to sustain debt to EBITDA leverage above 3.0x. Further, any material negative change in the asbestos liability, protracted negative free cash flow, or interest coverage sustained below 5.0x could result in a downgrade. The principal methodology used in these ratings was Manufacturing published in September 2021. James Hardie International Finance Designated Activity Company is a wholly-owned subsidiary of James Hardie Industries plc, an Irish domiciled global manufacturer of fiber cement, fiber gypsum and cement-bonded building products and systems for internal and external construction applications. The company's products are primarily sold in the United States, Canada, Australia, New Zealand, the Philippines, and Europe. In fiscal 2024 ended March 30, James Hardie Industries plc generated $3.9 billion in revenue. JUBILEE CLO 2019-XXIII: S&P Assigns B-(sf) Rating on F-R Notes -------------------------------------------------------------- S&P Global Ratings assigned preliminary credit ratings to Jubilee CLO 2019-XXIII DAC's class A-1-R, A-2-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes. At closing, the issuer will issue EUR41.10 million of subordinated notes. This transaction is a reset of the already existing transaction. At closing, the existing classes of notes will be fully redeemed with the proceeds from the issuance of the replacement notes on the reset date. The preliminary ratings assigned to the reset notes reflect S&P's assessment of: -- The diversified collateral pool, which will consist primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which we expect to be bankruptcy remote. -- The transaction's counterparty risks, which we expect to be in line with S&P's counterparty rating framework. Portfolio benchmarks S&P Global Ratings' weighted-average rating factor 2,792.55 Default rate dispersion 635.27 Weighted-average life (years) 4.30 Weighted-average life extended to cover the length of the reinvestment period (years) 4.50 Obligor diversity measure 130.59 Industry diversity measure 22.10 Regional diversity measure 1.31 Transaction key metrics Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 2.05 Covenanted 'AAA' weighted-average recovery (%) 36.96 Covenanted weighted-average spread (%) 3.95 Covenanted weighted-average coupon (%) 4.25 Rating rationale Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payments. The portfolio's reinvestment period will end approximately four and half years after closing. S&P said, "The closing portfolio will be well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR475 million target par amount, the covenanted weighted-average spread (3.95%), the covenanted weighted-average coupon (4.25%), and the actual weighted-average recovery rates calculated in line with our CLO criteria for all classes of notes. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned preliminary ratings. "Until the end of the reinvestment period on Jan. 15, 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, as long as the initial ratings are maintained. "We except the transaction's documented counterparty replacement and remedy mechanisms to adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "We expect the transaction's legal structure and framework to be bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe the preliminary ratings are commensurate with the available credit enhancement for the class A-1-R to F-R notes. Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO will be in its reinvestment phase starting from closing, during which the transaction's credit risk profile could deteriorate, we have capped our preliminary ratings assigned to the notes. "Taking the above factors into account and following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our preliminary ratings are commensurate with the available credit enhancement for all the rated classes of notes. "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A-1-R to E-R notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F-R notes." Environmental, social, and governance S&P said, "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit (and or for some of these activities there are revenue limits or can't be the primary business activity) assets from being related to certain activities, including, but not limited to, the following: coal, speculative extraction of oil and gas, private prisons, controversial weapons, non-sustainable palm oil production, speculative transactions in soft commodities, tobacco, hazardous chemicals and pesticides, trade in endangered wildlife, pornography, adult entertainment or prostitution, civilian weapons or firearms, payday lending, activities that adversely affect animal welfare. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." The transaction securitizes a portfolio of primarily senior-secured leveraged loans and bonds, and it is managed by Alcentra Ltd. Ratings list PRELIM. PRELIM AMOUNT CREDIT CLASS RATING* (MIL. EUR) INTEREST RATE ENHANCEMENT (%)§ (%) A-1-R AAA (sf) 289.05 3mE + 1.41 39.15 A-2-R AAA (sf) 8.70 3mE + 1.65 37.32 B-1-R AA (sf) 44.40 3mE + 2.15 26.49 B-2-R AA (sf) 7.00 5.65 26.49 C-R A (sf) 28.50 3mE + 2.65 20.49 D-R BBB- (sf) 30.90 3mE + 3.80 13.99 E-R BB- (sf) 19.00 3mE + 6.84 9.99 F-R B- (sf) 15.40 3mE + 8.24 6.75 Sub NR 41.10 N/A N/A *The preliminary ratings assigned to the class A-1-R, A-2-R, B-1-R, and B-2-R notes address timely interest and ultimate principal payments. The preliminary ratings assigned to the class C-R, D-R, E-R, and F-R notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. 3mE--Three-month Euro Interbank Offered Rate. JUBILEE CLO 2024-XXVIII: S&P Assigns B-(sf) Rating on Cl. F Notes ----------------------------------------------------------------- S&P Global Ratings assigned credit ratings to Jubilee CLO 2024-XXVIII DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payment. This transaction has a 1.5 year non-call period and the portfolio's reinvestment period will end approximately 4.5 years after closing. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows and excess spread. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. Portfolio benchmarks CURRENT S&P Global Ratings weighted-average rating factor 2,850.59 Default rate dispersion 538.63 Weighted-average life (years) 5.11 Obligor diversity measure 100.30 Industry diversity measure 17.27 Regional diversity measure 1.19 Transaction key metrics CURRENT Total par amount (mil. EUR) 400.00 Defaulted assets (mil. EUR) 0 Number of performing obligors 129 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.63 'AAA' target portfolio weighted-average recovery (%) 37.50 Target weighted-average spread (net of floors, %) 4.25 Target weighted-average coupon (%) 6.58 Rating rationale Early initial payment date In accordance with the transaction terms, the issuer has the option to designate an early initial payment date on Oct. 21, 2024 (3.8 months after the closing date) instead of the initial payment date on Jan. 21, 2025 (6.8 months after closing). This is provided that the following conditions are satisfied: -- the effective date has occurred; -- the issuer must provide at least 15 business days' notice if it exercises the early initial payment date option; and -- the investment manager reasonably determines that there are sufficient interest proceeds available to meet all the issuer's payment obligations on the Jan. 21, 2025 payment date in accordance with the interest priority of payments. Considering that an early initial payment date is optional and not a mandatory requirement, S&P has considered this scenario as part of the sensitivity analysis under its cash flow analysis. Discount rate applied to interest smoothing amounts The issuer can apply a discount rate to the aggregate amount of interest proceeds generated from semi-annual and annual payment obligations held in the interest smoothing account. As a result, the issuer's smoothing account will hold a reduced amount of semi-annual and annual interest proceeds for distribution across subsequent payment dates. The issuer will make up for the reduced amounts via the interest earned on the interest smoothing account, provided that the investment manager ensures the total amount distributed is at least equal to the amount if such a discount rate had not been applied. S&P said, "The application of this discount rate would lead to fewer proceeds generating interest on the issuer's smoothing account, which our cash flow analysis typically gives credit to, in accordance with our framework. To address this, we have modelled no interest accrued on any of the issuer's accounts in our cash flow analysis. "Our ratings reflect our assessment of the preliminary collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio is well-diversified at closing, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we modelled the EUR400 million par amount, the covenanted weighted-average spread of 4.15%, the covenanted weighted-average coupon of 5.00%, and the target weighted-average recovery rates. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 and B-2 to E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we capped our assigned ratings on these notes. The class A and F notes can withstand stresses commensurate with the assigned ratings. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." Environmental, social, and governance S&P said, "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to the following industries (non-exhaustive list): controversial weapons, cluster weapons, firearms, tobacco, biological weapons, anti-personnel land mines, cluster munitions, payday lending, pornography, prostitution, thermal coal mining, oil sands, extraction of fossil fuels, and gambling. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings list AMOUNT CREDIT CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§ A AAA (sf) 248.00 38.00 Three/six-month EURIBOR plus 1.47% B-1 AA (sf) 34.00 27.00 Three/six-month EURIBOR plus 2.05% B-2 AA (sf) 10.00 27.00 5.50% C A (sf) 26.00 20.50 Three/six-month EURIBOR plus 2.60% D BBB- (sf) 25.00 14.25 Three/six-month EURIBOR plus 3.85% E BB- (sf) 17.00 10.00 Three/six-month EURIBOR plus 6.78% F B- (sf) 13.00 6.75 Three/six-month EURIBOR plus 8.52% Sub. Notes NR 29.74 N/A N/A *S&P's ratings on the class A, B-1, and B-2 notes address timely interest and ultimate principal payments. Our ratings on the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. RRE 19: S&P Assigns BB-(sf) Ratings on EUR15 Class D Notes ---------------------------------------------------------- S&P Global Ratings assigned its credit ratings to RRE 19 Loan Management DAC's class A-1 to D debt. At closing, the issuer also issued unrated performance, preferred return, and subordinated notes. This is a European cash flow CLO transaction, securitizing a portfolio of primarily senior secured leveraged loans and bonds. The transaction is managed by Redding Ridge Asset Management (UK) LLP. The ratings assigned to the debt reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated debt through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with our counterparty rating framework. -- Under the transaction documents, the rated debt will pay quarterly interest unless there is a frequency switch event. Following this, the debt will permanently switch to semiannual payment. -- The portfolio's reinvestment period will end approximately 4.55 years after closing, and the portfolio's maximum average maturity date is approximately nine years after closing. Portfolio benchmarks CURRENT S&P Global Ratings weighted-average rating factor 2,926.00 Default rate dispersion 353.96 Weighted-average life (years) 4.87 Obligor diversity measure 86.22 Industry diversity measure 19.57 Regional diversity measure 1.22 Transaction key metrics CURRENT Total par amount (mil. EUR) 400 Defaulted assets (mil. EUR) 0 Number of performing obligors 104 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.00 Target 'AAA' weighted-average recovery (%) 37.17 Target portfolio weighted-average spread (%) 4.13 S&P said, "The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. As such, we have not applied any additional scenario and sensitivity analysis when assigning ratings to any class of debt in this transaction. "In our cash flow analysis, we used the EUR400 million target par amount, the portfolio weighted-average spread (3.75%), and the weighted-average coupon indicated by the collateral manager (5.50%). We assumed weighted-average recovery rates in line with those of the actual portfolio presented to us, except for the 'AAA' level, where we have modelled a 37.00% covenanted weighted-average recovery rate. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Our credit and cash flow analysis indicates that the available credit enhancement for the class A-2A to D notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO will be in its reinvestment phase starting from closing, during which the transaction's credit risk profile could deteriorate, we have capped the ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our assigned ratings are commensurate with the available credit enhancement for the class A-1, A-2A, A-2B, B, C-1, C-2, and D notes and A-1 loan. "In addition to our standard analysis, we have also included the sensitivity of the ratings on the class A-1 to D debt to four hypothetical scenarios." Environmental, social, and governance factors S&P said, "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to certain industries, including, but not limited: thermal-coal-based power generation, mining or extraction; Arctic oil or gas production, and unconventional oil or gas production from shale, tight reservoirs, or oil sands; production of civilian weapons; development of nuclear weapon programs and production of controversial weapons; management of private for-profit prisons; tobacco or tobacco products; opioids; adult entertainment; speculative transactions of soft commodities; predatory lending practices; non-sustainable palm oil productions; animal testing for non-pharmaceutical products; endangered species; and banned pesticides or chemicals. "Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings assigned AMOUNT CLASS RATING* (MIL. EUR) SUB (%) INTEREST RATE§ A-1 AAA (sf) 163.00 38.00 Three/six-month EURIBOR plus 1.41% A-1 loan AAA (sf) 85.00 38.00 Three/six-month EURIBOR plus 1.41% A-2A AA (sf) 30.00 28.63 Three/six-month EURIBOR plus 2.05% A-2B AA (sf) 7.50 28.63 5.50% B A (sf) 30.50 21.00 Three/six-month EURIBOR plus 2.55% C-1 BBB (sf) 22.00 15.50 Three/six-month EURIBOR plus 3.30% C-2 BBB- (sf) 6.00 14.00 Three/six-month EURIBOR plus 4.70% D BB- (sf) 15.00 10.25 Three/six-month EURIBOR plus 6.37% Perf. Notes NR 1.00 N/A N/A Pref. return notes NR 0.25 N/A N/A Sub notes NR 45.825 N/A N/A *The ratings assigned to the class A-1, A-2A, and A-2B notes and the A-1 loan address timely interest and ultimate principal payments. The ratings assigned to the class B, C-1, C-2, and D notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. EURIBOR--Euro Interbank Offered Rate. TEXAS DEBT 2024-I: S&P Assigns B-(sf) Rating on Class F Notes ------------------------------------------------------------- S&P Global Ratings assigned credit ratings to Texas Debt Capital Euro CLO 2024-I DAC's class A to F European cash flow CLO notes. The issuer also issued unrated subordinated notes. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior-secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through excess spread and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with S&P's counterparty rating framework. Portfolio benchmarks CURRENT S&P weighted-average rating factor 2,826.19 Default rate dispersion 505.56 Weighted-average life (years) 4.57 Obligor diversity measure 172.75 Industry diversity measure 18.41 Regional diversity measure 1.28 Transaction key metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.63 Target 'AAA' weighted-average recovery (%) 37.21 Target weighted-average spread (net of floors; %) 4.09 Target weighted-average coupon (%) 4.48 Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payments. Rationale S&P said, "The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior-secured term loans and senior-secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR400 million target par amount, the covenanted weighted-average spread (4.00%), the covenanted weighted-average coupon (4.00%), the covenanted minimum 'AAA' weighted-average recovery rate (36.21%), and the target weighted-average recovery rate for all other rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Until the end of the reinvestment period in January 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "The transaction's legal structure and framework is bankruptcy remote, in line with our legal criteria. "The operational risk associated with key transaction parties (such as the collateral manager) that provide an essential service to the issuer is in line with our operational risk criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for the class A to F notes. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B to F notes could withstand stresses commensurate with the same or higher ratings than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings assigned to these notes. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." Environmental, social, and governance S&P said, "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to certain activities. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings AMOUNT CREDIT CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%) A AAA (sf) 248.00 3mE +1.45% 38.00 B AA (sf) 46.00 3mE +2.10% 26.50 C A (sf) 22.00 3mE +2.55% 21.00 D BBB- (sf) 28.00 3mE +3.60% 14.00 E BB- (sf) 18.00 3mE +6.57% 9.50 F B- (sf) 12.00 3mE +7.66% 6.50 Sub NR 32.20 N/A N/A *The ratings assigned to the class A and B notes address timely interest and ultimate principal payments. The ratings assigned to the class C to F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. 3mE--Three-month Euro Interbank Offered Rate. TRINITAS EURO VII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Trinitas Euro CLO VII DAC's notes final ratings. Entity/Debt Rating Prior ----------- ------ ----- Trinitas Euro CLO VII DAC A XS2809272441 LT AAAsf New Rating AAA(EXP)sf B XS2809272797 LT AAsf New Rating AA(EXP)sf C XS2809273175 LT Asf New Rating A(EXP)sf D XS2809273332 LT BBB-sf New Rating BBB-(EXP)sf E XS2809273506 LT BB-sf New Rating BB-(EXP)sf F XS2809273761 LT B-sf New Rating B-(EXP)sf Subordinated Notes XS2809273928 LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Trinitas Euro CLO VII DAC is a securitisation of mainly senior secured loans and secured senior bonds (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. Note proceeds have been used to fund a portfolio with a target par of EUR460 million. The portfolio is actively managed by Trinitas Capital Management, LLC. The CLO has an approximately five-year reinvestment period and a nine-year weighted average life (WAL). KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors to be in the 'B' category. The Fitch weighted average rating factor of the identified portfolio is 23.7. High Recovery Expectations (Positive): At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 63.5%. Diversified Portfolio (Positive): The transaction includes two matrices covenanted by a top 10 obligor concentration limit at 20% and fixed-rate asset limits of 12.5% and 5%. It has various concentration limits, including the maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has a reinvestment period of about five years and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL for the transaction's Fitch-stressed portfolio analysis is 12 months less than the WAL covenant. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period, which include passing the coverage tests, the Fitch WARF test and the Fitch 'CCC' bucket limitation test after reinvestment as well as a WAL covenant that progressively steps down, before and after the end of the reinvestment period. Fitch believes these conditions would reduce the effective risk horizon of the portfolio during the stress period. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would not have any rating impact on the notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the F notes display a rating cushion of five notches, the C, D and E notes three notches, and the class B notes two notches. Should the cushion between the identified portfolio and the stress portfolio be eroded due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of up to four notches for the notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR across all ratings and a 25% increase in the RRR across all ratings of Fitch's stress portfolio would lead to upgrades of up to five notches, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on Fitch's stress portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, meaning the notes are able to withstand larger than expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur in case of stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses on the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG relevance scores for Trinitas Euro CLO 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. TRINITAS EURO VII: S&P Assigns B-(sf) Rating on Class F Notes ------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Trinitas Euro CLO VII DAC's class A to F European cash flow CLO notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payments. The transaction has a two-year non-call period and the portfolio's reinvestment period will end approximately five years after closing. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with S&P's counterparty rating framework. Portfolio benchmarks CURRENT S&P Global Ratings' weighted-average rating factor 2,648.18 Default rate dispersion 547.49 Weighted-average life (years) 4.85 Weighted-average life (years) extended to cover the length of the reinvestment period 5.00 Obligor diversity measure 166.73 Industry diversity measure 26.00 Regional diversity measure 1.27 Transaction key metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0 Actual target 'AAA' weighted-average recovery (%) 37.17 Actual target weighted-average spread (net of floors; %) 4.14 Actual target weighted-average coupon (%) 5.51 S&P said, "On the effective date, we expect that the portfolio will be well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans, senior secured bonds, unsecured bonds, and cov-lite loans. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR460 million target par amount, the covenanted weighted-average spread (4.14%), the covenanted weighted-average coupon (5.51%), and the covenanted weighted-average recovery rates at all rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Until the end of the reinvestment period on June 26, 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, as long as the initial ratings are maintained. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "The transaction's legal structure and framework is bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe the assigned ratings are commensurate with the available credit enhancement for the class A, B, C, D, E, and F notes. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B to F notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO will be in its reinvestment phase starting from closing, during which the transaction's credit risk profile could deteriorate, we have capped our ratings assigned to these notes. "In addition to our standard analysis, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes. "The transaction securitizes a portfolio of primarily senior secured leveraged loans and bonds, and is managed by Trinitas Capital Management LLC." Ratings AMOUNT CREDIT CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%) A AAA (sf) 285.20 3mE +1.49% 38.00 B AA (sf) 50.60 3mE +2.20% 27.00 C A (sf) 29.90 3mE +2.70% 20.50 D BBB- (sf) 28.80 3mE +3.75% 14.24 E BB- (sf) 19.50 3mE +6.55% 10.00 F B- (sf) 13.80 3mE +8.23% 7.00 Sub NR 41.20 N/A N/A *The ratings assigned to the class A and B notes address timely interest and ultimate principal payments. The ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month Euro Interbank Offered Rate when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. 3mE--Three-month Euro Interbank Offered Rate. ========= I T A L Y ========= ENEL SPA: Egan-Jones Retains BB Senior Unsecured Ratings -------------------------------------------------------- Egan-Jones Ratings Company, on June 3, 2024, maintained its 'BB' foreign currency and local currency senior unsecured ratings on debt issued by Enel SpA. EJR also withdrew the rating on commercial paper issued by the Company. Headquartered in Rome, Italy, Enel SpA operates as a multinational power company and an integrated player in the global power, gas, and renewables markets. GOLDEN GOOSE: Fitch Alters Outlook on 'B+' LongTerm IDR to Stable ----------------------------------------------------------------- Fitch Ratings has revised Golden Goose S.p.A.'s Outlook to Stable from Positive while affirming its Long-Term Issuer Default Rating (IDR) at 'B+' and senior secured rating at 'BB-' with a Recovery Rating of 'RR3'. The revision of Outlook follows Golden Goose's decision to postpone its IPO and reflects its view that, consequently, its plan to reduce gross debt with part of the IPO proceeds and cash and to refinance its debt at a lower level will not materialise in the short term. While management maintains plans to pursue deleveraging Fitch believes that credit metrics are now unlikely to be consistent with an upgrade over 2024-2025. At the same time, the rating affirmation reflects the company's continuing successful delivery of its business plan, good pre-dividend free cash flow (FCF) and healthy EBITDAR fixed charge cover. Fitch assumes stable profitable growth and a more meaningful organic deleveraging towards 3.5x by 2026 creating more rating headroom. This is predicated on a conservative financial policy and refinancing at least a year ahead of the senior secured notes maturity. KEY RATING DRIVERS Slower Deleveraging: The Outlook revision follows a slower-than-anticipated deleveraging in 2024-2026, following the IPO withdrawal and that the repayment of its EUR480 million notes, which was contingent on a successful IPO, will not materialise in the near term. Fitch projects leverage to remain comfortably below the 5.0x downgrade threshold for its 'B+' IDR, supported by its superior profitability and continued successful trading. Additionally, Fitch believes the company's conservative policy will support the rating. Improving Leverage Headroom: Fitch believes that GG's conservative target, combined with good pre-dividend FCF of EUR30 million-EUR70 million a year, provides scope for deleveraging towards 3.5x by end-2026 and for improving leverage headroom under the 'B+' IDR. The company targets an IFRS 16-defined net debt/adjusted EBITDA of 1.0x-1.5x for 2024-2029, (end-2023: company-calculated 2.4x). Without the IPO and refinancing at a lower debt level, the upper end of the company's target net leverage, which corresponds to a 2.4x Fitch lease-adjusted net debt/EBITDAR, will not be achievable in the medium term, making an upgrade within the next 18-24 months unlikely. Further, the refinancing by 2026 of its senior secured notes due May 2027 adds uncertainty to deleveraging in the outer projection years, which is reflected in the 'B+' IDR/Stable. Niche Market Position: Golden Goose remains a small company, with EUR157 million 2023 Fitch-adjusted EBITDA and a niche market position in the luxury sneakers category. This is despite increasing control of its supply chain following the internalisation of part of its production in 2023. Its share of the personal luxury goods market is negligible. Nonetheless, Fitch believes it is well-established in the luxury sneakers category and has scope to continue expanding faster than the market. Golden Goose has good sales channel and geographic diversification. However, the company's luxury profile and niche focus constrain prospects for substantially scaling up, as this could compromise its brand positioning, which is reliant on the concept of scarcity, craftmanship and limited models. Single Product Focus: Golden Goose's diversification is limited by heavy reliance on the luxury sneaker category and the core sneaker model that accounts for about 40% of total sales. High single-product and price-point concentration is unlikely to reduce in the short term. This is partly mitigated by its sneakers not being overly reliant on a particular fashion trend, season, generation or gender and by a strategy that includes diversifying into apparel and other product categories. This was recently confirmed by the introduction of adjacent products within the clothing and accessories categories. Successful Business Plan Execution: The company's 2021-2023 performance was supported by a cautious but steady roll out of an average 20 new stores a year. Combined with the shift of growth volumes from wholesale to the more profitable online channel since 2021, this has allowed sales and profits to double. Its EBITDAR margin fell slightly to 33.4% in 2023 (2019-2020 average 36%). Performance was resilient even during the pandemic, with 1% revenue growth, despite forced store closures. Casualisation Trends Support Demand: Golden Goose has benefited from an acceleration in casualisation and digitalisation trends since 2020 as consumers prioritise comfort in their clothing choices. Fitch expects these trends to persist over the rating horizon to 2027, supporting sales growth. Customers appreciate the combination of high comfort, quality and manufacturing, as well as the affordable luxury pricing and casual characteristics of Golden Goose's products. The company has successfully increased customer loyalty and repeat purchases. Retail and Digital Channel Expansion: Fitch projects that store openings and rising online penetration will lead to further sustained revenue growth over 2024-2027 with a 7%-8% CAGR. Fitch sees manageable execution risks from Golden Goose's plan to open more than 80 stores by end-2027 across Asia, Americas and Europe. This is because its store formats are small and not in the highest-cost locations, and new openings will mostly be in countries where the company's brand is widely recognised. Online growth will be supported by its adequate existing infrastructure, mitigating execution risks from rapid growth. DERIVATION SUMMARY Golden Goose shares traits with consumer goods and non-food retail companies, as it sells products under its own brand through directly operated retail stores, wholesalers, department stores and online. Fitch uses its Non-Food Retail Navigator to assess Golden Goose's rating as the company's strategy is predominantly based on the expansion of its leasehold store network. Fitch therefore considers lease-adjusted credit metrics for Golden Goose. However, Fitch also compares Golden Goose with companies in the consumer goods sector. Golden Goose is rated two notches below its closest peer, Birkenstock Financing S.a.r.l. (BB/Stable), which also operates in the shoe sector. It has similar profitability and is concentrated on one product. Unlike Golden Goose, Birkenstock is not developing its own retail store network and therefore Fitch does not adjust its leverage for leases. The two-notch rating differential reflects Birkenstock's 3x larger scale and a product offering that due to a lower price point and a unique orthopedic construction, has historically been less subject to fashion risk. It also reflects Birkenstock's lower 2023 leverage of 2.7x (pro-forma IPO of October 2023) and its expectation of strong FCF generation of EUR200 million-EUR280 million from 2024. Golden Goose's credit profile is weaker than that of Levi Strauss & Co. (BB+/Stable), which also has high concentration on a single brand, but is much larger in scale and more diversified by product and geography. Fitch expects Levi Strauss to maintain lease-adjusted leverage below 3.5x, which is 0.5x lower than its projection for Golden Goose over 2024-2025. Golden Goose is smaller and has greater concentration risks than Italian furniture producer Flos B&B Italia S.p.A. (B/Stable), but benefits from lower expected leverage. Flos has made several acquisitions that constrain its deleveraging trajectory. Golden Goose is rated in line with THG PLC (B+/Negative), which operates in the beauty and well-being consumer market. THG is bigger than Golden Goose in sales, and is not exposed to fashion risk and product concentration but its profitability was affected in 2022 by demand, supply chain and input cost challenges and its FCF generation remains negative. Unlike Golden Goose, THG has based its strategy on bolt-on M&A and raising resources from the equity market. However, Golden Goose's successful execution has enabled it to deleverage to more conservative levels than THG's approximately 5.5x total debt/EBITDA. KEY ASSUMPTIONS Fitch's Key Assumptions within Its Rating Case for the Issuer: - Retail revenue CAGR of around 6.7% over 2024-2027, driven by about 20 new store openings a year and direct online sales - Strong EBITDAR margin (EBITDA before operating leases) of 34% to 2025 - Working capital outflows of around EUR22 million in 2024 before falling to low single digit percentages of sales for 2025- 2027 - Capex at around 7.5% of revenue per year to 2027 - No dividends - Acquisition spending of EUR7 million in 2024 and then about EUR4 million each year to 2027 RECOVERY ANALYSIS The recovery analysis assumes that Golden Goose would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Fitch have assumed a 10% administrative claim. Fitch estimates Golden Goose's GC EBITDA at EUR70 million, reflecting Fitch's view of a sustainable, post-reorganisation EBITDA on which Fitch bases the enterprise valuation (EV). It is based on average EBITDA for 2021-2024 under its stress assumption of the company's main product losing consumer appeal and new stores substantially underperforming existing stores. An enterprise value multiple of 5.5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation enterprise value (EV). The multiple reflects the company's strong growth prospects relative to peers' as well as its small size. The company's EUR75 million revolving credit facility (RCF) is assumed to be fully drawn in a default, and is super senior, ranking ahead of the senior secured notes (SSN). Reverse factoring (EUR11.9 million outstanding at end-2023, Fitch's adjustment to financial debt of EUR2.6 million in accordance with the corporate rating criteria) is treated as unsecured debt, ranking after senior secured creditor claims. Its waterfall analysis generates a ranked recovery for the SSN in the 'RR3' band, indicating a 'BB-' rating. The waterfall analysis output percentage on current metrics and assumptions is 57%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Continued successful execution of the business plan with a balanced composition of sales by channel (between retail, wholesale and online) and geography (EMEA, Americas and Asia) and declining reliance on core footwear models, as well as annual EBITDA approaching EUR300 million over the medium term - EBITDAR margin of around 35%, translating into high single-digit FCF margins - EBITDAR leverage dropping below 3.0x and EBITDAR fixed charge cover above 3.0x, supported by a consistent financial policy protecting these levels once they are achieved Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Material slowdown in revenue growth driven by diminishing product appeal to consumers, reflected in weak like-for-like performance of existing stores or inability of new stores to reach targeted sales - FCF margin below 5% due to weakening EBITDAR margin or higher-than-expected investments in working capital and capex - EBITDAR leverage rising above 5.0x LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: At end-2023, Golden Goose had comfortable liquidity given EUR132 million cash and EUR63.8 million available under its committed RCF. Refinancing risk is limited as the SSN will be due only in 2027, by when Fitch would expect the company to have steadily deleveraged and accumulated cash on its balance sheet. ISSUER PROFILE Golden Goose is a fast-growing luxury footwear brand. It has operations in Europe, the US and Asia through a network of directly operated stores, wholesalers and online. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Golden Goose S.p.A. LT IDR B+ Affirmed B+ senior secured LT BB- Affirmed RR3 BB- MANUFACTURES DIOR: Put Under Judicial Administration for One Year ----------------------------------------------------------------- Emilio Parodi at Reuters reports that an Italian subsidiary of French luxury giant LVMH that makes Dior-branded handbags was placed under court administration on June 10, after a probe alleged it had sub-contracted work to Chinese-owned firms that mistreated workers. This is the third such decision this year by the Milan court in charge of pre-emptive measures, which in April named a commissioner to run a company owned by Giorgio Armani due to accusations the fashion group was "culpably failing" to adequately oversee its suppliers, Reuters notes. Armani Group said at the time it had always sought to "minimise abuses in the supply chain", Reuters recounts. The court said in a copy of the June 10 decision which was seen by Reuters that prosecutors alleged that the violation of rules was not a one-off among fashion companies with manufacturing capacity in Italy, but systematic due to the need to pursue higher profits. "It's not something sporadic that concerns single production lots, but a generalised and consolidated manufacturing method," the document said. The Milan court ordered Manufactures Dior SRL, fully owned by Christian Dior Italia SRL, be placed under judicial administration for one year, the document seen by Reuters showed. The company will continue to operate during the period, Reuters states. The Dior investigation focused on four small suppliers employing 32 staff who worked in the surroundings of Milan, two of whom were immigrants in the country illegally while another seven worked without the required documentation, Reuters discloses. According to Reuters, in the 34-page ruling, the judges said the workers were made to sleep in the workplace in order to have "manpower available 24 hours a day". Data mapping electricity consumption showed "seamless day-night production cycles, including during the holidays", Reuters relates. In addition, safety devices had been removed from the machinery to allow them to operate faster, according to the document, Reuters notes. The Dior unit did not adopt "appropriate measures to check the actual working conditions or the technical capabilities of the contracting companies", failing to carry out periodic audits of its suppliers over the years, it added. The owners of the contracting and subcontracting companies are under investigation by Milan prosecutors for exploiting workers and employing people off the books, while Dior itself faces no criminal probe, according to Reuters. The Armani investigation also unveiled that suppliers of the Italian brand included Chinese-owned manufacturers in Italy that violated worker protection laws, Reuters states. Between March and April, Italian police carried out inspections at the suppliers, named Pelletteria Elisabetta Yang SRL, New Leather Italy SRLS, AZ Operations SRLS, and Davide Albertario Milano SRL, the document said. Pelletteria Elisabetta Yang and Davide Albertario Milano were direct suppliers of Manufactures Dior SRL, the document said, Reuters notes. Pelletteria Elisabetta Yang invoiced 752,881 euros to Manufactures Dior for the fiscal year 2023/24, Davide Albertario 737,623 euros for 2024, it added, Reuters discloses. The staff lived and worked "in hygiene and health conditions that are below the minimum required by an ethical approach," it added, Reuters relates. PRO-GEST SPA: Moody's Cuts CFR to Caa3 & EUR250MM Sr. Notes to Ca ----------------------------------------------------------------- Moody's Ratings has downgraded the long term corporate family rating of Pro-Gest S.p.A. to Caa3 from Caa2 and the probability of default rating to Ca-PD from Caa2-PD. Concurrently, the instrument rating on the EUR250 million backed senior unsecured notes due 2024 was downgraded to Ca from Caa3.The outlook remains negative. The rating action follows Pro-Gest's announcement on June 21, 2024[1] that the company will not pay its accrued interest due on June 15, 2024 on the EUR250 million backed senior unsecured notes due on December 15, 2024, for which interest are payable on a semi-annual basis in arrears, in order to preserve its liquidity position. Furthermore, the company indicated that negotiations are pending for the revitalization of its capital structure. The downgrade of the PDR to Ca-PD from Caa2-PD reflects the increased probability of a default since the missed interest payment will be considered a default on this instrument under Moody's definition once the contractual 30 days grace period lapses. RATINGS RATIONALE The downgrade of Pro-Gest ratings reflects strains on the company's operating profile, liquidity, and capital structure. The company remains limited by its weak liquidity ahead of large upcoming maturities, notably the EUR250 million backed senior unsecured notes due in December 2024 and the EUR220 million privately-placed senior secured notes due in December 2025. The company also reported EUR95 million outstanding short-term bank debt as of September 2023. Pro-Gest earnings suffered from market-wide softening in demand, customers' destocking pattern, and heightened inflation levels with limited price passing capacity as reflected by Moody's-adjusted EBITDA margin dropping to 14.5% in the last twelve months ended September 2023 from 16.5% in 2022. Weaker earnings were further consumed by high interest expenses, working capital consumption, and high capital expenditure levels which led to another consecutive quarter of negative free cash flow generation and cash balance further decreasing to EUR47 million in September 2023 from EUR87 million in December 2022. While the company decided not to approve its consolidated financial statements for 2023 for the moment, Pro-Gest indicated that, following certain actions by the company to preserve and improve its cash position, its cash balance sat at EUR19 million as of June 21, 2024. In the absence of committed external liquidity lines and assets' disposal proceeds, current cash on hand, pending a potential agreement with its primary creditors, is therefore not sufficient to cover upcoming interest expense payments, potential working capital swings, maintenance capex, short-term bank debt, and upcoming notes' maturities. In addition, the ratings continue to be constrained by its limited scale and geographical diversification, volatility in pricing and volumes, and overall weak credit metrics with Moody's-adjusted EBITDA/interest decreasing to 1.4x as of LTM Sep-23 from 2.4x in 2022 and Moody's-adjusted Debt/EBITDA increasing to 8.7x as of LTM Sep-23 from 5.4x in 2022. The ratings are supported by the company's leading position as one of the largest and vertically integrated producers of containerboard and corrugated board in Italy; diversified customer base; and its exposure to stable end markets, such as food and beverage and healthcare. RATIONALE OF THE OUTLOOK The negative outlook reflects the increasing likelihood of a near-term default, uncertainty and lack of visibility on refinancing of the capital structure, and the associated risk around a restructuring transaction with a material haircut to debt. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Pro-Gest's ratings could be downgraded in case of signs for a material debt haircut for creditors in excess of what already factored in the current Caa3 CFR and Ca unsecured rating. An upgrade of Pro-Gest's ratings would require greater clarity regarding the company's future capital structure and liquidity position, as well as some improvement in operating performance. STRUCTURAL CONSIDERATIONS In Moody's assessment of the priority of claims in a default scenario for Pro-Gest, Moody's distinguish between two layers of debt in the capital structure. First, the EUR220 million privately-placed senior secured notes and trade payable rank pari passu on top of the capital structure. Then, behind these debt instruments are the EUR250 million senior unsecured notes due 2024, pension liabilities, and lease obligations. The Ca rating of the senior unsecured notes due 2024 is one notch below the CFR, reflecting the large amount of debt ranking senior or sitting at operating subsidiaries that are not guaranteeing the notes and considered senior to the notes. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Governance considerations have been a key driver of the rating action reflecting the increased risk of a near-term default since the missed interest payment will be considered a limited default on the instrument once the grace period lapses. In addition, the lack of clarity on future capital structure ahead of near-term maturities is a negative governance consideration. LIQUIDITY Pro-Gest's liquidity is weak. With a cash balance of around EUR19 million as of June 21, 2024, the company's liquidity position has materially weakened compared to the position as of September 30, 2023 as a result of weak operating performance, high interest charges, increased net working capital, and continued high capital expenditure. With cash level below short-term debt due within a year, sustained negative free cash flow generation, and no clarity on potential alternative liquidity sources, the company faces a heightened refinancing risk around upcoming debt maturities related to the EUR250 million backed senior unsecured notes due in six months and the EUR220 million privately-placed senior secured notes due in December 2025. The principal methodology used in these ratings was Paper and Forest Products published in December 2021. COMPANY PROFILE Headquartered in Treviso, Italy, Pro-Gest S.p.A. is a vertically integrated producer of recycled paper, containerboard, corrugated cardboard and packaging solutions. The company operates four recycling plants, six paper mills plants, four corrugators plants, eight packaging plants and two tissue converting plants or overall 24 production facilities in Italy. It employs about 1,086 people. In the last 12 months that ended September 2023, Pro-Gest generated EUR515 million of revenue and around EUR75 million of EBITDA (Moody's-adjusted). The company is owned by the Zago family, who founded Pro-Gest in 1973. =================== K A Z A K H S T A N =================== BASEL INSURANCE: S&P Affirms 'B+' LongTerm ICR, Outlook Stable -------------------------------------------------------------- S&P Global Ratings affirmed its 'B+' long-term issuer credit and financial strength ratings and its 'kzBBB' national scale rating on Basel Insurance JSC. The outlook remains stable. The implementation of S&P's revised criteria for analyzing insurers' risk-based capital does not lead to any rating actions on Basel Insurance. This is because the company's capital and earnings assessment remains satisfactory due to its small absolute capital size of below $25 million. In S&P's view, the latter makes Basel Insurance more susceptible to single-event losses and somewhat offsets the positive effects the implementation of the revised criteria has on the company's capital adequacy, including: -- An increase in total adjusted capital (TAC), which results from not deducting non-life deferred acquisition costs; and -- Risk diversification benefits, which are now captured more explicitly in our analysis. The stable outlook indicates that S&P expects Basel Insurance will maintain its solid capital adequacy and an average investment portfolio within the 'BBB' range, while expanding and diversifying its business franchise. S&P said, "We see a downgrade as unlikely in the next 12 months unless Basel Insurance materially lowers its standards for asset allocation, with average invested assets falling to the 'BB' range, or if we see that losses, excessive growth, or dividends materially pressure the company's capital adequacy. "We could upgrade Basel Insurance over the next 12 months if we saw an improvement in its competitive position or a material capital build-up in absolute and relative terms, while it adheres to its conservative investment policy. "Following the implementation of our new criteria, Basel Insurance's capital adequacy is consistent with the 99.99% level. Basel Insurance's capital adequacy exceeded the 99.99% confidence level, according to our revised capital model, and we forecast it will remain at this level over the next two years. We expect 10%-15% insurance revenue growth over 2024-2025, solid profitability with return on equity of 15%-20%, and retention of net profit of up to 30%-50%. Basel Insurance's capital and earnings assessment remains satisfactory due to the relatively small absolute capital size. S&P anticipates that the company's TAC will not exceed $25 million over 2024-2025. This makes Basel Insurance's capitalization more susceptible to single-event losses, compared with higher-rated local and international peers. Basel Insurance's competitive position reflects the company's still-modest size in the local market and short history of operations following the complete change in its ownership structure and strategy. S&P said, "We also consider that the company is in the process of rebalancing its insurance portfolio to increase the share of more profitable products, such as motor hull insurance, while optimizing the shares of obligatory motor third party liability and aviation insurance. Premium growth slowed in 2023 and in the first quarter of 2024 and the company recorded a decline in its market share to about 0.9% as of April 1, 2024, from 1.6% in 2022. The company's distribution network is also evolving, with a decreasing share of agents and increasing contribution from car dealerships. While we expect that portfolio optimization can support its underwriting performance in the medium term, the result is yet to be seen. In our view, it may be challenging to achieve its operating targets under current market conditions, primarily due to intensifying competition in motor where Basel Insurance is building its franchise." S&P said, "In our view, most of the company's portfolio being of 'BBB' category average credit quality is positive. This includes fixed-income assets allocated mostly to the sovereign and quasi-sovereign bonds of Kazakhstan and foreign fixed-income instruments rated 'A-' and above. We expect Basel Insurance will continue adhering to its prudent investment allocation in the next 12 months." KASPI BANK: S&P Raises LongTerm ICR to 'BB+', Outlook Stable ------------------------------------------------------------ S&P Global Ratings raised its long-term issue credit rating on Kaspi Bank JSC to 'BB+' from 'BB'. The outlook is stable. At the same time, the Kazakhstan national scale rating was raised to 'kzAA+' from 'kzAA-'. S&P affirmed the short-term global scale 'B' rating. Rationale S&P said, "Kaspi's profitability surpassed those of institutions with a similar business model, and we believe the group will continue posting above-average results in the next few years. Kaspi is among the top entities in terms of mass-market consumer lending and deposit share in Kazakhstan, serving about 14 million active users. We estimate the Kaspi group generates about 60% of systemwide commissions. These results stemmed from the increasing financial margin, client loyalty, stronger operational efficiency, and greater capacity to manage expenses with credit provisions. As a result, on average over the past five years Kaspi has posted 85% return on average common equity (ROAE). We expect the group to retain solid earnings generation over 2024-2025, which is superior compared with local and global peers. "We expect Kaspi group to remain strongly capitalized. Kaspi continued to strengthen its capitalization in the past several years, underpinned by the group's solid financial performance and balanced growth of the loan book. We forecast that the group's RAC ratio will likely to be above 10% over the next 12-18 months compared with 7.7% at year-end 2023--and it is likely to remain one of the strongest among peers. We anticipate that moderate budgeted loan growth and good profit generation will support capitalization at current levels, despite anticipation of high dividend payouts of about 60% and no planned capital injections. "We think Kaspi has a stronger business position than its peers specializing in consumer finance in Kazakhstan and in comparable countries. Kaspi Bank is the second-largest of Kazakhstan's commercial banks, with a market share of about 13% by total assets, amounting to Kazakhstani tenge (KZT) 6.9 trillion ($15 billion) as of the end of the first quarter of 2024. Kaspi enjoys leading positions in loans for purchases, cash loans, and used car loans. We positively note Kaspi's well-established franchise and brand recognition, as well as its positive track record of strategically developing its business mix through the cycle. "Kaspi was one of the first movers to the mass-market consumer-finance segment, and it has achieved significant size and high market penetration. The Kaspi group is diversifying its business by rapidly expanding its payment and marketplace segments, which stimulates customer loyalty and creates promising synergy. In our view, Kaspi group's leading franchise in mass-market consumer lending and digital payments in Kazakhstan, its experienced management team, and its track record of sustainable earnings generation through economic cycles support the group's business position. Nevertheless, we consider Kaspi group's risk concentration in Kazakhstan's consumer finance segment as a ratings constraint in a global comparison, given the relatively low income among the country's population. "We continue to see Kaspi Bank as a highly systemically important bank in Kazakhstan, as one of the largest by assets and deposits. The bank's franchise in retail deposits is the second largest in Kazakhstan, with a market share of about 25% and a noteworthy 45% of total non-cash payment transactions in Kazakhstan. Our long-term rating on Kaspi Bank is one notch higher than the bank's stand-alone credit profile (SACP), because we continue to believe that Kazakhstan's government could cascade potential extraordinary support to the bank in case of need, owing to its high systemic importance. "Our analysis focuses on the consolidated accounts of Kaspi.kz, Kaspi Bank's ultimate parent. Kaspi Bank provides the group's banking operations and will likely continue to represent a significant part of the group's operating revenue, including from its payment business. We therefore view Kaspi Bank as a core entity of the group." Outlook S&P said, "The stable outlook reflects our expectation that Kaspi's business mix, tested strategy, and solid franchise in consumer and business finance and payments will sustainably weather challenges in the operating environment. Strong earnings performance, which we expect to continue, could help the group create sufficient buffers to bolster resilience to associated shocks and cope with rising risks better than many of its peers." Downside scenario S&P said, "We could lower the ratings if we unexpectedly observe that Kazakhstan's government appeared to be less supportive toward systemically important institutions in Kazakhstan. Aggressive capital management, leading to erosion of the group's capital position with RAC ratio falling substantially below 10%, may also prompt a negative rating action, if not balanced by asset-quality indicators at least on par with those of comparable peers." Upside scenario S&P considers the possibility of a positive rating action as remote over its 12-18 month forecast period. =================== L U X E M B O U R G =================== SIGNA PRIME: Schoeller Group Takes Over Luxembourg Unit ------------------------------------------------------- Libby Cherry at Bloomberg News reports that The Schoeller industrial clan is taking control of a unit that indirectly owns a handful of Signa's German department stores, looking to recoup money lost in the insolvency of the real estate group. The Schoeller Group has taken over Signa Prime Luxembourg Sarl via shares that had been pledged as security for a loan now in default, Bloomberg relays, citing filings to the Luxembourg business registry. A company owned by the industrialist family has separately requested merger clearance in Germany for the transaction. The move by the family, which traces its lineage back to iron production in the 16th century, may potentially siphon off funds that could be used to pay back other investors of Rene Benko's insolvent company, Bloomberg notes. The enforcement action relates to a EUR200 million (US$214 million) loan Schoeller granted to Signa's flagship luxury property unit in July 2023, which was secured with shares of subsidiaries that owned some of Signa's most prominent buildings, Bloomberg discloses. Liquidating Benko's vast empire is proving to be challenging despite it owning highly-coveted properties such as London's Selfridges department store and KaDeWe in Berlin, Bloomberg relays. Some of the EUR20 billion in creditor claims are linked directly to buildings, but there's also an array of intermediary company loans higher in the corporate structure -- such as Schoeller's -- which trustees are grappling to untangle, Bloomberg states. The regulatory disclosures show Schoeller claiming the Luxembourg unit, which indirectly owns at least five department stores in Berlin, Munich, Hamburg and Stuttgart. It wasn't immediately clear whether Schoeller -- which is active in the packaging, processing and real estate industries -- had also acted on claims related to other Signa assets it had been pledged as a guarantee, Bloomberg notes. Creditors of Signa Prime agreed to a restructuring in March that promises them at least 30% of their claims following an orderly sale of property assets, Bloomberg recounts. Efforts by Signa Prime's administrator to settle the Schoeller Group's claims have faced obstacles in the past. Creditors rejected an initial deal to sell a portfolio of assets in March, Bloomberg previously reported. A more recent agreement to sell Italian assets to the family, including Hotel Bauer in Venice, has been complicated by investment fund King Street Capital Management, which has emerged as a shareholder in one of the hotel's holding companies. TRINSEO MATERIAL: Calamos CSQ Marks $912,256 Loan at 30% Off ------------------------------------------------------------ Calamos Strategic Total Return Fund ("CSQ") has marked its $912,256 loan extended to Trinseo Materials Operating SCA to market at $637,485 or 70% of the outstanding amount, according to a disclosure contained in Calamos CSQ's Amended Form N-CSR for the six-month period ended April 30, 2024, filed with the Securities and Exchange Commission. Calamos CSQ is a participant in a Bank Loan to Trinseo Materials Operating SCA. The Loan accrues interest at a rate of 7.824% (3 mo. SOFR + 2.50%) per annum. The loan matures on May 3, 2028. Calamos provides closed-end funds that use a diversified blend of convertible securities, equities, fixed income, and alternative investments across innovative investment strategies to support competitive distributions throughout a market cycle. The fiscal year ends October 31. Calamos CSQ is led by John P. Calamos, Sr., Founder, Chairman and Global Chief Investment Officer; and Thomas E. Herman, Principal Financial Officer. The Fund can be reach through: John P. Calamos, Sr. Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 Telephone: (630) 245-7200 Trinseo is a specialty material solutions provider. The Company’s country of domicile is Luxembourg. TRINSEO MATERIALS: Calamos CCD Marks $193,319 Loan at 30% Off ------------------------------------------------------------- Calamos Dynamic Convertible and Income Fund ("CCD") has marked its $193,319 loan extended to Trinseo Materials Operating SCA to market at $135,091 or 70% of the outstanding amount, according to a disclosure contained in Calamos CCD's Amended Form N-CSR for the six-month period ended April 30, 2024, filed with the Securities and Exchange Commission. Calamos CCD is a participant in a Bank Loan to Trinseo Materials Operating SCA. The Loan accrues interest at a rate of 7.824% (3 mo. SOFR + 2.50%) per annum. The loan matures on May 3, 2028. Calamos provides closed-end funds that use a diversified blend of convertible securities, equities, fixed income, and alternative investments across innovative investment strategies to support competitive distributions throughout a market cycle. The fiscal year ends October 31. Calamos CCD is led by John P. Calamos, Sr., Founder, Chairman and Global Chief Investment Officer; and Thomas E. Herman, Principal Financial Officer. The Fund can be reach through: John P. Calamos, Sr. Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 Telephone: (630) 245-7200 Trinseo is a specialty material solutions provider. The Company’s country of domicile is Luxembourg. TRINSEO MATERIALS: Calamos CHI Marks $778,403 Loan at 30% Off ------------------------------------------------------------- Calamos Convertible Opportunities and Income Fund ("CHI") has marked its $778,403 loan extended to Trinseo Materials Operating SCA to market at $543,948 or 70% of the outstanding amount, according to a disclosure contained in Calamos CHI's Amended Form N-CSR for the six-month period ended April 30, 2024, filed with the Securities and Exchange Commission. Calamos CHI is a participant in a Bank Loan to Trinseo Materials Operating SCA. The Loan accrues interest at a rate of 8.105% (3 mo. SOFR + 2.50%) per annum. The loan matures on May 3, 2028. Calamos provides closed-end funds that use a diversified blend of convertible securities, equities, fixed income, and alternative investments across innovative investment strategies to support competitive distributions throughout a market cycle. The fiscal year ends October 31. Calamos CHI is led by John P. Calamos, Sr., Founder, Chairman and Global Chief Investment Officer; and Thomas E. Herman, Principal Financial Officer. The Fund can be reach through: John P. Calamos, Sr. Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 Telephone: (630) 245-7200 Trinseo is a specialty material solutions provider. The Company’s country of domicile is Luxembourg. TRINSEO MATERIALS: Calamos CHW Marks $158,599 Loan at 30% Off ------------------------------------------------------------- Calamos Global Dynamic Income Fund ("CHW") has marked its $158,599 loan extended to Trinseo Materials Operating SCA to market at $110,829 or 70% of the outstanding amount, according to a disclosure contained in Calamos CHW's Amended Form N-CSR for the six-month period ended April 30, 2024, filed with the Securities and Exchange Commission. Calamos CHW is a participant in a Bank Loan to Trinseo Materials Operating SCA. The Loan accrues interest at a rate of 7.824% (3 mo. SOFR + 2.50%) per annum. The loan matures on May 3, 2028. Calamos provides closed-end funds that use a diversified blend of convertible securities, equities, fixed income, and alternative investments across innovative investment strategies to support competitive distributions throughout a market cycle. The fiscal year ends October 31. Calamos CHW is led by John P. Calamos, Sr., Founder, Chairman and Global Chief Investment Officer; and Thomas E. Herman, Principal Financial Officer. The Fund can be reach through: John P. Calamos, Sr. Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 Telephone: (630) 245-7200 Trinseo is a specialty material solutions provider. The Company’s country of domicile is Luxembourg. TRINSEO MATERIALS: Calamos CPZ Marks $158,599 Loan at 30% Off ------------------------------------------------------------- Calamos Long/Short Equity & Dynamic Income Trust ("CPZ") has marked its $158,599 loan extended to Trinseo Materials Operating SCA to market at $110,829 or 70% of the outstanding amount, according to a disclosure contained in Calamos CPZ's Amended Form N-CSR for the six-month period ended April 30, 2024, filed with the Securities and Exchange Commission. Calamos CPZ is a participant in a Bank Loan to Trinseo Materials Operating SCA.The Loan accrues interest at a rate of 7.824% (3 mo. SOFR + 2.50%) per annum. The loan matures on May 3, 2028. Calamos provides closed-end funds that use a diversified blend of convertible securities, equities, fixed income, and alternative investments across innovative investment strategies to support competitive distributions throughout a market cycle. The fiscal year ends October 31. Calamos CPZ is led by John P. Calamos, Sr., Founder, Chairman and Global Chief Investment Officer; and Thomas E. Herman, Principal Financial Officer. The Fund can be reach through: John P. Calamos, Sr. Calamos Advisors LLC 2020 Calamos Court Naperville, Illinois 60563-2787 Telephone: (630) 245-7200 Trinseo is a specialty material solutions provider. The Company’s country of domicile is Luxembourg. ========= S P A I N ========= GRIFOLS SA: Fitch Alters Outlook on 'B+' LongTerm IDR to Stable --------------------------------------------------------------- Fitch Ratings has revised the Outlook on Grifols, S.A.'s Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'B+'. The revision of the Outlook reflects Fitch's view that near-term refinancing risk has significantly reduced following the issuance of EUR1.3 billion of senior secured notes and the completed disposal of the majority of Grifols' Shanghai RAAS (SRAAS) stake for EUR1.6 billion, which will enable it to address its large 1H25 debt maturities. Fitch notes that the company still needs to extend its revolving credit facility (RCF) maturing November 2025, but Fitch expects it to do so before the end of 2024. Grifols' ratings are constrained by its high leverage, tight liquidity and temporarily subdued free cash flow (FCF). Fitch anticipates a gradual increase in EBITDA during the next four years, driven by sales growth, lower plasma collection costs and the launch of Biotest's products. KEY RATING DRIVERS Refinancing Risk Diminished: The Outlook revision reflects Fitch's view that Grifols has significantly reduced its near-term refinancing risk following the EUR1.3 billion private placement of senior secured notes and the disposal of a 20% stake in SRAAS for EUR1.6 billion. The group still has to extend its RCF maturing November 2025, but Fitch considers the risk of not extending it as significantly diminished. Grifols repaid its EUR1 billion senior unsecured notes maturing May 2025 using proceeds from its private placement. Fitch anticipates that Grifols will repay its EUR838 million senior secured debt maturing in February 2025 with some of the SRAAS proceeds and availability under its RCF. Fitch expects the remaining proceeds of the SRAAS stake sale to be used to repay a portion of its term loan B tranches, in accordance with the requirements of its senior secured financing documentation. Gradual Margin Recovery: Fitch expects deleveraging will be aided by a steady improvement in Grifols' profitability. Fitch projects Fitch-defined EBITDA margins to improve from 18% in 2023 to above 22% in 2024, driven by the lower cost of plasma collected and the operational improvement plan. Margins were compressed to historically low levels during the pandemic and supply chain stabilisation periods. Fitch expects the planned launches of Biotest's new products to gradually improve the EBITDA margin from 2026 towards the mid-20s, lower than the high-20s to low-30s achieved before the pandemic. Reduced Leverage: The Stable Outlook also incorporates its view of a significant reduction in Fitch-defined EBITDA leverage to slightly below 6.0x in 2024 due to debt repayments and expected EBITDA growth. Fitch considers this level comfortable for the 'B+' rating. Fitch expects further deleveraging but this will depend on the projected improvement in EBITDA as a result of higher sales and better margins. Capex Requirements Impact FCF: Fitch forecasts neutral FCF generation over the next two years. This is a result of temporarily high capex requirements related to the construction of new plasma collection centres in the US from Grifols' partnership with Immunotek, combined with working capital outflows and the higher interest rates of the new debt issuances. Fitch projects FCF to be neutral to slightly negative in 2024 and neutral to slightly positive in 2025, assuming lower working capital outflows in 2024 following a reduction in plasma inventory costs and higher working capital outflows in 2025 as the company continues expanding its operations. Leading Company in Attractive Niche: Grifols has a meaningful position in the plasma-derivatives market, which Fitch expects to grow at high single digits. It is a medium-sized manufacturer with a concentrated product portfolio, but it is more exposed to cost and price pressure than innovative pharmaceuticals, where manufacturing becomes a competitive differentiator as plasma-derived proteins cannot be patented. Fitch believes that as one of the larger sector constituents, Grifols is well-placed to defend its competitive market position through its vertical integration securing plasma supply and running cost-efficient operations. ESG - Governance Structure: Fitch notes that the company has recently taken steps to strengthen corporate governance, but Grifols' concentrated ownership and the family's historical involvement in the management of the company weigh on its assessment of governance, with complex business transactions with entities related to the family. In its view the concentrated family ownership has favoured long-term growth at the expense of high indebtedness for a listed company. Fitch expects governance to continue improving to a level commensurate with a higher rating. DERIVATION SUMMARY Fitch rates Grifols using the framework of its Ratings Navigator for generic companies. Grifols stands out as an issuer within the non-investment-grade space with a compelling business model in terms of its global market position in core products and strong FCF generation. This is counterbalanced by a heavy reliance on the performance on four main plasma-derived medicinal products that are responsible for well over 50% of its sales. Its financial risk is the main constraint, with EBITDA leverage projected to remain above 5.0x (net 4.5x) until 2024. Fitch compares Grifols with pharmaceutical peers such as Grunenthal Pharma GmbH & Co. Kommanditgesellschaft (BB/Stable), Teva Pharmaceutical Industries Limited (BB-/Positive), and CHEPLAPHARM Arzneimittel GmbH (B+/Stable). Grifols is larger than Grunenthal and Cheplapharm, which constrains Cheplapharm's ratings. However, both peers have significantly higher margins than Grifols and significantly less EBITDA leverage, which underpins Grunenthal's one-notch higher rating despite its smaller scale. Other life science peers such as Avantor, Inc. (BB/Positive) are similar in terms of scale and margins to Grifols, but its higher rating reflects lower leverage and cash flow levels. KEY ASSUMPTIONS Fitch's Key Assumptions within Its Rating Case for the Issuer: - Mid-to-high single revenue growth in 2024, followed by mid-single digit revenue growth over 2025-2027. - Continued recovery of EBITDA margin to 22% in 2024 and gradually towards 24% by 2027. - Working capital outflow of EUR150 in 2024, followed by yearly outflows around EUR250 million-EUR275 million during 2025-2027. - Annual capex of about EUR550-600 million in 2024 and 2025, including investments related to Immunotek's plasma collection centres. - Annual capex around EUR450-500 million during 2026-2027. - EUR1.5 billion of after-tax proceeds in 2024 from the divestment of the 20% stake in SRAAS stake. - No major acquisitions before 2027 as the company continues deleveraging. - No cash dividend paid in 2024-2026, followed by a 30% dividend pay-out in 2027. RECOVERY ANALYSIS KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that Grifols would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. It also assumes that Grifols will apply the proceeds obtained from the disposal of the SRAAS stake to repay senior secured debt. Fitch estimates a GC EBITDA of EUR900 million, to which Fitch applies an enterprise valuation (EV) multiple of 6.0x to calculate a post-reorganisation EV. Fitch has assumed a 10% administrative claim deduction. Fitch does not assume Grifols' factoring liabilities to be repaid given its assumption of reorganisation post-distress. Fitch also assumes that the RCF would be fully drawn at the time of distress. Based on its principal waterfall analysis, Fitch treats EUR1.6 billion of debt as super-senior ahead of senior secured debt, consisting of EUR840 million of debt held by the sovereign wealth fund of Singapore, a EUR240 million senior secured loan from Biotest and some regional debt held at lower levels in the capital structure. Recoveries for the senior secured debt, calculated after assigning EV available to super senior-ranking debt holders, are estimated at 61%. This results in a Recovery Rating 'RR3', leading to a 'BB-' rating for the senior secured debt, one notch above the IDR. Recoveries for the senior unsecured notes are estimated at 0%, in the 'RR6' band, leading to a 'B-' instrument rating, two notches below the IDR. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Supportive financial policy and improving corporate governance that lead to total debt/EBITDA below 5.0x (4.5x net) on a sustained basis - (Cash from operations (CFO) less capex)/total debt with equity credit above 5% on a sustained basis - Continued operational improvement, as reflected in better Biotest performance, continued reduction in collection cost per litre, leading to EBITDA margins (Fitch-defined, excluding IFRS 16) above 24% on a sustained basis - FCF margin towards mid-single digits on a sustained basis - EBITDA/interest paid persistently above 3.5x on a sustained basis Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Lack of visibility on an extension of the RCF by end-2024 - Total debt/EBITDA above 7.0x (6.5x net) on a sustained basis - Delays in new product launches or weakened cost management leading to inability to improve EBITDA margins (Fitch-defined, excluding IFRS 16) to above 20% - FCF margin below 1% on a sustained basis - EBITDA/interest paid below 2.5x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: Fitch assesses Grifols' liquidity headroom as limited, despite the reduced refinancing risk. Grifols has EUR349 million of cash Fitch deems as available for debt repayment (Fitch restricts EUR100 million) as of March 2024, in addition to over EUR500 million under its RCF, following the partial repayment from the additional proceeds of the senior secured private placement in May. Fitch expects Grifols will repay its outstanding EUR838 million with some proceeds of SRAAS, and some of the outstanding RCF. Nevertheless, Grifols still faces significant maturities in 2024, including EUR175 million of debt from Biotest and the refinancing of its RCF in November 2025. Liquidity is further limited by its expectation of neutral to slightly negative FCF generation in 2024, and only slightly positive in 2025, due to increased capex requirements. ISSUER PROFILE Grifols is a vertically-integrated global manufacturer of plasma derivatives, which treat diseases using components/proteins derived from human plasma. Grifols sources most human plasma from its own collection centres. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS Grifols has an ESG Relevance Score of '5' for Governance Structure due to its concentrated ownership and the family's involvement in the management of the company, with complex business transactions with entities related to the family. This has a negative impact on the credit profile and is highly relevant to the rating. Grifols has an ESG Relevance Score of '4' for Management Strategy, as reflected in the weak execution of its stated strategy, which has led to unadjusted margins consistently below the company's targets, and high leverage. This has a negative impact on the credit profile, is relevant to the rating in conjunction with other factors. Grifols has an ESG Relevance score of '4' for Group Structure due to the complex group structure with material related-party transactions with entities where the family is participant, and which has resulted in cash outflows. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors. Grifols has an ESG Relevance Score of '4' for Financial Transparency due to the delay of the company's presentation of audited financial reports, which adds to the company's substandard disclosure of other contracted payouts such as for its Immunotek partnership. The company published its 2023 audited financial statements with an unqualified opinion one week after its expected date. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Grifols Escrow Issuer, S.A.U. senior unsecured LT B- Affirmed RR6 B- Grifols, S.A. LT IDR B+ Affirmed B+ senior secured LT BB- Affirmed RR3 BB- Grifols Worldwide Operations USA, Inc senior secured LT BB- Affirmed RR3 BB- Grifols Worldwide Operations Limited senior secured LT BB- Affirmed RR3 BB- =========== T U R K E Y =========== CUMHURIYETI ZIRAAT: Fitch Affirms 'B' LongTerm IDR, Outlook Pos. ---------------------------------------------------------------- Fitch Ratings has affirmed Turkiye Cumhuriyeti Ziraat Bankasi Anonim Sirketi's (Ziraat) Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at 'B' and its Long-Term Local-Currency (LTLC) IDR at 'B+'. The Outlooks are Positive. Fitch has also affirmed the bank's Viability Rating (VR) at 'b'. KEY RATING DRIVERS VR Drives LTFC IDR: Ziraat's LTFC IDR is driven by its VR, reflecting the bank's exposure to the improving but still challenging Turkish operating environment but also the bank's leading domestic franchise. Its size, geographical footprint and historical state affiliation underpin its domestic franchise. It also considers the bank's reasonable asset quality, adequate capitalisation, adequate though below sector-average profitability and adequate FC liquidity for its risk profile. The Positive Outlook on the LTFC IDR reflects improvements to the operating environment. Sovereign Support Drives LTLC IDR: Ziraat's LTLC IDR is driven by government support and reflects its view of the sovereign's stronger ability to provide support and a lower risk of government intervention in LC. The Positive Outlook reflects that on the sovereign LTLC IDR. Improving but Challenging Operating Environment: The bank's operations are concentrated in the improving but volatile Turkish operating environment. Normalisation of the monetary policy has reduced near-term macro-financial stability risks and external financing pressures but banks remain exposed to high inflation, lira depreciation risk, slowing economic growth, and still multiple macro-prudential regulations, despite recent simplification efforts. The concentration of the bank's operations in the volatile Turkish operating environment and role in supporting government policy create risks to its business profile. Leading Domestic Franchise: Ziraat is a domestic systemically important bank and the largest bank in Turkiye by total assets (end-1Q24: around 16% of banking sector assets on an unconsolidated basis). It has a large customer base and the highest deposit market share in Turkiye at 18% at end-1Q24. The bank has a unique agricultural policy role (end-1Q24: 72% share of banking sector agricultural loans), providing subsidised loans and intermediating public funds across the sector's value chain. Risks to Asset Quality: Ziraat's impaired loans (NPL) ratio improved to 1.2% at end-1Q24 from 1.3% at end-2023, reflecting modest loan growth and lower NPLs. Asset-quality risks remain despite the bank's better-than-sector-average asset-quality metrics, given its exposure to the challenging Turkish operating environment, loan seasoning, fairly high Stage 2 loans (8% of loans, 28% reserves coverage) and high FC lending (32%). Fitch forecasts Ziraat's NPL ratio to increase to 2% in 2024, driven mainly by unsecured retail lending in the high lira rate environment and weaker GDP growth. Pressure on NIM and Profitability: Ziraat's operating profit decreased to 2.7% of risk-weighted assets (RWAs) in 1Q24 from 4.6% at end-2023, as reversal of free provisions (0.2% of RWAs) was offset by tighter net interest margins (NIMs) resulting from rising rates. Fitch expects Ziraat's operating profit to be around 2.5% of RWAs in 2024 as funding costs weigh on NIM, loan growth slows and the cost of risk rises while fee income continues to be supportive. Adequate Capitalisation: Ziraat's common equity Tier 1 (CET1) ratio fell to 12.2% at end-1Q24 (net of forbearance: 10.4%) from 13.8% at end-2023, largely reflecting credit growth and tightened forbearance on FC RWAs. The total capital adequacy (CAR) ratio (end-1Q24: 12.9%; net of forbearance) was close to the regulatory minimum of 12.5% but Ziraat issued USD500 million Tier 2 notes in May, which would have added about 50bp to CAR at end-1Q24. Fitch expects Ziraat's CET1 ratio to remain around 12% in 2024. Capitalisation is supported by moderate pre-impairment operating profit (end-1Q24: 3% of gross loans, annualised), full total reserve coverage of NPLs and free provisions (equal to 0.4% of RWAs). Its assessment also factors in ordinary support given the record of support from the authorities. However, capitalisation remains sensitive to the macro outlook, lira depreciation and asset-quality weakening. Mainly Deposit-Funded; Adequate FC Liquidity: Ziraat is largely deposit-funded (end-1Q24: 82% of non-equity funding), including a high share of low-cost demand deposits (34%). Deposit dollarisation (45% of customer deposits) remains high while a further 14% of foreign-exchange (FX)-protected deposits also create risks. However, FC liquidity risk is mitigated by adequate FC liquidity. Ziraat's refinancing risk from fairly high FC wholesale funding exposure (end-1Q24: 15% of non-equity funding) is mitigated by its good access to international markets, including the recent Tier-2 issue in May. At end-1Q24 available FC liquidity (USD12.5 billion) fully covered Ziraat's maturing FC debt over the next 12 months (USD7.1 billion) and 12% of FX deposits. Reliance on FX swaps with the central bank has reduced, partially offset by FX swaps with foreign counterparties. FC liquidity could come under pressure from a prolonged loss of market access or sector-wide deposit instability. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The VR is potentially sensitive to a sovereign downgrade but this is not its base case. The VR could also be downgraded if the bank's leverage increases significantly, or if it fails to maintain around a 100bp capital buffer over regulatory minimum requirements, and capital support from the authorities is not forthcoming on a timely basis. It could also be downgraded due to a marked deterioration in the operating environment (not its base case given the positive outlook on the operating outlook), particularly if this leads to a material erosion of the bank's FC liquidity buffers, due, for example, to prolonged funding-market closure or FC deposit instability. The LTFC IDR is sensitive to a change in the VR, Fitch's view of government intervention risk in the banking sector and, potentially, also a sovereign downgrade. The LTLC IDR is sensitive to a change in the ability or propensity of the authorities to provide support in LC and to its view of government intervention risk in LC. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction, in its view, of government intervention risk in the banking sector could lead to an upgrade of the bank's LTFC IDR but only if the VR is also upgraded. It could potentially also require a sovereign upgrade. The VR could be upgraded due to further improvements in the operating environment, combined with a strengthening in its capital ratios with a sustained reduction in risk appetite. An upgrade of the sovereign's LTLC IDR would likely lead to upgrade of the bank's LTLC IDR. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Zirrat's senior debt ratings are aligned with its LTFC IDR. The 'RR4' Recovery Rating reflects average recovery prospects in a default. Ziraat's subordinated notes' rating is notched down twice for loss severity from its 'b' VR as anchor rating, in line with Fitch criteria's baseline approach. The notes' 'RR6' Recovery Rating reflects poor recovery prospects in a default. The Short-Term IDRs of 'B' are the only possible option mapping to the Long-Term IDRs in the 'B' category. The National Long-term Rating of 'AA(tur)' reflects its view of Ziraat's creditworthiness in LC relative to that of other Turkish issuers and is in line with other state-owned deposit banks'. The National Rating is driven by its view of government support in LC. Ziraat's Government Support Rating (GSR) of 'b-' reflects the government's increased ability to provide support in FC. The government's propensity to provide support is high given the bank's state ownership, systemic importance, state-related funding and the record of capital support. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Ziraat's senior unsecured debt ratings are primarily sensitive to changes in its IDRs. Ziraat's subordinated debt rating is primarily sensitive to a change in its VR. It is also sensitive to a revision in Fitch's assessment of loss severity and non-performance. A downgrade of the Short-Term IDRs would require a multi-notch downgrade of the Long-Term IDRs. An upgrade of the Short-Term IDRs would also require a multi-notch Long-Term IDR upgrade. The National Rating is sensitive to a change in the bank's creditworthiness in LC relative to that of other Turkish issuers. The GSR could be upgraded if Fitch views the government's ability to support the bank in FC has strengthened. The GSR could be downgraded if Fitch sees a deterioration in the sovereign's FX reserves. VR ADJUSTMENTS The operating environment score of 'b' for Turkish banks is lower than the 'bb' category implied score, due to the following adjustment reasons: sovereign rating (negative) and macroeconomic stability (negative). The latter adjustment reflects heightened market volatility, high dollarisation and high risk of FX movements in Turkey. The business profile score of 'b+' is below the implied 'bb' category implied score, due to the following adjustment reason: business model (negative). This reflects the bank's business model concentration on the high-risk Turkish market. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Ziraat's LTLC IDR is driven by support from the Turkish authorities. ESG CONSIDERATIONS Ziraat has ESG Relevance Scores of '4' for Governance Structure due to potential government influence over the board's effectiveness and management strategy in the challenging Turkish operating environment, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Ziraat has an ESG Relevance Score for Management Strategy of '4', reflecting a high regulatory burden on most Turkish banks. Management's ability across the sector to determine their own strategy is constrained by regulatory interventions and also by the operational challenges of implementing regulations at the bank level. This has a moderately negative impact on banks' credit profiles and is relevant to banks' ratings in combination with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Turkiye Cumhuriyeti Ziraat Bankasi Anonim Sirketi LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B+ Affirmed B+ LC ST IDR B Affirmed B Natl LT AA(tur)Affirmed AA(tur) Viability b Affirmed b Government Support b- Affirmed b- senior unsecured LT B Affirmed RR4 B subordinated LT CCC+ Affirmed RR6 CCC+ senior unsecured ST B Affirmed B TURKIYE HALK: Fitch Keeps 'B-/B+' LongTerm IDRs on Watch Negative ----------------------------------------------------------------- Fitch Ratings has maintained Turkiye Halk Bankasi A.S.'s (Halk) 'B-' Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) and 'B+' Long-Term Local-Currency (LTLC) IDR on Rating Watch Negative (RWN). The bank's Viability Rating (VR) of 'b-' has also been maintained on RWN. The bank's Government Support Rating (GSR) has been upgraded to 'b-' from 'no support' and placed on RWN. KEY RATING DRIVERS VR Drives LTFC IDR: Halk's LTFC IDR is driven by its VR, and underpinned by its GSR. The VR reflects asset quality risks, weak profitability and capital buffers as well as its solid franchise. Halk's 'B+' LTLC IDR is driven by state support, reflecting Fitch's view of the sovereign's greater ability to provide support, and a lower risk of government intervention in Turkish lira. RWN Reflects US Legal Risks: The RWN on Halk's ratings continues to reflect Fitch's view of the material risk of the bank becoming subject to a fine or other punitive measure as a result of the ongoing US legal proceedings, and uncertainty over the sufficiency and timeliness of any support from the authorities. Fitch expects to resolve the RWN once Fitch has clarity on the outcome of the US investigations and the implications this may have for the bank. Fitch may maintain the RWN longer than six months if the investigations are extended for a longer period. Improving but Challenging Operating Environment: The bank's operations are concentrated in the improving but volatile Turkish operating environment. The normalisation of the monetary policy has reduced near-term macro-financial stability risks and external financing pressures but banks remain exposed to high inflation, further lira depreciation, slowing economic growth, and multiple macro-prudential regulations, despite recent simplification efforts. State-Owned Bank with Policy Role: Halk is 91.5% owned by the Turkish state through the Turkiye Wealth Fund (B+/Positive). At end-1Q24, it was the fourth-largest bank in Turkiye by total assets (10% market share). The bank has a policy role as the provider of state-subsidised cooperative loans to SMEs, giving it a competitive advantage in lending in this segment. The concentration of the bank's operations in the volatile Turkish operating environment and role in supporting government policy create risks to its business profile. Slower Growth: Halk's loan growth was subdued in 1Q24 (2%, foreign-exchange (FX)-adjusted; sector: 7.5%) after strong growth in the last two years and following a shift in macro policy to support the government's economic agenda. Fitch expects growth to be below the sector average given limitations posed by the bank's capitalisation and internal capital generation. Asset-Quality Risks: The bank's non-performing loans (NPLs) ratio remained at 1.5% at end-1Q24 due to low inflows and collections. Total reserves coverage decreased to a still-high 247% (end-2023: 251%), above the sector average of 242%. Asset quality risks remain given exposure to the challenging Turkish operating environment, loan seasoning following rapid growth in recent years, as well as moderate Stage 2 loans (6.7%; average reserves coverage: 25%) and FC lending (25%). Fitch forecasts Halk's NPL to increase slightly to 2% in 2024, driven mainly by unsecured retail lending amid higher interest rates and weaker GDP growth. Weak Profitability: Halk had a net operating loss (1.5% of end-1Q24 risk-weighted assets (RWAs)) but also a net profit, due to tax reversals (1Q24: 15.5% return on equity). This was driven by tight margins (net interest margin: 2.9%) due to increased cost of funding, high swap costs, and higher impairment charges to increase general provisions. Revenues benefitted from CPI-linked securities yields (20% of total interest income), which were revalued at 65% in 1Q24, versus Fitch's expectation of 43% year-end inflation. Fitch expects Halk's operating profit to be around zero in 2024 as net interest margin continues to be tight and CPI-linked yields decrease. Thin Capital Buffers: Halk has thin capital buffers (common equity Tier 1 (CET1) ratio: 9.7% at end-1Q24, including a 94bp forbearance uplift), and remains sensitive to macroeconomic risks, lira depreciation, slower GDP growth, and weak profitability. Leverage is also high (tangible equity/tangible assets ratio: 4.8%). Fitch factors ordinary support into its assessment due to the record of support, including a TRY30 billion capital injection in 1Q23 (2.5% impact on capital ratios). Fitch expects Halk's CET1 ratio to decrease below 9% in 2024 without further capital injections. Mainly Deposit Funded: The bank relies on contractually short-term, but stable, deposits (end-1Q24: 80% of total funding). Deposit dollarisation remains significant (41%), as are FX-protected deposits (17%), creating FC liquidity risks. The bank has limited access to long-term external funding due to the ongoing case in the US but has recently secured a USD300 million five-year private placement from an international bank. Halk has limited FC wholesale funding (10%, mainly concentrated in FC bank deposits) and adequate FC liquidity. A large share of the bank's FC liquidity comprises FX swaps with the Central Bank of the Republic of Turkiye (CBRT). FC liquidity could come under pressure from sector-wide deposit instability. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The bank's VR is sensitive to a multi-notch sovereign downgrade, but this is not its base case. The bank's VR could be downgraded on further weakening in capitalisation, for example if the CET1 ratio falls below 9% (including forbearance) over a sustained period or if leverage increases further and timely capital support is not received. It could also be downgraded if a marked deterioration in the operating environment leads to a material erosion in the bank's FC liquidity buffers. The VR could be downgraded if, as a result of the US investigations into a possible breach of sanctions against Iran, Halk becomes subject to a fine or other punitive measure that materially weaken its solvency or negatively affects its standalone credit profile. The LTFC IDR of Halk is sensitive to a change in both its VR and GSR. Halk's LTLC IDR is primarily sensitive to a sovereign downgrade, but also to a change in the ability or propensity of the authorities to provide support in LC, and to its view of government intervention risk in LC. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Further improvement in the operating environment, which could result from sustained market- and exchange-rate stability, a sustained decline in inflation and further easing of macroprudential regulations could result in an upgrade of the bank's VR, particularly if combined with a sustainable reduction in risk appetite, plus improvement in capitalisation and profitability. The removal from RWN is dependent on increased certainty that the outcome of the investigations will not materially weaken Halk's capital, or other aspects of its credit profile. The LTFC IDR of Halk is sensitive to a change in its VR or GSR. An upgrade of the sovereign's LTLC IDR would also likely lead to an upgrade of the bank's LTLC IDR. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Halk's GSR upgrade reflects the sovereign's improved external finances and financial flexibility to provide support in FC. Nevertheless, the bank's GSR remain two notches below the sovereign LTFC IDR despite a high propensity to provide support given the bank's policy role, systemic importance, state-related funding and the record of capital support and reflects the sovereign's still weak FX reserves position. The bank's 'B' Short-Term (ST) IDRs are the only possible option mapping to LT IDRs in the 'B' rating category. The National Long-Term Rating reflects its view of Halk's creditworthiness in LC relative to other Turkish issuers' and is in line with other state-owned deposit banks'. The National Rating is driven by its view of government support in LC. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES The GSR could be upgraded if Fitch views the government's ability to support the bank in FC has strengthened. The GSR could be downgraded if Fitch sees a deterioration in the sovereign's FX reserves position. The ST IDRs are sensitive to changes in their respective LT IDRs. An upgrade of the ST IDRs would require would require a multi-notch upgrade of the LT IDRs. The National Rating is sensitive to changes in the bank's LTLC IDR and its creditworthiness relative to that of other Turkish issuers with a 'B+' LTLC IDR. VR ADJUSTMENTS The operating environment score of 'b' for Turkish banks is lower than the category implied score of 'bb', due to the following adjustment reasons: sovereign rating (negative) and macroeconomic stability (negative). The latter adjustment reflects heightened market volatility, high dollarisation and high risk of FX movements in Turkiye. The business profile score of 'b-' for Halk is lower than the category implied score of 'bb', due to the following negative adjustment reasons: business model (negative) and management and governance (negative). The business model adjustment reflects the bank's business model concentration on the high-risk Turkish market. The management and governance adjustment reflects the high legal risk of a large fine and potential government influence over the bank's strategy and effectiveness in the challenging operating environment. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Halk's LTLC IDR is driven by support from the Turkish authorities. ESG CONSIDERATIONS Halk has an ESG Relevance Score of '5' for Governance Structure, reflecting the heightened legal risk of a large fine, which drives the RWN on the bank. It also considers potential government influence over the board's effectiveness in the challenging Turkish operating environment. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors. Halk has an ESG Relevance Score of '4' for Management Strategy due to potential government influence over its management strategy in the challenging Turkish operating environment, which has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Turkiye Halk Bankasi A.S. LT IDR B- Rating Watch Maintained B- ST IDR B Rating Watch Maintained B LC LT IDR B+ Rating Watch Maintained B+ LC ST IDR B Rating Watch Maintained B Natl LT AA(tur)Rating Watch Maintained AA(tur) Viability b- Rating Watch Maintained b- Government Support b- Upgrade ns TURKIYE VAKIFLAR: Fitch Affirms 'B' LongTerm IDR, Outlook Positive ------------------------------------------------------------------ Fitch Ratings has affirmed Turkiye Vakiflar Bankasi T.A.O.'s (Vakifbank) Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at 'B' and its Long-Term Local-Currency (LTLC) IDR at 'B+'. The Outlooks are Positive. Fitch has also affirmed the bank's Viability Rating (VR) at 'b'. KEY RATING DRIVERS VR Drives LTFC IDR: Vakifbank's LTFC IDR is driven by its VR. The VR considers the bank's strong domestic franchise, reasonable asset quality and profitability, and only adequate capitalisation and FC liquidity. The Positive Outlook on the LTFC IDR reflects the improvement in the operating environment. Sovereign Support Drives LTLC IDR: Vakifbank's LTLC IDR is driven by government support and reflects its view of the sovereign's stronger ability to provide support and a lower risk of government intervention in LC. The Positive Outlook reflects that on the sovereign LTLC IDR. Improving but Challenging Operating Environment: The bank's operations are concentrated in the improving but volatile Turkish operating environment. The normalisation of the monetary policy has reduced near-term macro-financial stability risks and external financing pressures but banks remain exposed to high inflation, potential further lira depreciation, slowing economic growth, and still multiple macro-prudential regulations, despite recent simplification efforts. Robust Domestic Franchise: Vakifbank is the second-largest bank in Turkiye by total assets at end-1Q24 (market share of around 12% of total banking sector assets on an unconsolidated basis) and is a domestic systemically important bank. The bank's solid domestic franchise is underpinned by its wide geographical footprint and historical state affiliation. The concentration of the bank's operations in the volatile Turkish operating environment and role in supporting government policy create risks to its business profile. Asset Quality to Weaken: Vakifbank's impaired loans (Stage 3) ratio remained flat at end-1Q24 at 1.3% largely reflecting loan growth (1Q24: 6.8%). Risks to asset quality remain given the exposure to the challenging Turkish operating environment, including from the more vulnerable retail and SME segments, loan seasoning, high Stage 2 loans (end-1Q24: 10% of loans, 15% average reserves coverage) and high FC lending (33%; sector: 34%). Fitch expects the impaired loans ratio to increase moderately but to remain around 2% by end-2024, as asset quality normalises amid higher interest rates and weaker GDP growth. Pressure on Profitability: Vakifbank's operating profit improved to 3.7% of risk-weighted assets (RWAs) in 1Q24 from 2.3% in 2023, as net reversal of loan impairment provisions offset tight net interest margins and high operating costs. Fitch expects an improvement in net interest margins as loans reprice, but profitability to be subdued by lower CPI linker gains, slower loan growth and high cost of risk. Fitch forecasts operating profit of around 2.5% of RWAs in 2024 (excluding possible free provision reversals). Capitalisation Only Adequate: Vakifbank's common equity Tier 1 (CET1) ratio decreased to 10.6 % at end-1Q24 (9.7% net of forbearance) from 11.8% at end-2023 (10.1% net of forbearance), largely reflecting tightened forbearance on FC RWAs and an increase in operational RWAs. Leverage remains high (equity/assets: end-1Q23: 6.3% versus sector's 9%) while Fitch believes near-term growth prospects could be muted in the absence of a capital injection. Fitch expects the CET1 ratio to be around 11% by end-2024. Capitalisation is supported by pre-impairment operating profitability (1Q24: 3% of average loans), full total reserves coverage of impaired loans and free provisions (end-1Q24: 0.6% of RWAs), but is sensitive to the macro outlook, lira depreciation, asset-quality weakening and growth. Adequate FC Liquidity Buffers: Vakifbank is largely deposit-funded (end-1Q24: 72% of non-equity funding). Significant deposit dollarisation (end-1Q24: 39% of customer deposits) and also foreign-exchange (FX)-protected deposits (11%) creates FC liquidity risks. The bank's high FC wholesale funding (end-1Q24: 20% of non-equity funding) exposes it to refinancing risk, although the bank has maintained its external market access as underscored by its USD550 million additional Tier 1 (AT1) issue in April 2024 and FC wholesale funding is reasonably diversified. Available FC liquidity fully covered FC debt maturing over the next 12 months and a moderate share of FC deposits at end-1Q24, with FC liquidity supported by new issuance. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The VR is potentially sensitive to a sovereign downgrade but this is not its base case given the Positive Outlook on the sovereign rating. The VR could be downgraded if the bank's leverage increases further, and capital support from the authorities is not forthcoming on a timely basis. It could also be downgraded due to a marked deterioration in the operating environment (although this is not its base case given the positive outlook on the operating environment) particularly if this leads to a material erosion in the bank's FC liquidity buffers, for example, due to prolonged funding-market closure or deposit instability. The LTFC IDR is sensitive to a change in the VR, Fitch's view of government intervention risk in the banking sector, and to a sovereign downgrade, although this is not its base case given the Positive Outlook on the sovereign rating. The LTLC IDR is sensitive to a sovereign downgrade, a change in the ability or propensity of the authorities to provide support in LC, and its view of government intervention risk in LC. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction, in its view, of government intervention risk in the banking sector could lead to an upgrade of the bank's LTFC IDR but only if the VR is also upgraded. It could also require a sovereign upgrade. The VR could be upgraded due to further improvements in the operating environment, combined with a strengthening in its capital ratios with a sustained reduction in risk appetite. An upgrade of the sovereign's LTLC IDR would likely lead to an upgrade of the bank's LTLC IDR. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Vakifbank's senior debt ratings are aligned with its LTFC IDR. The 'RR4' Recovery Rating reflects average recovery prospects in a default. Vakifbank's AT1 notes are rated three notches below Vakifbank's VR, comprising two notches for loss severity due to the notes' deep subordination, and one notch for incremental non-performance risk given their full discretionary, non-cumulative coupons. Fitch has used the bank's VR as the anchor rating as Fitch deems it the most appropriate measure of non-performance risk. In accordance with the Bank Rating Criteria, Fitch has applied three notches from Vakifbank's VR, instead of the baseline four notches, due to rating compression, as Vakifbank's VR is below the 'BB-' threshold. The Short-Term IDRs of 'B' are the only possible option mapping to the Long-Term IDRs in the 'B' category. The National Rating of 'AA(tur)' reflects its view of Vakifbank's creditworthiness in LC relative to that of other Turkish issuers. The National Rating is driven by its view of government support in LC and is in line with other state-owned commercial banks'. Vakifbank's Government Support Rating (GSR) of 'b-' reflects the government's improved ability to provide support in FC. The government's propensity to provide support is high given the bank's state ownership, systemic importance, state-related funding and the record of capital support. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES The senior debt ratings are primarily sensitive to changes in Vakifbank's IDR. The rating of the AT1 notes is primarily sensitive to a change in Vakifbank's VR. The AT1 rating is also sensitive to a change in Fitch's assessment of the notes' incremental non-performance relative to the risk captured in the VR. This may result, for example, from a significant decline in capital buffers relative to regulatory requirements. The Short-Term IDRs are sensitive to multi-notch changes of the Long-Term IDRs. The National Rating is sensitive to changes in the LTLC IDR and its creditworthiness relative to other Turkish issuers'. The GSR could be upgraded if Fitch views the government's ability to support the bank in FC has strengthened. The GSR could be downgraded if Fitch sees a deterioration in the sovereign's FX reserves position. VR ADJUSTMENTS The operating environment score of 'b' for Turkish banks is lower than the 'bb' category implied score, due to the following adjustment reasons: sovereign rating (negative) and macroeconomic stability (negative). The latter adjustment reflects heightened market volatility, high dollarisation and high risk of FX movements in Turkey. The business profile score of 'b+' is below the implied 'bb' category implied score, due to the following adjustment reason: business model (negative). This reflects the bank's business model concentration on the high-risk Turkish market. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Vakifbank's LTLC IDR is linked to the Turkish sovereign rating. ESG CONSIDERATIONS Vakifbank has ESG Relevance Scores of '4' for Governance Structure due to potential government influence over the board's effectiveness and management strategy in the challenging Turkish operating environment, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Vakifbank has an ESG Relevance Score for Management Strategy of '4', reflecting a high regulatory burden on most Turkish banks. Management's ability across the sector to determine their own strategy is constrained by regulatory interventions and also by the operational challenges of implementing regulations at the bank level. This has a moderately negative impact on banks' credit profiles and is relevant to banks' ratings in combination with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Turkiye Vakiflar Bankasi T.A.O. LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B+ Affirmed B+ LC ST IDR B Affirmed B Natl LT AA(tur)Affirmed AA(tur) Viability b Affirmed b Government Support b- Affirmed b- senior unsecured LT B Affirmed RR4 B subordinated LT CCC Affirmed CCC senior unsecured ST B Affirmed B ULKER BISKUVI: S&P Upgrades LongTerm ICR to 'BB', Outlook Stable ---------------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit and issue ratings on Ulker Biskuvi Sanayi A.S. (Ulker) and its senior unsecured notes to 'BB' from 'B'. The stable outlook reflects S&P's expectation that the refinancing will be successful and that Ulker's operating performance will remain resilient, with positive free operating cash flow (FOCF) generation boosting ongoing profitable growth. The 'BB' rating reflects Ulker's track record of profitable business growth and ability to maintain its strong market shares and expand its scale, despite a challenging operating environment. Ulker's operating performance has been resilient amid the ongoing hyperinflation in its domestic Turkish markets, where the consumer price index (CPI) exceeded 75% (as of May 31, 2024). In 2023, the company increased its revenues by 7.4% under IAS 29 accounting (pre-inflation accounting, revenue growth for 2023 is 66.2%). It also sustained a S&P Global Ratings-adjusted EBITDA margin around 21.8%, which was slightly below S&P's expectation. The company has shown nimble pricing by focusing on own brands, which provide strong local brand equity and pricing power. Despite higher prices, volume growth in Turkiye was about 4.1% in 2023 and spanned all segments. First-quarter 2024 saw a strong uplift in domestic volumes by 17.5%, albeit partly due to seasonality effects. Driving factors are Ulker's still-affordable products, the non-cyclical nature of confectionary products, and the consolidated Turkish confectionary market where Ulker and its main competitor are the two clear leaders. In Turkiye, Ulker leads in chocolate and biscuits with a more than 40% share and is No. 2 in cakes with around 20%. Internationally, Ulker also has leading positions, although volumes are lower and often only in one category. Ulker's scale has significantly increased since we assigned the rating in 2020, with strong EBITDA growth to TRY12.2 billion in 2023, from TRY1.7 billion in 2020. While much of the extraordinary growth can be attributed to the lira depreciation, the company's revenue has been growing strongly in constant currency terms, reflecting positive volume and price growth, along with margin improvements through operational efficiencies. Ulker's management proactively tackling the refinancing of the US$600 million outstanding notes maturing in October 2025 also supports our upgrade. S&P said, "We understand that Ulker is in the advanced stages of refinancing its US$600 million Eurobond, enabling it to refinance comfortably ahead of its debt maturities. The company is looking to refinance with a lower quantum Eurobond of up to US$550 million. Overall, this will reduce gross debt in the capital structure upon completion. In our adjusted debt metric calculation, we include the group's bank loans, proposed notes, leases, and letters of credit. Given our improved assessment of its business risk profile, we now net the group's cash balance against debt, bringing S&P Global Ratings-adjusted (net) debt to EBITDA to around 1.0x comfortably from 2024 onward. Despite the lower quantum of debt, however, we believe Ulker is exposed to higher interest rate risk given the more volatile operating environment in emerging markets and the new bond's higher base rates and margins. We forecast EBITDA interest coverage of 3.5x-4.5x in 2024 and 2025, which currently limits upside to our financial profile assessment." S&P said, "We expect Ulker will sustain strong profitability driven by volume recovery, new product innovation, and marketing investment.For 2024, we forecast an overall revenue increase of 40%-45%, incorporating our expectation that supportive pricing will offset ongoing high inflation. Further revenue growth could be supported by positive currency translation effects if the Turkish lira weakens more. In addition, we expect a gradual recovery of volumes in the international operations, notably Saudi Arabia (Ulker's second-largest market) and Egypt (its third largest), having seen strong momentum in first-quarter 2024. Higher marketing spending on promotions to boost brand equity, especially in the Middle East, should support growth. The group is also continuing to innovate, with new product sales increasing to around 10% of total revenue at end-2023. That said, we assume S&P Global Ratings-adjusted EBITDA margins will dip slightly to 21%-22% as we continue to account for input-cost volatility, particularly for cocoa, sugar, and labor, which could weigh on margins in the next 12-18 months. That said, Ulker is well hedged for cocoa on price and quantity in 2024, which will help to offset input-cost pressures. "We forecast stable positive FOCF generation over the next 12-18 months, despite the higher interest burden.Upon completion of the refinancing, the group will not face meaningful refinancing risk until April 2026 when its syndicated and bilateral bank facilities come due. We view positively its commitment to minimizing foreign exchange risk, with around 65% of its net position closed in first-quarter 2024. We anticipate Ulker's FOCF generation will gradually increase, factoring in our expectations of about TRY5 billion-TRY 6.5 billion in annual working capital outflows and stable capital expenditure (capex) of about 2.5%-3.5% of revenue. For 2024 and 2025, we forecast overall FOCF (after working capital and capex) of TRY2.5 billion-TRY3.0 billion, despite higher financing costs. We anticipate the company will maintain a focus on profitable growth and positive FOCF generation, with a prudent policy on shareholder distribution, while keeping adequate headroom under its bank financial covenants. At present, we do not see any pressure from the majority owner, who is well capitalized, for any large dividends that could put pressure on Ulker's credit metrics in the next 24 months. "Ulker comfortably passes our hypothetical sovereign default stress test against our foreign currency sovereign credit rating on Turkiye, including our transfer and convertibility scenario. We apply our stress test to Ulker's Turkish operations, which accounted for about 68% of its reported revenue, 64% of its reported EBITDA, and about 90% of total production capacity in first-quarter 2024. The rest comes from its international operations, notably in Saudi Arabia, Egypt, and Kazakhstan. Thanks to its presence outside Turkiye, a strong balance sheet outside the country, and credit-supportive financial policy, we believe Ulker would have enough liquidity to covers its funding needs over the next 12-24 months. "The stable outlook reflects our expectation of Ulker's ongoing operating and financial resilience amid very high inflation, thanks largely to its strong leadership and positions in its domestic and international markets, along with the affordability of its products. We anticipate continued positive FOCF, EBITDA interest coverage around 3.5x-4.5x, and low S&P Global Ratings-adjusted debt to EBITDA (net of cash). We also assume the company will successfully address its large refinancing needs linked to the US$600 million in outstanding notes due October 2025, well ahead of maturity." Downside scenario S&P could lower the ratings on Ulker if: -- S&P observed a weakening operating performance leading to FOCF deteriorating significantly, adjusted debt to EBITDA increasing, and EBITDA interest coverage falling below 3.0x with no prospect of rapid improvement. This could happen if unanticipated volume declines from ongoing inflationary pressure in Turkiye resulted in a loss of market share, or if the company was unable to control large working capital swings alongside strong adverse lira-to-dollar currency exchange movements; or -- S&P lowered its sovereign foreign currency rating on Turkiye to 'B' (from 'B+'), and Ulker did not pass its sovereign stress test, which mimics a severe macroeconomic crisis in the country, including our T&C assessment. Upside scenario S&P said, "We could raise the ratings on Ulker if it exceeded our base case such that EBITDA interest coverage moved comfortably above 6.0x and FOCF generation was materially above our forecast. This could stem from a strong track record of profitable growth driven by maintaining and growing solid market shares across its main countries of operations amid challenging operating conditions. Also, our rating the company above the sovereign rating hinges on Ulker continuing to pass our sovereign foreign currency stress test, including the T&C assessment." Rating upside is also contingent on the rating progression of the Turkish sovereign. Environmental, social and governance factors are an overall neutral consideration in S&P's credit analysis of Ulker. YAPI KREDI: Fitch Affirms 'BB+' Rating on Debt Classes ------------------------------------------------------ Fitch Ratings has upgraded two Turkish diversified payment rights (DPR) programmes: - A.R.T.S. Ltd. (ARTS), originated by Akbank T.A.S. (Akbank; Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR): B+/ Positive) upgraded to 'BBB-' from 'BB+' and removed from Rating Watch Positive. The Outlook is Stable. - TIB Diversified Payment Rights Finance Company (TIB DPR), originated by Turkiye Is Bankasi A.S. (Isbank; LTLC IDR: B +/Positive) upgraded to 'BBB-' from 'BB+'. The Outlook is Stable. Fitch has also affirmed Yapi Kredi Diversified Payment Rights Finance Company Ltd (Yapi Kredi DPR), originated by Yapi ve Kredi Bankasi A.S. (Yapi Kredi; LTLC IDR: B+/Positive) at 'BB+'. The Outlook is Positive. The rating actions follow the upgrades of the originating banks' LTLC IDRs. Entity/Debt Rating Prior ----------- ------ ----- Yapi Kredi Diversified Payment Rights Finance Company Ltd 2013-D XS0950411834 LT BB+ Affirmed BB+ 2014-A XS1118209375 LT BB+ Affirmed BB+ 2015-B XS1199023638 LT BB+ Affirmed BB+ 2015-F XS1261205915 LT BB+ Affirmed BB+ 2017-G XS1739387642 LT BB+ Affirmed BB+ 2018-A XS1760837275 LT BB+ Affirmed BB+ 2018-B XS1777290278 LT BB+ Affirmed BB+ 2019-A XS1957348367 LT BB+ Affirmed BB+ 2019-B XS1957348441 LT BB+ Affirmed BB+ 2019-C XS1957348797 LT BB+ Affirmed BB+ 2021-A TR009A70V301 LT BB+ Affirmed BB+ 2021-B TR009A70V2R8 LT BB+ Affirmed BB+ 2021-E TR009A70V4W4 LT BB+ Affirmed BB+ 2021-G TR009A70V4Y0 LT BB+ Affirmed BB+ 2021-H TR009A70V6A5 LT BB+ Affirmed BB+ 2021-I TR009A70V6J6 LT BB+ Affirmed BB+ 2022-A KY009A7B9SL4 LT BB+ Affirmed BB+ 2023-A KYMM004U64H3 LT BB+ Affirmed BB+ 2023-B KY009A8LE1M9 LT BB+ Affirmed BB+ 2023-C KYMM004U64J9 LT BB+ Affirmed BB+ 2023-D KY009A8MXNP3 LT BB+ Affirmed BB+ 2023-E KYMM004U64P6 LT BB+ Affirmed BB+ 2023-F KYMM004U64Y8 LT BB+ Affirmed BB+ 2023-G KY009A8LDVF1 LT BB+ Affirmed BB+ 2023-H KYMM004V5UV5 LT BB+ Affirmed BB+ A.R.T.S. Ltd. Tranche 39 XS1227830731 LT BBB- Upgrade BB+ Tranche 44 XS1308681771 LT BBB- Upgrade BB+ Tranche 46 XS1434558661 LT BBB- Upgrade BB+ Tranche 47 XS1438306679 LT BBB- Upgrade BB+ Tranche 55 XS1438309186 LT BBB- Upgrade BB+ Tranche 61 XS1801860427 LT BBB- Upgrade BB+ TIB Diversified Payment Rights Finance Company Series 2012-A XS0798555966 LT BBB- Upgrade BB+ Series 2012-B XS0798556345 LT BBB- Upgrade BB+ Series 2013-D XS0985825172 LT BBB- Upgrade BB+ Series 2014-A XS1102748073 LT BBB- Upgrade BB+ Series 2014-B LT BBB- Upgrade BB+ Series 2015-B XS1210043136 LT BBB- Upgrade BB+ Series 2015-G XS1316496907 LT BBB- Upgrade BB+ Series 2016-B XS1508150452 LT BBB- Upgrade BB+ Series 2016-E XS1529855253 LT BBB- Upgrade BB+ Series 2016-F XS1508150023 LT BBB- Upgrade BB+ Series 2017-A XS1733314790 LT BBB- Upgrade BB+ Series 2017-H XS1739379623 LT BBB- Upgrade BB+ Series 2017-I XS1739379979 LT BBB- Upgrade BB+ Series 2022-A USMM0044CVQ9 LT BBB- Upgrade BB+ Series 2022-B USMM0044CW06 LT BBB- Upgrade BB+ Series 2023-A KYMM004WWV65 LT BBB- Upgrade BB+ Series 2023-B KYMM004WWV40 LT BBB- Upgrade BB+ Series 2023-C KYMM004WWV81 LT BBB- Upgrade BB+ Series 2023-D LT BBB- Upgrade BB+ Series 2024-B KYMM004Z5WJ2 LT BBB- Upgrade BB+ Series 2024-C KYMM004Z5VU1 LT BBB- Upgrade BB+ Series 2024-D KY009A977U41 LT BBB- Upgrade BB+ Series 2024-E LT BBB- Upgrade BB+ Series 2024-F LT BBB- Upgrade BB+ TRANSACTION SUMMARY The DPR programmes are financial future flow programmes backed by the originating banks' generation of foreign-currency (FC) flows (typically denominated in US dollars and euros). Collateral consists of the banks' existing and future rights to receive FC payments into their accounts with correspondent banks abroad. DPRs can arise for a variety of reasons including payments due on the export of goods and services, capital flows, tourism and personal remittances. KEY RATING DRIVERS The rating actions are driven by the upgrades of the originators' LTLC IDRs and the uplift from these ratings, given that there is no change in Fitch's view of the other two relevant key rating drivers from the sector criteria, i.e. the originators' going-concern assessments (GCA) and diversion risk. In particular, the notching is driven by the composition of the future flows generated by the banks, in terms of volatility and concentration along several metrics, the levels of debt-service coverage and the size of the DPR programme relative to the originator's other wholesale funding. The three programmes are sponsored by banks with a GCA of 'GC1' allowing a maximum uplift of six notches. No Turkish DPR programme currently benefits from the maximum uplift permitted by the sector criteria. ARTS Fitch has upgraded ARTS' rating to 'BBB-' from 'BB+', reflecting an unchanged four-notch uplift from Akbank's LTLC IDR of 'B+', sustained by the bank's GC1 score, the programme's relatively small size and a median to high debt service coverage ratio (DSCR), despite a declining trend in flows over the last year. The Outlook on the originator is Positive but the Outlook on the DPR rating is Stable, as further upgrades of Akbank may not directly affect the programme's rating at this higher level. Fitch calculates the monthly DSCR for the programme at 69x based on the average monthly flows of the past 12 months, and 55x based on the lowest monthly flows over the past five years, after incorporating interest-rate stresses from criteria. The outstanding DPR debt is about 6.3% of the bank's non-deposit funding and 13.0% of the bank's LT funding. TIB DPR Fitch has upgraded TIB DPR 's ratings to 'BBB-' from 'BB+', reflecting an unchanged four-notch uplift from Isbank's LTLC IDR of 'B+', sustained by the bank's GC1 score and the programme's relatively small size, despite of a decline trend in flows over the last year that contributed to a median to lower DSCR compared to peers. The Outlook on the originator is Positive but the Outlook on the DPR rating is Stable, as further upgrades of Isbank may not directly affect the programme's rating at this higher level. Fitch calculates the monthly DSCR for the programme at 46x based on the average monthly flows of the past 12 months, and 23x based on the lowest monthly flows over the past five years, after incorporating interest-rate stresses from criteria. The outstanding DPR debt is about 5.8% of the bank's non-deposit funding and 10.3% of the bank's LT funding. Yapi Kredi DPR Fitch has affirmed Yapi Kredi DPR's debt at 'BB+' with a Positive Outlook, reflecting a three-notch uplift from Yapi Kredi's LTLC IDR of 'B+', reduced from four notches. The Positive Outlook reflects that on the bank's and sovereign's LTLC IDRs. The programme's DSCR is at the lower end of peers, at 40x based on the average monthly flows of the past 12 months, and 24x based on the lowest monthly flows in the past five years, and Fitch has observed a declining trend of the DPR flows over the last 12 months. The programme also has one of the highest flow concentrations of top beneficiaries among peers. The outstanding DPR debt is relatively large compared with peers, representing about 15.4% of the bank's non-deposit funding and about 27.1% of the bank's LT funding. These factors drove the reduction in the uplift. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The most significant variables affecting the transactions' ratings are the originator's credit quality, the GCA score, the DPR flows and DSCRs. Fitch would analyse a change in any of these variables for the effect on the ratings of the DPR debt obligations. Another important consideration that could lead to rating action, as it affects the uplift over the originator ratings, is the level of future flow debt as a percentage of the bank's overall liability profile, its non-deposit funding and long-term funding. This is factored into Fitch's analysis to determine the achievable notching differential, given the GCA score. ARTS currently has a median to high level of DSCR and Fitch expects it to be able to withstand a moderate decline in DPR flows. For the other programmes, a significant decline in flows could translate into rating pressure. An increase in the level of future flow debt as a percentage of the originating bank's overall liability profile, its non-deposit funding and long-term funding could limit the maximum achievable notching differential, given the GCA score. Currently, Yapi Kredi DPR has relatively high DPR debt size as a percentage of originator's funding profile. This has been reflected in the uplift tempering. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upgrades of the DPR ratings in the short to medium term are possible, as the Outlook on Turkiye's IDR is currently Positive and the Outlooks on the Turkish DPR originators' LTLC IDRs are Positive. The Positive Outlook on Yapi Kredi DPR indicates the likely direction of the ratings in the next one to two years, and is due to the general positive momentum of Turkiye's rating, which is a positive operating environment that could improve DPR flows, rather than to a specific event in relation to the banks. The Stable Outlooks on ARTS and TIB DPR following their upgrades, indicate that a further one-notch upgrade of the respective originator may not be passed directly onto the programmes. 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 A.R.T.S. Ltd., TIB Diversified Payment Rights Finance Company, Yapi Kredi Diversified Payment Rights Finance Company Ltd Fitch has not conducted any checks on the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. =========================== U N I T E D K I N G D O M =========================== AMBER HOLDCO: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has assigned the Spanish testing and inspection company Amber HoldCo Limited (Applus) an expected 'B+(EXP)' Long-Term Issuer Default Rating (IDR). The Rating Outlook is Stable. Fitch has also assigned an expected 'BB-(EXP)'/'RR3' rating to the issuer's proposed senior secured loans. Final ratings are subject to the completion of refinancing and final documentation conforming to information already received. The ratings reflect Applus's solid business profile in a resilient Testing, Inspection and Certification (TIC) sector that has limited cyclicality. The ratings also reflect the company's good customer diversification, covering different sectors, including autos, energy and labs. Nevertheless, Applus's contract structure is considered short term, other than regulatory inspection contracts in the auto sector. Although Applus has long customer relationships, limited customer churn, a good brand name and provides a mission critical services, Fitch believes the ongoing contract review increases risks to future cashflows. Fitch considers initial EBITDA gross leverage of approximately 5.5x high for the rating level; however, Fitch expects it to gradually fall towards 4.5x in its forecast period, driven by continuous FCF generation of around 2.5% of revenues. This is despite anticipating bolt-on acquisitions to support expansion into emerging markets and supports the Stable Outlook. KEY RATING DRIVERS High Leverage Constrains Ratings: Fitch estimates that pro forma EBITDA leverage will be approximately 5.5x at YE 2025, which is more in line with the mid-'B' category for the sector. However, Fitch expects leverage to gradually improve to below 5.0x in the medium term as a result of modest EBITDA improvement, through synergies and cost control initiatives. Fitch forecasts the EBITDA margin after lease payments will be approximately 13% in its forecast horizon, which will drive a stable FCF generation of approximately 2.5% of revenues despite high interest payments. Short-Term Contract Structure: Besides the auto segment (circa 30% of revenues), Applus's contracts are short term, with significant recurring renewal risks in the next two to three years. However, this does not consider the pending outcome of the IDIADA tender, which is excluded in its rating case. The IDIADA tender and similar long-term contracts could improve the average contract length, which would improve cashflow visibility for the issuer. This could also improve Applus's business profile to a comparable level with higher-rated peers, with any rating impact stemming from key credit metrics at the time. Sound Business Diversification: Applus's solid business profile is supported by good service offerings, wide end market diversification, a brand noted for strong technical expertise and committed skilled employees. The regulatory environment driving the low emission economy also drives demand for Applus's services for energy and auto markets. The business profile is further supported by a fairly high share of contracted, albeit short term in nature, revenue for mission critical, non-discretionary services mix leading to resilience against end-market cyclicality. Concentrated in Europe: Europe makes up 55% of Applus's revenues, with a 23% focus on the company's home market in Spain. This is partially offset by the diversification of Applus's end markets, but still affects the organic growth rate stemming from these mature markets. Fitch forecasts Applus to diversify more into emerging markets through bolt-on M&A, but nevertheless expect Europe will remain the company's largest market. Resilient Performance Through the Cycle: Fitch views Applus's business model as resilient, as demonstrated during the pandemic starting in 2020 and the inflation spike in 2022. The demand for the company's services has accelerated due to a stronger focus on energy transition (with further electrification) and regulation in Europe. Applus has a high customer retention rate of close to 80% in the past 10 years across some divisions. Continued Acquisitions: Fitch expects some of the company's FCF to be directed towards bolt-on acquisitions into emerging markets with higher organic growth expectations, with limited impact on leverage metrics. Fitch anticipates that acquisitions will fit into Applus's long-term strategy of enhancing its global footprint and consolidating its leadership positions in key markets. Execution risk is moderate given that Applus has made more sizeable acquisitions since 1996, while improving profitability in a decentralized organizational framework. DERIVATION SUMMARY Applus's current EBITDA gross leverage is approximately 5x, and its capital structure matches those of similarly rated peers like Assemblin Caverion Group AB (B/Stable), Irel BidCo S.a.r.l. (B+/Stable) and Sarens Bestuur NV (Not Rated). Applus's ability to generate FCF also reflects its asset light business model, mirroring those of peers and the 'bb' rating category for the service sector. Applus's contract length is not long, which is mapping against 'b' ratings for the services sector. However, this is mitigated by the company's more diversified end market coverage compared to peers. These peers are usually exposed to construction or building material industries that can be more cyclical. Fitch believes Applus has a resilient business model that provides limited cashflow volatility, which can support faster deleveraging if capital allocation policies allow. KEY ASSUMPTIONS - IDIADA concession excluded from September 2024; - Organic Revenue Growth excluding IDIADA 5.3% in 2024, 3.2% in 2025 and 3% over the remaining forecast period; - Improvement in EBITDA margin reaching above 14% in 2027 due to business mix change, efficiencies form recent acquisitions and cost saving program; - Annual capex around EUR80 million between 2024-2027; - No dividend distributions. RECOVERY ANALYSIS The recovery analysis assumes Applus would be reorganised as a going-concern in bankruptcy rather than liquidated; - Fitch assumes a 10% administrative claim; - Fitch assumed post-transaction total debt comprises of EUR1,361 million (incremental €375m not included as IDIADA concession excluded in Fitch case) and EUR200 million senior secured RCF, all ranking pari-passu; - Fitch uses Fitch-adjusted EBITDA of EUR200 million to reflect its view of a sustainable, post reorganisation EBITDA on which Fitch bases the enterprise valuation; - Fitch uses a multiple of 5.5x to estimate the going concern EBITDA to reflect the company's post reorganisation enterprise value. The multiple incorporates Applus's solid business profile in a resilient sector that has limited cyclicality. Applus also has good customer diversification and high customer retention rates and is seen as one of the leading companies operating in the sector; - The allocation of value in the liability waterfall results in recovery corresponding to 'RR3'/63% for the new senior debt facilities. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade - Increasing share of long term contracted businesses, pushing average contract length above three years on a sustained basis; - EBITDA Gross Leverage below 4.5x; - FCF above 4%. Factors that could, individually or collectively, lead to negative rating action/downgrade - EBITDA Gross Leverage above 5.5x; - FCF below 2%; - Interest cover below 2.5x. LIQUIDITY AND DEBT STRUCTURE Sufficient Liquidity: Post-transaction, the company will have available an undrawn EUR200 million RCF maturity of 4.5 years. Expected positive FCF generation provides an additional cushion to the company's liquidity position. Debt Structure: Post-transaction the company will EUR1,320 million of debt, split between a senior secured Term Loan B and other senior secured debt. The planned maturity of these facilities is five years therefore the company will have no material scheduled debt repayments until 2029. ISSUER PROFILE Amber HoldCo Limited (Applus) is a global leader in the testing, inspection and certification (TIC) sector. The company performs a broad range of regulatory and safety-driven services across four divisions: Energy & Industry, Automotive, IDIADA and Laboratories. Applus was founded in 1996 and has 26,000 employees in over 70 countries across all continents. DATE OF RELEVANT COMMITTEE 24 June 2024 MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery ----------- ------ -------- Amber Finco Plc senior secured LT BB-(EXP) Expected Rating RR3 Amber Holdco Limited LT IDR B+(EXP) Expected Rating AVON FINANCE 3: Fitch Affirms CCC Rating on Class X Debt -------------------------------------------------------- Fitch Ratings has affirmed Avon Finance No. 3 PLC and Avon Finance No. 4 PLC. Entity/Debt Rating Prior ----------- ------ ----- Avon Finance No.4 PLC Class A XS2683120211 LT AAAsf Affirmed AAAsf Class B XS2683133891 LT AAsf Affirmed AAsf Class C XS2683152339 LT A+sf Affirmed A+sf Class D XS2683170158 LT BBB+sf Affirmed BBB+sf Class E XS2683196468 LT BBsf Affirmed BBsf Class F XS2683221324 LT CCCsf Affirmed CCCsf Class G XS2683222728 LT CCsf Affirmed CCsf Class X XS2683225663 LT CCCsf Affirmed CCCsf Avon Finance No.3 PLC Class A XS2667751130 LT AAAsf Affirmed AAAsf Class B XS2667751486 LT AA-sf Affirmed AA-sf Class C XS2667752450 LT Asf Affirmed Asf Class D XS2667752617 LT BBB+sf Affirmed BBB+sf Class E XS2667752708 LT BB+sf Affirmed BB+sf Class F XS2667752880 LT Bsf Affirmed Bsf Class X XS2667753425 LT CCCsf Affirmed CCCsf TRANSACTION SUMMARY Avon Finance No.3 is a refinance of Avon Finance No.1 (which was a refinance of Warwick No.2) and Avon Finance No.4 is a refinance of Avon No.2 (Warwick No.1). The transactions contain pre-crisis loans originated by GMAC and Platform Home Loans and exhibit features typically associated with non-conforming pre-crisis lending. KEY RATING DRIVERS Performance Deterioration Offsets CE: The performance of both transactions' pools has deteriorated from closing, as shown by the increase in one-month plus and three-months plus arrears. Approximately 25% of the loans in both pools are now in one-month plus arrears, up from 12% at closing for Avon No.3 and 13.9% for Avon No.4. This has led to increases in the weighted average foreclosure frequency (WAFF) in Fitch's analysis. These increases have offset the impact of rising credit enhancement (CE) as the notes deleverage. There have been additional indicators of transaction stress, such as the deferral of interest on the class X notes and a principal deficiency ledger on Avon No.4's class Z notes. Fitch will continue to monitor these developments to assess performance. Seasoned Non-Prime Loans: The portfolios consist of seasoned loans, originated primarily between 2005 and 2008. The owner-occupied (OO) proportion of the loans in both pools (approximately 75% of the pools) contain a high proportion of self-certified, interest-only, county court judgements and restructured loan arrangements. Fitch applied its non-conforming assumptions to this sub-pool. In setting the originator adjustment for the portfolios, Fitch considered factors including the pools' historical performance. This resulted in an originator adjustment of 1.0x for the OO sub-pool and 1.5x for the buy-to-let (BTL) sub-pool. Reserves Mitigate Payment Interruption: The transactions feature a liquidity reserve sized at 0.5% of the closing balance of the class A and B notes. The target amount is the lower of 0.5% of class A and B notes at closing or 1% of the class A and B notes' outstanding balance. The general reserve for Avon No.3 is static and sized at 0.75% of the closing portfolio balance. Avon No.4 has a general reserve also sized at 0.75% of the portfolio balance that amortises at this percentage. If the general reserve is drawn below 0.6% of the closing portfolio balance for Avon No.3 or outstanding portfolio balance for Avon No.4, the liquidity reserve will step up to a dynamic target of 1.5% of the current class A and B notes' balance. The reserve step-up provides protection to payment interruption risk whilst the general reserve provides CE. The reserve funds in both transactions are currently funded at their target amounts. Poor Data Quality; Conservative Assumptions: The quality of data for both transactions has required Fitch to make a number of conservative assumptions when conducting its analysis. As rental income for BTL loans in the pool was not provided, Fitch has assumed the minimum permissible rental income for the BTL loans based on the originators' lending criteria at the time of origination. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transactions' performance may be affected by adverse changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce CE available to the notes. In addition, unexpected declines in recoveries could result in lower net proceeds, which may make certain notes susceptible to negative rating action depending on the extent of the decline in recoveries. Fitch found that a 15% increase in the WAFF and a 15% decrease of the weighted average recovery rate (WARR) would imply downgrades of up to five notches for the class E notes in both transactions. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and potentially upgrades. Fitch found that a decrease in the WAFF of 15% and an increase in the WARR of 15% would imply upgrades of up to four notches for Avon No.3's class E and F notes for and Avon No.4's class E notes. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Avon Finance No.3 PLC & Avon Finance No.4 PLC have an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the high proportion of IO loans in the legacy OO sub-pool, which has a negative impact on the credit profile, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Avon Finance No.3 PLC & Avon Finance No.4 PLC have an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to a significant portion of the pool containing OO loans advanced with limited affordability checks, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. BEAUFORT HOUSE: Collapses Into Administration --------------------------------------------- Business Sale reports that Beaufort House Services Limited, trading as Beaufort House Apartments, firm fell into administration, with Benjamin Wiles and Sarah Rayment of Kroll Advisory appointed as joint administrators. In the company's accounts for the year to December 31, 2022, its assets were valued at around GBP1.2 million, but at the time its net liabilities totalled close to GBP90,000. Beaufort House Services Limited is a London-based property management company. BUSINESS DOCTORS: Goes Into Administration ------------------------------------------ Business Sale reports that Business Doctors Franchising Limited, a business development and management consultancy franchisor based in Warrington, fell into administration, appointing Thomas Grummitt and Andrew Smith of DSW Bridgewood as joint administrators. In the company's accounts for the year to March 31, 2023, its assets were valued at around GBP470,000, but net liabilities totalled slightly over GBP66,000, Business Sale discloses. EDENBROOK MORTGAGE: Moody's Assigns (P)Ba1 Rating to Class E Notes ------------------------------------------------------------------ Moody's Ratings has assigned provisional ratings to Notes to be issued by Edenbrook Mortgage Funding PLC: GBP []M Class A Mortgage Backed Floating Rate Notes due March 2057, Assigned (P)Aaa (sf) GBP []M Class B Mortgage Backed Floating Rate Notes due March 2057, Assigned (P)Aa2 (sf) GBP []M Class C Mortgage Backed Floating Rate Notes due March 2057, Assigned (P)A2 (sf) GBP []M Class D Mortgage Backed Floating Rate Notes due March 2057, Assigned (P)Baa3 (sf) GBP []M Class E Mortgage Backed Floating Rate Notes due March 2057, Assigned (P)Ba1 (sf) Moody's have not assigned ratings to the GBP []M Class Z Fixed Rate Notes due March 2057 and the GBP []M Class X Floating Rate Notes due March 2057. RATINGS RATIONALE The Notes are backed by a pool of prime UK buy-to-let ("BTL") mortgage loans originated by CHL Mortgages for Intermediaries Limited ("CMI", NR). This represents the first rated RMBS issuance from CMI. The portfolio of assets amount to approximately GBP 450.2 million as of March 31, 2024 pool cut-off date. The Liquidity Reserve Fund will be funded to 1.5% of the balance of Class A and B Notes at closing and it will be fully funded at closing from the Class Z proceeds. The ratings are primarily based on the credit quality of the portfolio, the structural features of the transaction and its legal integrity. According to us, the transaction benefits from various credit strengths such as a granular portfolio and an amortising liquidity reserve sized at 1.5% of Class A and B Notes balance. However, Moody's note that the transaction features some credit weaknesses such as an unrated servicer. Various mitigants have been included in the transaction structure such as a back-up servicer facilitator which is obliged to appoint a back-up servicer if certain triggers are breached, as well as an independent cash manager and estimation language. Moody's determined the portfolio lifetime expected loss of 1.3% and Aaa MILAN Stressed Loss of 11.0% related to borrower receivables. The expected loss captures Moody's expectations of performance considering the current economic outlook, while the MILAN Stressed Loss captures the loss Moody's expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and MILAN Stressed Loss are parameters used by us to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in the ABSROM cash flow model to rate RMBS. Portfolio expected loss of 1.3%: This is broadly in line with the recent UK BTL RMBS sector average and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account: (i) the collateral performance of originated loans to date; (ii) limited track record of CMI; (iii) limited seasoning of loans in the pool; (iv) the current macroeconomic environment in the United Kingdom; and (v) benchmarking with comparable transactions in the UK market. MILAN Stressed Loss for this pool is 11.0%, which is in line with than the United Kingdom buy-to-let RMBS sector average and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers (i) the collateral performance of CMI originated loans to date as described above; (ii) the weighted average indexed current loan-to-value of 73.2% which is in line with the sector average; and (iii) only 0.5% of the borrowers have adverse credit history or prior CCJs in the pool at the cut-off date. 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: Significantly different actual losses compared with Moody's expectations at close due to either a change in economic conditions from Moody's central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in a downgrade of the ratings. Deleveraging of the capital structure or conversely a deterioration in the Notes available credit enhancement could result in an upgrade or a downgrade of the ratings, respectively. NAILSEA ELECTRICAL: Falls Into Administration --------------------------------------------- Business Sale reports that Nailsea Electrical Limited, a Bristol-based retailer of kitchen appliances, fell into administration, with Mark Boughey and Michael Field of Forvis Mazars appointed as joint administrators. The family business had been operating for more than 40 years and had stores in Nailsea and Bristol. According to Business Sale, the company stated on social media that despite "working tirelessly to save the business" it had succumbed to economic pressure and entered administration. In its accounts for the year to April 30, 2022, its fixed assets were valued at close to GBP1.4 million and current assets at around GBP2.4 million, while net assets stood at GBP587,325. PROJECT GRAND: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has assigned Project Grand Bidco (UK) Limited (Purmo) an expected Long-Term Issuer Default Rating (IDR) of 'B+(EXP)' with a Stable Outlook. At the same time, Fitch has assigned its planned EUR380 million senior secured sustainability-linked notes (SSNs) an expected rating of 'B+(EXP)'/ with a Recovery Rating of 'RR4'. The SSNs will be issued by Project Grand (UK) Plc. The expected rating factors in a rather limited business profile, as underscored by modest product and geographical diversification as well as high leverage and exposure to volatile end-markets. It also reflects the company's good market position in heating solutions in Europe, fairly stable and improving operating margins and, following its proposed refinancing, an adequate liquidity position. The Stable Outlook reflects its expectation that key credit metrics will remain within its rating sensitivities from 2025. The assignment of final ratings is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS Restructuring to Improve Earnings/FCF: Fitch expects the company's restructuring to gradually and sustainably improve its EBITDA and free cash flow (FCF) margins over the next three to four years. Fitch forecasts EBITDA margins to exceed 10% in 2024 (up from 9.6% in 2023) and continue rising to close to 13% by 2028. Fitch also forecasts the FCF margin, which is likely to be negative this year owing to one-off restructuring and refinancing costs, to improve to close to 4% in 2025 and further to around 5% by 2027. Fitch assumes broadly flat capex of around 2.5% of revenue, no dividend distributions and some improvement in working capital management over the same period. Leading Market Position: Despite recent reduction in its radiators market share, Purmo still enjoys strong market positions in Europe in both radiators and related components as well as in the faster-growing solutions market with its comprehensive heating and cooling offering to customers. Fitch expects the company to maintain its position in the short-to-medium term through organic growth and occasional bolt-on acquisitions. Limited Diversification: The company's ratings are restricted by its weak diversification. While it offers more products than most of its direct peers, its product portfolio is nevertheless limited to heating and cooling solutions equipment and its end-markets are therefore rather narrow. Similarly, its geographic diversification is modest, with practically all revenue being derived from the European market. Temporarily High Leverage: Fitch expects gross EBITDA leverage of around 5.5x at end-2024, which is high for the rating, although the company's cash generation and expected prudent capital-allocation policy underline its deleveraging capacity in subsequent years. Fitch expects Purmo's gross leverage to fall below its negative sensitivity of 5x at end-2025 and gradually further to its positive sensitivity of around 4x in the following two years. Volatile Market Dynamics: Purmo is exposed to the new residential construction sector as well as the market for residential renovations. The former shows short term volatility and is driven by macro factors such as GDP growth and finance availability while the latter is driven more by consumer confidence. Both, however, possess long-term structural growth potential, also reflecting the pressure to lower carbon emissions from housing. Regulation Supports Growth: The energy transition in Europe is supported by favourable financial and regulatory assistance, both at the EU and more directly at the local level, which provide some boost to the demand prospects of Purmo's products. Any weakening of the financial subsidies currently provided may have a negative effect on its growth expectations for Purmo, especially in the heat exchange segment. DERIVATION SUMMARY Purmo's post-refinancing financial profile will be broadly similar to that of other 'B' category rated industrial entities in Europe, such as Ahlstrom Holding 3 Oy (B+/Stable), Evoca SpA (B/Stable), Tarkett Participation (B+/Stable), Victoria PLC (B+/Stable) and INNIO Group Holding GmbH (B/Positive). Purmo generates EBITDA margins below those companies, except Tarkett whose margins are slightly lower, but its leverage, and likely deleveraging profile, are strong relative to all those companies'. Similarly, its FCF, after the 2024 transition period, will likely be higher than these peers'. Purmo's scale is smaller than most of these companies, as is its geographic diversification. This is mitigated by Purmo's strong market position in Europe. Its exposure to volatile end-markets is similar to many companies in building products. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Mid-single digit annual revenue growth starting in 2024 as new residential construction activity recovers while demand for renovation continues at a steady pace - Gradual profitability improvement over 2024-2028 as market dynamics improve and the effects of present restructuring measures are realised - Capex stable at around 2.5% of revenue to 2028 - No dividend payments or other shareholder returns for 2024-2028 - Improvement in working-capital management with net working capital improving to around 20% of revenue in 2028 from 24% in 2023 - Overall cost of debt at 8% in 2025, before reducing towards 7% by 2028 RECOVERY ANALYSIS - Its recovery analysis assumes that Project Grand Bidco will be considered a going concern (GC) in bankruptcy rather than liquidated given its strong market position and long-term relationship with customers - Fitch assumed 10% administrative claim and EUR33 million of securitisation (drawn amount as per end-2023), which is assumed to be unavailable during restructuring, and hence deducted from the enterprise value - Its GC EBITDA estimate of EUR60 million reflects margins being sustained in unfavourable market conditions due to their implemented cost restructuring and ability to pass on increased costs of raw materials to customers - Fitch assumes a 5.5x GC EBITDA multiple due to exposure to a volatile construction sector, although the volatility is lower than for some of the peers as Purmo's main exposure is to renovation rather than new builds. This exposure to the construction market in general is balanced by strong market position and adequate FCF generation. The multiple is in line with that of peers such as Ahlstrom Holding 3 Oy, Ammega Group B.V. (B-/Stable), Nova Alexandre III S.A.S. (B+/Stable), Tarkett Participation and Victoria PLC - Post-refinancing debt will consist of a EUR100 million super senior revolving credit facility (RCF) due in 2028 and EUR380 million SSNs due in 2029. The RCF ranks first and Fitch assumes it to be fully drawn in a restructuring. The SSNs rank second and the waterfall analysis output percentage on current metrics and assumptions is 45%, which maps to 'RR4' and 'B+(EXP)' for the SSNs. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - FCF margins above 3% - EBITDA leverage below 4x - Cash flow from operations (CFO) less capex at above 10% of debt - Improved geographic and product diversification Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - FCF margins below 1% - EBITDA leverage above 5x - CFO less capex below 5% of debt - EBITDA margins below 8% LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: At end-2023, Purmo had readily available cash (net of Fitch-restricted minimum cash of EUR25 million to run the business) of EUR86.7 million. Post-refinancing, Fitch expects the company to have around EUR20 million cash on balance, which should increase towards EUR30 million at end-2024. It will also have an EUR100 million RCF, which Fitch does not expect to be drawn over the rating horizon. The fully available RCF, together with forecast positive FCF generation from 2025, will contribute to satisfactory liquidity. Debt Structure: The refinancing will allow Purmo to repay its all outstanding debt and leave the EUR380 million SSNs outstanding until 2029, when they are expected to mature. ISSUER PROFILE Purmo is a Finnish company that manufactures and distributes heating products and systems. DATE OF RELEVANT COMMITTEE 19 June 2024 MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery ----------- ------ -------- Project Grand (UK) Plc senior secured LT B+(EXP) Expected Rating RR4 Project Grand Bidco (UK) Limited LT IDR B+(EXP) Expected Rating PUNCH PUBS: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed UK Punch Pubs Group Limited's (Punch) Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook. Fitch has also affirmed Punch Finance plc's GBP600 million bond's senior secured rating at 'B+' with a Recovery Rating of 'RR2'. The ratings reflect Punch's portfolio of wet-led, community-focused, independently-run, pubs. They benefit from Punch's grouped procurement synergies resulting from size (such as discounts from brewers, SKYTV, energy bought in bulk) most of which are passed onto operators. The price increases of about 7% and 4%-5%, respectively, in Punch's FY23 (year-end mid-August) and FY24 in drinks and beer sought to protect profit margins. The UK consumer, though economically-constrained, continues to frequent pubs for their affordable product and local social offers. An improving trend in leverage was interrupted by Punch's Milton acquisition in April 2024 and the post-FY23 dividend to Fortress. Management currently targets 6x net debt/EBITDAR, which is equivalent to a Fitch lease-adjusted net debt/EBITDAR of 6.7x (FY23 actual: 8.7x). KEY RATING DRIVERS Wet-led Community Pubs: The Punch portfolio of 1,237 pubs (end-February 2024) is split between 922 stable leased & tenanted pubs (L&T) where Punch receives a net margin from drink sales and fixed rent, and its 325 managed partnerships (MPs), which receive more direct profit (or loss) participation less a percentage of unit turnover retained by the operator for its staff costs. Exposure to food sales, mainly within MPs, is around 20% of group turnover. Increase in FY24 EBITDA: Fitch forecasts Punch's Fitch-calculated EBITDA will rise to GBP85 million in FY24 from GBP69million in FY23, with an GBP8 million EBITDA increase within 9MFY24. Growth will be driven by the full-year effect from price increases for L&T and MP, improved performance in some assets, as well as higher EBITDA from MPs following their conversions from L&T. Central cost increases are offset by initial phases of identified central savings. Fitch estimates the L&T and MP price increases, together with the Milton portfolio and other acquired pubs, would add at least GBP6 million-GBP7 million to FY24 EBITDA. Further central cost savings have been identified. MPs Profit More Variable: The split of pre-central FY23 and FY24 EBITDA between the two L&T and MP operating models is broadly 60:40. The L&T FY23 EBITDA/pub averaged around GBP73,000 and mature MPs averaged GBP91,000 versus a target GBP150,000. MPs' profits are more vulnerable to change as more operating costs (except staff) are incurred by Punch, and turnover increases directly flow to retained EBITDA. MPs and Punch's specialist Laine (with higher EBITDA/pub) have incurred higher fuel costs, diluting the group's mixed profit margin. Implemented Price Increases: In FY24 Punch increased L&T prices in April 2024 by 4% (FY23: 6.8%) and MP prices by a total 5.2% (FY23: 6.9%). MPs' like-for-like 5.6% retail sales increases outperformed the Coffer Peach Tracker's at 4.6%, and Punch's flat L&T volumes are also consistent with the wider market. Price increases have not led to higher drinks volumes but have partly mitigated cost inflation, particularly local staff costs for operators (whereas Punch's main staff cost is at its central operations), and energy costs, which are now abating. Core Stable L&T: The core L&T GBP28 million rent received, indexed annually, constitutes 26% of the group's pre-central-costs EBITDAR. The L&T portfolio's EBITDA has been stable, despite a steady flow of L&T pubs being converted into MP. The core L&T portfolio, including acquisitions, enables centrally-procured supplier discounts and a stable return on assets, with no direct staff costs, and is a prime candidate for conversions to MP. Growing MP Portfolio: Punch's average EBITDA/MP pub has improved year on year as these pubs mature after conversion. MP operators manage their own staff costs (from a percentage of turnover retained), allowing higher sales to enhance Punch's EBITDA. Punch's direct involvement in local strategies means slightly higher price increases can test elasticity of demand. The conversions can include extensive refurbishments, expanding drinking capacity, and possibly food, repurchase of the L&T lease, a new publican, and generally re-investing in the site to protect against local competition. Conversions' Attractive ROI: Punch achieves a 23% return on its investment in conversions - average capex of GBP258,000 per MP - which mature in up to 12-18 months. During FY21-FY23, 79 pubs were converted with GBP20 million capex, totaling a near GBP5 million increase in EBITDA (reaching GBP146,000 EBITDA/pub). This expansionary capex is funded by the group's free cash flow (FCF) and disposal proceeds. Management has identified a further 70 conversions over the next three years. Expansion by Acquisitions and Conversions: Punch acquired 56 Youngs pubs in July 2021 and 24 Milton partnership pubs in April 2024, on top of single pub purchases. The Milton pubs, mostly profitable, were bought out of administration, transitioned to L&T, with eight scheduled for conversion to MP and two to be sold. Integrating the acquired pubs result in central synergies, including greater supplier discounts, in turn boosting group profits. Dividend/Acquisitions Slow Deleveraging: Management's current target of 6x leverage, achievable 'over time', which equates to Fitch's 6.7x EBITDAR net leverage, was delayed by a GBP20.6 million interim dividend in FY24 to Fortress and the GBP17 million Milton acquisition. Fortress acknowledges the attractive returns on pub conversion capex and re-investment but may draw further dividends. Positive FCF: Inherently positive FCF covers maintenance capex and conversion capex, also aided by regular disposal proceeds. Despite an anticipated higher coupon for its likely 6.125% coupon 2026 bond refinancing, Fitch expects FY26 EBITDAR interest cover to be around 1.8x (FYE23: 1.6x). DERIVATION SUMMARY Punch's IDR is the same as Stonegate Pub Company Limited's (IDR: B-/Rating Watch Negative) but Stonegate has over 4,500 pubs compared with Punch's over 1,240 (February 2024). Both are predominantly wet-led estates. Punch's EBITDA/pub in L&T is comparable with Stonegate's core L&T portfolio but Stonegate's equivalent managed portfolio yields far higher profits/pub than Punch's, despite recent lower volumes in town centre venues and late-night patronage. Stonegate's higher profits per pub reflects the larger size of the average unit, higher sales per outlet (including Slug & Lettuce, Be at One, and Venues nightclubs) and the advantages of a bigger group's central procurement. Stonegate is equally geographically diverse across the UK, but its managed estate assumes greater direct cost pressures of labour and energy. Both companies have a core L&T portfolio from which a programme for respective conversion to managed models requires capex and will fuel profit growth. Punch's Stable Outlook reflects its greater financial flexibility than Stonegate's, with less pressure on liquidity despite its bulk refinance risk in June 2026. Punch's pub conversion programme (part-equity funded) was already underway before the pandemic. Stonegate's Rating Watch Negative reflects uncertainties around the timing of its refinancing of GBP2.2 billion senior secured debt in July 2025 Punch and Stonegate are rated the same as the UK-weighted Pizza Express (Wheel Bidco Limited, IDR: B-/Stable) which, because of weak consumer sentiment and significant cost inflation not being fully passed on to consumers, is taking longer to recover profitability. Fitch estimated Pizza Express's EBITDAR gross leverage to have remained at 7.3x in 2023, before it deleverages during 2024-2026 to around 6.5x. This compares with Punch's EBITDAR net leverage of 7.4x at FY24 and around 6.6x in FY25, and around 6.8x in 2025 for Stonegate. UK pubs have been more resilient to operating conditions. They recovered a lot more quickly (volumes, visits, and profitability) from the pandemic period of operational constraints than other sectors such as hotels (reliant on tourists, holiday season concentrations), and food-weighted restaurants (larger ticket and less frequency of occasions). A pub patron's average spend is lower than in the restaurant sector, and frequency and ease of visit is higher than at restaurants and hotels. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - L&T drinks sales growth of 4.7% in FY24, reflecting the full-year effect of April 2023's 6.8% and April 2024's 4% price increases. Including the core GBP28 million annual rent from publicans, during FY25-FY27 pre-central-costs-EBITDA for this division is flat at GBP70 million including the net effect of conversions from L&T to MP - MP drinks sales growth of around 5% in FY24 from its mature portfolio of 258 pubs, 2023 and 2024 price increases, EBITDA/pub of GBP140,000 and a portfolio of 40 pub conversions. The latter is improving from a low base and will expand as over 70 conversions during FY25-FY27 from L&T are undertaken. These assume similar return on investments to those achieved to date - Central costs are reduced to GBP17 million in FY26 from FY24's GBP24 million after implementing central cost initiatives and on lower energy costs - Capex of GBP27 million-GBP32 million a year during the next three years, around half of which is for maintenance of the existing estate - Disposals receipts around GBP10 million per year - No further dividends, which will otherwise delay deleveraging - Refinance of the GBP600 million June 2026 bond at a higher coupon RECOVERY ANALYSIS The recovery analysis assumes that Punch would be liquidated in bankruptcy rather than reorganised as a going concern. Fitch has assumed a 10% administrative claim. The liquidation estimate reflects Fitch's view of the value of pledged collateral that can be realised in a sale or liquidation and distributed to creditors. Fitch used the freehold and long leasehold pubs' valuations including an updated August 2023 third-party valuation for part of the portfolio. These valuations are based on the fair maintainable trade (FMT or profitability) of the pubs using 8x-12x multiples. Punch has a record of selling pubs and portfolio assets at or above book value. Fitch applied a standard 25% discount (75% advance rate) to the updated valuations, replicating a distressed group with an around 20% reduction in EBITDA (replicating the FMT component of the valuation). Punch's super-senior GBP70 million revolving credit facility (RCF) is assumed to be fully drawn on default. Fitch has added the Milton assets to total a GBP901 million estate before Fitch's discount. Its waterfall analysis generates a ranked recovery for the senior secured bond in the 'RR2' category, leading to a 'B+' instrument rating. This results in a waterfall generated recovery computation (WGRC) output percentage of 90% (previously 89%) based on current metrics and assumptions. This uplift reflects the company's continued investment in the estate as well as bolt-on pub acquisitions and disposals. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - EBITDAR leverage below 7.0x (net debt-equivalent below 6.5x) on a sustained basis - EBITDAR fixed-charge coverage above 1.6x - FCF margin at 2%-5% - Evidence that MP conversions are reaching targeted improved EBITDA/pub, reflecting a successful strategy execution and supportive trading environment Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Tangible refinancing plans in place 18 months ahead of the GBP600 million bond maturity in June 2026 - EBITDAR leverage above 8.0x (net debt-equivalent above 7.5x) - EBITDAR fixed-charge coverage trending towards 1.2x - Negative FCF margin - Weakened liquidity including significant drawdown of the RCF LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: At FYE23 Punch had GBP10.3 million cash plus GBP50 million undrawn under the GBP70 million super-senior RCF, before the GBP20.6 million Fortress dividend was paid. At end-February 2024, cash was GBP5 million and GBP45 million undrawn under the RCF, before the GBP17 million Milton portfolio was acquired in April 2024, which led to a probable draw on the RCF. Group liquidity will be supported by positive FCF (after expansionary and maintenance capex) and before disposals proceeds. The bond and RCF mature in June 2026 and December 2025, respectively. Fitch expects Punch to have tangible refinancing plans in place 18 months ahead of the scheduled June 2026 debt maturity of the GBP600 million bond. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Punch Finance plc senior secured LT B+ Affirmed RR2 B+ Punch Pubs Group Limited LT IDR B- Affirmed B- RAY ACQUISITION: S&P Assigns 'B' ICR, Outlook Stable ---------------------------------------------------- S&P Global Ratings assigned its 'B' rating to Ray Acquisition Ltd. and its 'B' issue rating to the proposed senior secured notes. S&P also assigned its recovery rating of '3' to the debt, reflecting its expectation of meaningful recovery (50%-70%; rounded estimated 55%) in the event of default. The stable outlook reflects S&P's view that Sunrise's operating performance should be supported by adjusted debt to EBITDA of below 6.0x and that it will further reduce leverage to around 5.5x by 2026, along with positive free operating cash flow (FOCF) generation. On June 3, 2024, private equity firm Platinum Equity agreed to acquire global mobility solutions company Sunrise Medical Group, which is forecast to generate around EUR700 million of revenue and S&P Global Ratings-adjusted EBITDA of around EUR135 million-EUR140 million in fiscal year 2024 (ending June 30, 2024). The 'B' rating primarily reflects Sunrise's likely highly leveraged capital structure following the acquisition by financial sponsor Platinum Equity. Under the proposed capital structure, the group will operate with a EUR150 million super senior, secured RCF, undrawn at closing, and a EUR815 million senior secured notes. S&P said, "We understand the proceeds will be used to repay the existing EUR445 million first-lien facility and GBP107 million second-lien facility, cover a share of the purchase price consideration, and add EUR25 million cash to the balance sheet. Assuming stable operating performance following the transaction, we forecast that under the new capital structure, S&P Global Ratings-adjusted debt to EBITDA will stand at just below 6.0x and FFO cash interest coverage at around 2.0x-2.2x at the end of fiscal year 2025. For fiscal years 2025 and 2026, we see Sunrise generating positive FOCF of about EUR35 million-EUR40 million." Sunrise continues to optimize its footprint through ongoing projects, such as in the U.S., by shifting manual chair assembly operations and other products and parts from its Fresno, California factory to its lower cost Tijuana factory in Mexico and to the Nashville facility. In addition, the group has been moving its high volume adult manual chairs assembly from Germany to Poland, while also consolidating its operations in China. S&P said, "We expect around 3.0%-4.0% growth of revenues in fiscal years 2025 and 2026, and an S&P Global Ratings-adjusted EBITDA margin of 20%-21%. We also expect working capital outflows to normalize, with inventory levels gradually returning to past levels. As a result, we estimate EUR5 million-EUR10 million of working capital outflows in fiscal years 2025 and 2026." S&P said, "We forecast that S&P Global Ratings-adjusted EBITDA will improve to about EUR145 million-EUR150 million in fiscal 2025 and EUR155 million-EUR160 million in fiscal 2026, supported by a strategic focus toward higher margin power products and operational efficiencies. We expect Sunrise to finish fiscal year 2024 with revenue growth of about 10% and S&P Global Ratings-adjusted EBITDA of EUR135 million-EUR140 million, above our previous expectation. This is due to significant easing of freight costs and strong sales led by the U.S. market and power products. For fiscal years 2025 and 2026, we forecast annual topline growth of around 3.5%-4.0% as the company continues strategically focusing on high-margin, complex rehabilitation products. In addition, Sunrise is still investing in research and development of new products and technologies to remain competitive, which will help support growth. “We expect Sunrise's cash generation for fiscal year 2024 to be diminished by a one-off legal cost relating to the resolution of its long-standing intellectual property infringement case with Invacare, as well as transaction-related expenses. From fiscal year 2025, we expect an uplift in the overall EBITDA generation ability as a result of growth, operational improvements, and lower levels of extraordinary expenses compared with past years. We forecast adjusted EBITDA margins of around 20%-21% over fiscal year 2025 and fiscal year 2026, supported by normalized transportation costs and operating efficiencies from manufacturing and footprint optimization. "We expect modest acquisitions will continue to supplement organic growth. Sunrise has a track record of small-to-modest size acquisitions, with the latest in September 2023 of Ride Designs, customized seatings solutions provider for wheelchairs, for a consideration of $30 million (about EUR28 million). We think acquisitions will continue occurring to support Sunrise's objectives to shift further toward high-margin products, including specialist products, and to increase market share in key growth markets such as the U.S. We have thus factored about EUR50 million of acquisitions each year in our base case. We note positively the track record of successful acquisition integration over the past years, with the ability to deliver commercial synergies." Outlook S&P said, "The stable outlook reflects our view that Sunrise Medical will be able to improve its operating performance through continued organic growth, along with material cost savings from operational cost initiatives. "We expect the group will pursue product innovation, maintain strong customer relationships, and reduce leverage over the next 12-18 months. We assume adjusted debt to EBITDA will stay below 6x over the next 12 months and liquidity will remain adequate." Downside scenario S&P said, "We could lower the rating on Sunrise if its S&P Global Ratings-adjusted debt to EBITDA rises above 7x on a sustained basis, with no prospects of deleveraging in the next 12 months, and the company displays negative FOCF along with an FFO cash interest coverage ratio below 2x. This could result from declining EBITDA through operational setbacks from the unexpected tightening of reimbursement terms, or loss of volume or supply chain constraints hampering deliveries. In addition, we would view negatively larger-than-expected discretionary spending, such as the group entering a sizable debt-financed acquisitions, which would pressure credit metrics." Upside scenario S&P said, "We could raise the rating if we see a continual improvement in credit metrics, such that adjusted debt to EBITDA decreases below 5x on a sustained basis, with a clear financial policy commitment to maintain leverage at such levels permanently. This could occur if Sunrise Medical generates stronger EBITDA and FOCF versus our base case, which could stem from robust organic growth through successful product innovations and strong uptake of the high-margin product range. This is along with an overperformance of operational improvement initiatives and continued successful integration of new acquisitions." Environmental, Social, And Governance S&P said, "Governance factors are a moderately negative consideration in our rating analysis of Sunrise, as is the case for most rated entities owned by private-equity sponsors. We believe that the company's highly leveraged financial risk profile points to corporate decision-making that prioritizes the interests of the controlling owners. This also reflects the generally finite holding periods and a focus on maximizing shareholder returns." SHERWOOD PARENTCO: Fitch Lowers LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has downgraded Sherwood Parentco Limited's (Arrow) Long-Term Issuer Default Rating (IDR)to 'B+' from 'BB-'. The Outlook is Stable. Fitch has also downgraded Sherwood Financing Plc's senior secured debt, guaranteed by Arrow (among other Sherwood entities) to 'B+'/'RR4' from 'BB-'. Arrow is the parent company of Sherwood Acquisitions Limited, a UK-based entity set up by TDR Capital LLC (and owned by investment funds managed by TDR Capital LLC) to acquire Arrow Global Group, a European fund manager specialising in a range of distressed and performing assets. KEY RATING DRIVERS The downgrade reflects Arrow's continued material leverage, which amid higher interest rates increases pressure on its financial metrics while it moves towards a fund management-based business model. It also reflects its developing investor franchise and the longer-term benefits expected from shifting to an asset-light strategy, which differentiates it from traditional debt purchasers. Shift to Low Balance-Sheet Usage: Arrow is transitioning from traditional debt purchasing towards acting primarily as a manager of funds investing in NPL portfolios as well as other distressed and performing assets, and as the servicer of those assets. Under the revised business model, own balance-sheet usage reduces principally to co-investments in funds and decreased to around 10% in the new funds (ACO 2, AREO) from 25% of total fund size in the first fund (ACO1). As a result, Arrow's 2023 purchases for its own balance sheet reduced to GBP148.5 million, materially lower than 2022 (GBP181 million). By end-1Q24, Arrow's total funds under management (FuM) had grown to EUR9.3 billion. In Fitch's view, the long-term FuM growth rate remains sensitive to performance in existing funds, which are still at an early stage of their lives, as well as continued investor appetite for investments in non-performing and real estate assets. Significant EBITDA; Weak Profitability: Arrow's adjusted EBITDA margin remained sound in 2023, reflecting the growth of asset-light activities, in line with Arrow's strategy to grow its capital-light business. However, net earnings remain negative, with a pre-tax loss of GBP 125 million in 2023 (2022: GBP 84 million), after accounting for high financing costs and the GBP36 million fair-value adjustment cost resulting from the acquisition of Maslow Capital. Fitch expects Arrow to generate increasing earnings from its growing discretionary funds in the medium term, as the company keeps fundraising and deploying capital. Leverage Constrains Rating: Arrow's Long-Term IDR is constrained by high cash flow leverage, with a Fitch-calculated gross debt/adjusted EBITDA ratio of 4.4x at end-2023, down from a high 5.6x at end-2021. Similar to many European distressed asset purchasers, Arrow's tangible equity is negative following material inorganic growth, and this is also reflected in Fitch's capitalisation and leverage assessment. Management targets net cash flow leverage at 3.0x-3.5x in the medium term and Fitch expects leverage to benefit from growing revenue in the integrated fund management segment. This may lead Fitch to adopt a hybrid approach to benchmarking leverage, once the EBITDA base has achieved a more even split between investment activities and fund management. Medium-Term Refinancing Requirements: Fitch expects Arrow's funding needs to remain significant in the medium term, despite the longer-term movement towards a balance-sheet-light business model. However, it benefits from a lack of bond maturities before November 2026 and liquidity is supported by a GBP285 million revolving credit facility. Diversification of Income: Arrow's scale is below that of higher-rated alternative asset managers (measured by assets under management) and debt purchasers (measured by estimated remaining collections). However, the company's integrated fund management business has shown continued fund-raising growth since launch in 2019. Arrow largely targets smaller and often off-market local transactions, which are less price sensitive than more standard auction-led transactions RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Inability to keep leverage (gross debt/adjusted EBITDA) below 4.5x, or to demonstrate movement towards pre-tax profitability. - Material collection underperformance, in particular if leading to meaningful portfolio impairments. - Material increase in Arrow's risk appetite or weakening of its corporate governance. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Sustained improvement in Arrow's gross leverage ratio to below 3.5x, alongside sound fund performance that facilitates ongoing investor support for investment in future funds. DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS As Arrow's senior secured notes are the company's main outstanding debt class, Fitch has equalised the notes' ratings with the Long-Term IDR, indicating average recoveries for the notes. DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES - A downgrade of the Long-Term IDR would likely be mirrored in a downgrade of the notes. In addition, worsening recovery expectations, for instance, through a larger layer of structurally senior debt, could lead Fitch to notch down the notes' rating from the Long-Term IDR - An upgrade of the Long-Term IDR would likely be mirrored in an upgrade of the notes. In addition, improved recovery expectations, for instance, through a larger layer of junior debt, could lead Fitch to notch up the notes' rating from Arrow's Long-Term IDR ESG CONSIDERATIONS Arrow has an ESG Relevance Score of '4' for 'Financial Transparency' due to the significance of internal modelling to portfolio valuations and associated metrics such as estimated remaining collections. However, this is a feature of the debt-purchasing sector as a whole, and not specific to Arrow. This has a moderately negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Sherwood Parentco Limited LT IDR B+ Downgrade BB- Sherwood Financing Plc senior secured LT B+ Downgrade BB- SOUTHERN PACIFIC 06-1: S&P Affirms 'B-(sf)' Rating on E1c Notes --------------------------------------------------------------- S&P Global Ratings affirmed its credit ratings on Southern Pacific Securities 06-1 PLC's class C1a and C1c notes at 'A+ (sf)', class D1a and D1c notes at 'BBB (sf)', and class E1c notes at 'B- (sf)'. S&P said, "Since our previous review, the transaction's performance has deteriorated with investor report arrears increasing to 43.46% from 32.20%. This is significantly higher than the U.K. pre-2014 nonconforming index at 23.1%. The percentage increase in arrears is mostly due to the reduction in pool size as compared with the actual increase in arrears. "Cumulative losses have increased marginally to 3.83% from 3.81% at our previous review. "Our weighted-average foreclosure frequency (WAFF) assumptions have increased at all rating levels, reflecting higher arrears. This has been partially offset by lower weighted-average loss severity assumptions, stemming from a decrease in the current loan-to-value (LTV) ratio following house price index growth. However, considering the transaction's historical loss severity levels, the latest available data suggests that the portfolio's underlying properties may have only partially benefited from rising house prices, and we have therefore applied a haircut to property valuations to reflect this." Weighted-average foreclosure frequency and weighted-average loss severity WAFF (%) WALS (%) CREDIT COVERAGE (%) AAA 68.54 23.48 16.09 AA 65.33 16.40 10.71 A 62.98 6.97 4.39 BBB 60.34 3.54 2.14 BB 57.56 2.00 1.15 B 56.93 2.00 1.14 WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity. The reserve fund is at target and is not amortizing due to the breach in the 90+ days arrears trigger and the amortization ratio not being satisfied. The liquidity facility is at target and is amortizing. Given the sequential amortization, credit enhancement has increased since S&P's previous review, which is offsetting the deterioration in performance in our cash flow analysis. S&P said, "Our cash flow modelling shows that the class C1a and C1c notes pay timely interest and repay principal at rating levels above 'A+'. However, our current counterparty criteria limit the notes' maximum achievable rating at our 'A+' long-term issuer credit rating on Barclays Bank PLC. We therefore affirmed our 'A+ (sf)' ratings on these two classes of notes. "We affirmed our 'BBB (sf)' ratings on the class D1a and D1c notes. The assigned rating is lower than the level indicated by our cash flow results as it factors in the sensitivity to increases in arrears (resulting in higher defaults and longer recoveries), the profile of the borrowers, high interest rate environment, and tail-end risk associated with the small pool size. "The class E1c notes do not achieve any rating in our standard or steady state scenario (actual fees, expected prepayment, no spread compression, and no commingling stress) cash flow runs. However, given increasing credit enhancement, the at-target nonamortizing reserve, and minimal shortfalls in steady state scenario, in our view, these notes do not rely on favorable economic and financial conditions to service their debt obligations. Therefore, we affirmed our 'B- (sf)' rating on the class E1c notes. "We consider the transaction's resilience in case of additional stresses to some key variables, in particular defaults and loss severity, to determine our forward-looking view. We considered the sensitivity of the ratings to increased defaults, extended recoveries, and higher interest rates, and the ratings remain robust. Given its high seasoning (220 months), the transaction has a low pool factor (6.6%), which tends to amplify movement in arrears. We have considered the tail-end risk associated with the low pool factor in our analysis." Macroeconomic forecasts and forward-looking analysis S&P expects interest rates in U.K. to be higher for longer than previously expected. S&P said, "We consider the borrowers in this transaction to be nonconforming and as such generally less resilient to higher interest rates than prime borrowers as all the borrowers are currently paying a floating rate of interest and so will be affected by higher rates. "In our view, the ability of the borrowers to repay their mortgage loans will be highly correlated to macroeconomic conditions and the complex profile of nonconforming borrowers. Our forecast on policy interest rates for the U.K. is 4.5 in 2024% and our forecasts for unemployment for 2024 and 2025 are 4.3% and 4.3%, respectively. "Given our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market, we have performed additional sensitivities related to higher levels of defaults due to increased arrears and house price declines. We have also performed additional sensitivities with extended recovery timings due to observed delays to repossession owing to court backlogs in the U.K. and the repossession grace period announced by the U.K. government under the Mortgage Charter." SUBSEA 7: Egan-Jones Retains BB+ Senior Unsecured Ratings --------------------------------------------------------- Egan-Jones Ratings Company, on June 3, 2024, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Subsea 7 S.A. Headquartered in Sutton, United Kingdom, Subsea 7 S.A. offers oilfield services. SUSSEX EXCHANGE: Goes Into Liquidation -------------------------------------- Business Sale reports that a restaurant, bar and cinema complex in St Leonards, East Sussex has gone into liquidation. The Sussex Exchange, located on Queensway, has been operating for close to 12 years, during which time it has seen significant expansion. However, the site's operating company, The Sussex Exchange Limited, reportedly fell into administration last year, Business Sale recounts. At the time, the company owed around GBP260,000 in unpaid tax, as well as being in debt to numerous trade creditors and its landlord, Sea Change Sussex, Business Sale notes. The landlord said at the time that the business had been significantly impacted by COVID-19 and agreed a repayment plan for the rent arrears while the company's sole director and shareholder Elie Fakhoury sought a buyer, Business Sale relates. However, efforts to rescue the business failed, leading to it entering liquidation, Business Sale discloses. According to Business Sale, in a statement, a spokesperson for Sea Change Sussex said: "The operator of the Sussex Exchange restaurant and cinema, of which Sea Change Sussex is the landlord, has unfortunately gone into liquidation." "The operator found its trade was hit hard by the pandemic and Sea Change Sussex has, since then, been working with its management team to try to help it recover from that, agreeing a repayment plan for unpaid rent and allowing it to seek a buyer for the business." "But the operator has been unable to get the business back on track or find a buyer, so its director has declared it to be insolvent. The business is now in the hands of the liquidators." The spokesperson added that Sea Change was in contact with the liquidators to consider "the best options for the future of the facility". In The Sussex Exchange Limited's most recent accounts at Companies House, for the year to May 30, 2022, its fixed assets were valued at slightly over GBP1 million and current assets at around GBP114,000, Business Sale states. However, its significant debts at the time meant that its net liabilities amounted to close to GBP1.4 million, Business Sale notes. =============== X X X X X X X X =============== [*] BOOK REVIEW: Taking Charge ------------------------------ Taking Charge: Management Guide to Troubled Companies and Turnarounds Author: John O. Whitney Publisher: Beard Books Softcover: 283 Pages List Price: $34.95 Order a copy today at: http://beardbooks.com/beardbooks/taking_charge.html Review by Susan Pannell Remember when Lee Iacocca was practically a national hero? He won celebrity status by taking charge at a company so universally known as troubled that humor columnists joked their kids grew up thinking the corporate name was "Ayling Chrysler." Whatever else Iacocca may have been, he was a leader, and leadership is crucial to a successful turnaround, maintains the author. Mediagenic names merit only passing references in Whitney's book, however. The author's own considerable experience as a turnaround pro has given him more than sufficient perspective and acumen to guide managers through successful turnarounds without resorting to name-dropping. While Whitney states that he "share[s] no personal war stories" in this book, it was, nonetheless, written from inside the "shoes, skin, and skull of a turnaround leader." That sense of immediacy, of urgency and intensity, makes Taking Charge compelling reading even for the executive who feels he or she has already mastered the literature of turnarounds. Whitney divides the work into two parts. Part I is succinctly entitled "Survival," and sets out the rules for taking charge within the crucial first 120 days. "The leader rarely succeeds who is not clearly in charge by the end of his fourth month," Whitney notes. Cash budgeting, the mainstay of a successful turnaround, is given attention in almost every chapter. Woe to the inexperienced manager who views accounts receivable management as "an arcane activity 'handled over in accounting.'" Whitney sets out 50 questions concerning AR that the leader must deal with -- not academic exercises, but requirements for survival. Other internal sources for cash, including judiciously managed accounts payable and inventory, asset restructuring, and expense cuts, are discussed. External sources of cash, among them banks, asset lenders, and venture capital funds; factoring receivables; and the use of trust receipts and field warehousing, are handled in detail. Although cash, cash, and more cash is the drumbeat of Part I, Whitney does not slight other subjects requiring attention. Two chapters, for example, help the turnaround manager assess how the company got into the mess in the first place, and develop strategies for getting out of it. The critical subject of cash continues to resonate throughout Part II, "Profit and Growth," although here the turnaround leader consolidates his gains and looks ahead as the turnaround matures. New financial, new organizational, and new marketing arrangements are laid out in detail. Whitney also provides a checklist for the leader to use in brainstorming strategic options for the future. Whitney's underlying theme -- that a successful business requires personal leadership as well as bricks and mortar, money and machinery -- is summed up in a concluding chapter that analyzes the qualities that make a leader. His advice is as relevant in this 1999 reprint edition as it was in 1987 when first published. John O. Whitney had a long and distinguished career in academia and industry. He served as the Lead Director of Church and Dwight Co., Inc. and on the Advisory Board of Newsbank Corp. He was Professor of Management and Executive Director of the Deming Center for Quality Management at Columbia Business School, which he joined in 1986. He died in 2013. ********* 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 * * *