/raid1/www/Hosts/bankrupt/TCREUR_Public/240725.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, July 25, 2024, Vol. 25, No. 149
Headlines
F R A N C E
OBOL FRANCE: S&P Puts 'B-' Rating Amid Corporate Reorganization
G E O R G I A
GEORGIA GLOBAL: Fitch Publishes BB-(EXP) Rating for Sr. Unsec Notes
G E R M A N Y
OQ CHEMICALS: S&P Rates Super Senior Bridge Loan Prelim. 'CCC+'
PLUSSERVER GMBH: EUR260MM Bank Debt Trades at 78% Discount
TELE COLUMBUS: EUR462.5MM Bank Debt Trades at 25% Discount
I R E L A N D
AERCAP GLOBAL: Fitch Rates Jr. Subordinated Notes 'BB+'
K A Z A K H S T A N
CENTERCREDIT JSC: S&P Affirms 'BB-/B' ICRs, Outlook Positive
L I T H U A N I A
AKROPOLIS GROUP: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
L U X E M B O U R G
FOUNDEVER GROUP: EUR1BB Bank Debt Trades at 23% Discount
SANI/IKOS GROUP: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
N E T H E R L A N D S
SPRINT BIDCO: EUR700MM Bank Debt Trades at 76% Discount
S L O V A K I A
365.BANK: Fitch Affirms Then Withdraws 'BB' LT IDR, Stable Outlook
S W E D E N
IGT HOLDING: S&P Alters Outlook to Negative, Affirms 'B' ICR
T U R K E Y
ANADOLU ANONIM: Fitch Affirms 'BB-' IFS Rating, Outlook Positive
U N I T E D K I N G D O M
AMSCAN INTERNATIONAL: Baaj Capital Acquires Party Supplier
THG PLC: Fitch Affirms 'B+' LongTerm IDR, Outlook Negative
WD FF LIMITED: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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F R A N C E
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OBOL FRANCE: S&P Puts 'B-' Rating Amid Corporate Reorganization
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S&P Global Ratings assigned its 'B-' rating to France-based funeral
services provider Obol France 2.5 SAS. At the same time, S&P has
assigned 'B-' issue ratings and '3' recovery ratings to the term
loan B (TLB) and revolving credit facility (RCF), based on 60%
recovery prospects.
The stable outlook indicates that Obol should remain self-funded
over fiscal years 2025 and 2026 as its operating performance
recovers on the back of market share improvements, price and mix
initiatives, and cost efficiency measures that offset competitive
and inflationary pressures.
Obol's proposed amend-and-extend transaction and equity-like
shareholder loan will effectively remove short-term refinancing
risk, reduce debt, and strengthen the company's liquidity position.
On July 23, 2024, Obol launched the transaction, which extends the
maturities of its TLB, RCF, and PIK loan to December 2028,
September 2028, and June 2029, respectively. The transaction is
supported by a EUR150 million shareholder loan from the sponsor
OTPP, which is expected to reduce Obol's senior debt by EUR100
million and support liquidity by adding EUR35 million in estimated
cash on balance sheet. Under S&P's criteria for assessing noncommon
equity, OTPP's loan qualifies as equity because it does not contain
events of default clauses or covenants, it matures after the senior
debt, there is no fixed cash payment, and the instrument is
unsecured and deeply subordinated.
In parallel, Obol anticipates greater flexibility under its
financing agreements as it prepares for a corporate reorganization.
The reorganization notably includes a separation of Obol's
operations into four subsidiaries, which is expected to improve
financial monitoring while allowing for cheaper financing and
greater tax efficiency. First, the profit-sharing impact will
increase because interest expenses will be deducted from the
profit-sharing calculation in the new structure. Also, lower
financing costs are likely since the CremaCo subsidiary will be
funded on a project finance basis, allowing for cheaper cost of
funding than for the senior debt. S&P said, "In exchange, we expect
lenders to receive compensation in line with market standards for
this kind of transaction. In our view, the transaction will help
Obol deliver its business plan because it is expected to improve
the company's debt maturity profile, reduce its interest burden,
and support its liquidity position."
Despite the favorable effect from the amend-and extend transaction,
leverage will likely remain elevated amid relatively subdued FOCF.
S&P said, "We expect the company to use about EUR100 million of the
EUR150 million of proceeds from the equity-like shareholder
injection to repay its term loan. In addition, S&P Global
Ratings-adjusted EBITDA is expected to reach EUR150 million in
fiscal 2025 and EUR160 million in fiscal 2026 as pricing, market
share, and productivity initiatives counter competitive and
inflationary pressures. Although we regard the expected
deleveraging progress as positive, S&P Global Ratings-adjusted debt
to EBITDA will remain relatively high at about 7.5x (6.0x-6.5x
excluding the PIK loan) by the end of fiscal 2025 and 7.0x by the
end of fiscal 2026 (6.0x excluding the PIK loan). Moreover, FOCF
after leases will be relatively neutral over fiscal 2025, as in
fiscal 2023, and slightly negative in 2026. This mainly reflects
elevated capital expenditure (capex) to support the funeral
services network and a high cash interest burden. From 2026 onward,
we expect higher interest payments as hedging instruments phase out
and higher capex as the company ramps up expansionary investments,
notably earmarked for its crematorium footprint. Overall, our
forecast credit metrics are still commensurate with the 'B-'
rating. Moreover, we do not foresee liquidity issues over the
coming 12 months, since Obol has about EUR66 million in cash and a
EUR40 million fully undrawn RCF pro forma the transaction. In our
view, this should comfortably cover stable working capital needs
and flexible capex mostly tied to expansionary projects, with no
near-term debt maturities."
S&P said, "Under or base case, we see gradual EBITDA growth over
fiscals 2025 and 2026, despite competitive pressures hindering
market share gains.For fiscals 2025 and 2026, we anticipate 3%-5%
annual revenue growth, mainly fueled by pricing and product mix
initiatives and 1%-2% higher volumes. Obol should be able to
continue passing on inflation over the forecast period, leveraging
its brand awareness, predominantly premium positioning, and
extensive funeral services network. Additionally, we see mix
improvements contributing to higher selling prices as the company
increases commercial efforts to widen its funeral services with
flowers, funeral articles, and grave maintenance works, among
others. Volumes should increase on the back of marginal market
share gains after years of stagnation, more than offsetting about
1% lower mortality in fiscal 2025, while mortality is expected to
increase 1% in fiscal 2026. Market share is stable after years of
erosion, thanks to the impact of management initiatives implemented
about three years ago. Still, competitors have been expanding their
own funeral services networks, which has prevented the company from
regaining market share. Market share should pick up gradually in
the future on the back of past initiatives and the ramp-up of new
funeral homes as links with hospitals, retirement homes, and public
authorities are strengthened. Market share gains should also come
from Essentiel, a recently launched low-to-medium-end brand that is
expected to take business from smaller competitors, as well as
bolt-on acquisitions. We expect our adjusted EBITDA margin to
rebound by 100 bps-150 bps in fiscal 2025 and by 50 bps-100 bps in
fiscal 2026 because of positive operating leverage, normalizing
operating costs, and cost savings initiatives. This assumes lower
electricity costs, already locked in for the forecast period,
purchasing savings from re-tendering and unifications of suppliers,
as well as cost optimization, owing to improved automation and
digitization of certain processes.
"Obol's results for fiscal 2024 were roughly in line with our
expectations, reflecting the effect of lower mortality rates after
the COVID-19 pandemic.Net sales (non-audited) declined 2.8% during
fiscal 2024 as 5.2% lower funeral volumes outstripped higher
selling prices and because of the carry-over effect from fiscal
2023, tariff increases in fiscal 2024, and higher average cremation
fees. Lower funeral volumes stemmed from a 3.6% year-on-year
decrease in France's mortality rate, following the exceptionally
high rate during the previous three fiscal years amid the pandemic.
The company reported 7.0% lower adjusted EBITDA in fiscal 2024 than
in the previous fiscal year and a 120 bps lower margin since
productivity gains and higher tariffs were more than offset by
lower volumes and an inflation-led rise in staff costs,
transportation, and energy. This translated into adjusted debt
leverage rising to 8.7x by fiscal 2024, from 7.9x in fiscal 2023.
In our view, this attests to Obol's dependence on mortality
fluctuations, of which there is low visibility, because of its
predominantly fixed cost base and the intense competition in
France, which hinders market share expansion. Despite lower EBITDA
generation, we estimate that FOCF increased to about EUR45 million
in fiscal 2024 (about EUR8.5 million after leases), from EUR31
million in fiscal 2023 (EUR0 million after leases), stemming from
contained capex (fewer branch openings in fiscal 2024) and
disciplined working capital as the company focused on cash
preservation.
"Obol continues to benefit from its leading positioning in France's
resilient funeral industry. The company's extensive funeral
services network, which covers more than 80% of mainland France,
retains its key competitive advantage in an industry where
proximity and awareness are the main purchase drivers. Despite
short-term headwinds from the normalization of mortality rates, we
see positive underlying trends for the funeral sector in France
over the long term, given France's aging population (over 21% are
over 65 years old). Additionally, we see the industry as relatively
insulated from consumer trends that affect other sectors, notably
inflation and weakening consumer spending. Funerals continue to
exhibit relatively low price elasticity due to their
nondiscretionary nature, strong emotional component, and favorable
regulation. Funerals must take place within six days of a death and
assets from the deceased can be used to cover funeral expenses of
up to EUR5,000. In our view, this should continue underpinning
Obol's ability to pass on cost inflation, while supporting its
market position in the medium-to-high price range.
"The stable outlook reflects our expectation that Obol should
remain self-funded over the coming 12 months following the
extension of its debt maturities and equity-like shareholder loan
injection from OTPP. Under our base case, we expect adjusted
leverage to decrease toward 7.0x by fiscal year-end 2026, and
relatively neutral FOCF after leases annually. This assumes a
gradual recovery of operating performance stemming from marginal
market share improvements and higher profitability from pricing,
cost efficiency measures, and normalizing cost inflation.
"We could take a negative rating action if our adjusted EBITDA
figure for Obol fails to improve from current levels or if Obol is
unable to adequately fund its day-to-day operations amid sizeable
negative FOCF after leases, leading to heightened risk of a
liquidity shortfall. This could happen if Obol fails to offset
inflationary pressures with pricing and cost efficiency measures or
volumes drop sharply due to strong competition and market share
losses.
"We could raise the ratings if adjusted leverage reduces below 7.0x
on a continuous basis, while the company maintains an FOCF cushion
after leases. This could mainly happen if Obol exceeds our
expectations in restoring its market share and increases
profitability, thanks to seamless execution of its strategic,
commercial, and efficiency initiatives.
"Environmental and social credit factors have no material influence
on our credit rating analysis of Obol. The company is negatively
affected by governance factors because of its controlling
shareholder, OTPP. We view financial sponsor-owned companies with
aggressive or highly leveraged financial risk profiles as
demonstrating corporate decision-making that prioritizes the
interests of the controlling owners, typically with finite holding
periods and a focus on maximizing shareholder returns. OTPP owns
96.5% of Obol while management and employees own the remaining
shares."
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G E O R G I A
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GEORGIA GLOBAL: Fitch Publishes BB-(EXP) Rating for Sr. Unsec Notes
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Fitch Ratings has published Georgia Global Utilities JSC's (GGU)
expected rating of 'BB-(EXP)' with a Recovery Rating of 'RR4' on
its proposed senior unsecured notes. The amount, coupon and final
maturity of the proposed notes will be determined at the time of
issue. The senior unsecured rating is in line with GGU's Long-Term
Issuer Default Rating (IDR) at 'BB-', which has a Stable Outlook,
as the bonds will constitute direct, unconditional and unsecured
obligations of the company.
The notes' expected rating reflects the notes' proposed key
provisions and covenants. The proceeds will primarily be used for
refinancing existing shareholder loans and to fund investments in
GGU´s water business over the next four years. The assignment of
the final rating is contingent on the receipt of final documents
conforming to the information received to date.
The IDR reflects Fitch's unchanged assessment of GGU's Standalone
Credit Profile (SCP) at 'b+' as well as medium links with its
majority shareholder FCC Aqualia S.A. (BBB-/Stable), resulting in a
one-notch uplift under its Parent Subsidiary Linkage (PSL)
Criteria. The SCP of GGU mainly reflects the regulated water
utility business of its subsidiary, Georgian Water and Power LLC
(GWP).
GGU's likely high exposure to foreign-exchange (FX) risk post bond
issue, its expected re-leveraging due to its ambitious capex plan,
and the operating environment in Georgia remain key constraints on
GGU's SCP. Fitch expects GGU's leverage to remain within its
sensitivities for the 'b+' SCP during 2024-2027, while interest
coverage may be weak for the SCP.
KEY RATING DRIVERS
Upcoming Bond Issue: Since its acquisition by Aqualia and bond
repayment in 2022, GGU holds almost no financial debt other than
shareholder loans (SHLs), which the company aims to refinance with
the proposed bond issue with restricted terms. Fitch expects
Aqualia to remain supportive if the bond issue does not materialise
as expected. GGU also has to fund investments targeted for the
2024-2026 regulatory period (RP) at its water business. Fitch's
rating approach factors in that Aqualia will hold GGU as a
non-recourse subsidiary in the medium term.
Ring-Fenced Structure: Under the trust deed for the planned bond,
noteholders will benefit from a guarantor coverage test requiring
restricted subsidiaries representing at least 85% of GGU´s EBITDA
and total assets to unconditionally and irrevocably guarantee the
payment of notes principal and interest. At bond issue the
restricted group will comprise GGU as issuer and GWP as the sole
initial guarantor (since GWP represents almost all of GGU's
EBITDA).
Covenant Protection: Noteholders benefit from tests for restricted
payments (including dividend distribution) and debt incurrence.
Based on the documentation received, the restricted group may make
restricted payments in an aggregate amount of up to 50% of
consolidated net income, provided the issuer meets the debt
incurrence test, among certain other conditions. The restricted
group may incur additional indebtedness if consolidated net
leverage is less than 3.5x and may also make unlimited restricted
payments if consolidated net leverage does not exceed 2.5x (after
pro-forma effect for the relevant restricted payment).
Tariff Increase Credit Positive: The Georgian water sector
regulator has set the tariffs for the 2024-2026 RP. Water tariffs
for GWP's commercial customers in Tbilisi have been substantially
increased by about 35%, while household tariffs are unchanged. Its
updated rating case reflects the tariff increase, with water
revenues increasing by 45% in the 2024-2026 RP compared with the
2021-2023 RP.
Ambitious Investment Plan: GGU has increased its investment plan,
which is earmarked for modernising pumping stations (to achieve
energy savings) and refurbishing the water network infrastructure
(to reduce leakages), among other things. In 2024-2026, annual
capex will average about GEL210 million, almost exactly matching
the average forecast EBITDA in its rating case. Due to high capex,
Fitch estimates funds from operations (FFO) net leverage will
gradually increase from 3.4x expected at end-2024 to 4.4x in 2026,
leaving almost no headroom under its leverage guidelines.
Higher FX Risk Post-Transaction: With the planned bond issue, Fitch
expects GGU to hold most of its debt in foreign currency, resulting
in higher exposure to FX risk. This risk is mitigated by GGU's
electricity revenues being denominated in US dollars, which could
cover roughly half of the interest payment, based on its
preliminary estimate. Fitch also expects the company to hold a
sufficient amount of US dollar-denominated cash deposits after the
bond issuance. Its forecasts conservatively factor in a negative FX
impact on GGU's debt and interest, in line with its current FX
estimates.
Medium Links with Aqualia: Fitch views the financial contribution
from GGU to the consolidated Aqualia group as reasonable (around
14% of consolidated EBITDA). In its view, GGU offers moderate
growth potential for Aqualia, given the subsidiary's investment
requirements to modernise its water infrastructure, reduce large
water losses and its own electricity consumption. The rating uplift
under the PSL analysis reflects its view that Aqualia has a
'medium' strategic incentive to support GGU, while Fitch assesses
both the legal and the operational incentives to support as 'low'.
New Electricity Market: The launch of organised electricity markets
in Georgia (including balancing and ancillary services market) is
scheduled for 2025. The proposed market reforms aim to establish a
"Georgian Energy Exchange" with daily and intra-day trading,
introducing marginal pricing. This could support higher electricity
prices for GGU (and in turn further mitigate its FX risk). However,
Fitch has incorporated only limited upside from higher power prices
into its rating case, given the limited visibility of the impact
and various delays to the reform implementation.
Volume Risk in Electricity Business: Under the current electricity
market, GGU typically sells its hydroelectric generation to
industrial customers through 12-month bilateral contracts. If GGU
cannot deliver committed volumes due to low hydro resource
availability, the group reimburses the difference between
contracted price and the wholesale balancing price.
GWP Paramount for GGU: Following the internal merger between GGU's
subsidiaries GWP and Rustavi Water LLC in 2023, GWP now represents
almost all of GGU's EBITDA. The company is a regulated water
utility with a natural monopoly in Tbilisi and ownership over its
water and wastewater infrastructure. The remaining business segment
relates to the generation and sale of electricity, with an
installed capacity of 145MW. About 40% of GWP's electricity is
generated for the company's own consumption, while excess
electricity is sold predominantly through bilateral agreements. Any
remaining portion is exposed to merchant risk.
DERIVATION SUMMARY
GGU's business mix combines a regulated water utility business with
hydroelectric-generation assets. The exposure to merchant risk in
its electricity business is mitigated by its large share of
regulated earnings from the water sector, which is based on a
regulated asset base framework.
A close peer of GGU is ENERGO-Pro a.s. (EPas, BB-/Stable), a
utility headquartered in the Czech Republic with operating
companies in Bulgaria, Georgia, Spain and Turkiye. Its core
activities are power distribution, grid support services and
electricity generation. EPas's higher debt capacity than GGU's
reflects its larger size, diversification by geography and type of
business.
Other peers for GGU in the CIS regions are the small Kazak
electricity distribution company Mangistau Regional Electricity
Network Company JSC (MRENC, IDR BB-/Stable, SCP: b+) and
Uzbekistan-based distribution and supply company Regional
Electrical Power Networks JSC (REPN, IDR BB-/Stable, SCP: b-). Like
other utilities in Kazakhstan, MRENC is subject to regulatory
uncertainties, especially due to macroeconomic shocks and possible
political interference. MRENC has lower debt capacity than GGU,
butits low leverage results in the same SCP. REPN has a larger
asset base and greater geographical coverage than GGU, but this is
more than offset by GGU's more established regulated asset base
-based regulatory framework, driving the difference between the
SCPs.
The IDRs are of MRENC and REPN are aligned with their owners due to
strong parent-subsidiary links (Mangistau) and strong
government-links (REPN).
KEY ASSUMPTIONS
- Total revenues to average GEL305 million a year in 2024-2026
- Water utility business allowed revenues increasing by 45% in the
2024-2026 RP compared with the 2021-2023 RP
- Electricity business to see annual generation volumes sold on
average at about 224 GWh (gigawatt hour) in 2024-2026 and power
prices on average at about 17 GELTetri/kWh in 2024-2026 based on
Fitch's expectations
- EBITDA margin on average at 68% during 2024-2026
- Capex averaging GEL209 million a year over 2024-2026
- No distributions in 2024-2026. Fitch expects dividends of GEL30
million in 2027
- Refinancing of SHL, with bond debt raised at GGU level with
restricted terms similar to old bond (ie. ring-fenced structure)
- Georgian lari/US dollar annual average exchange rate of 2.95 in
2024 and 3.1 in 2025 and 3.22 in 2026, based on Fitch's FX
forecasts
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Stronger links between GGU and Aqualia could lead to an upgrade
of GGU's IDR
- Improved FFO net leverage (excluding connection fees) sustainably
below 3.5x if accompanied by a consistent financial policy
- Improved business risk resulting from a longer record of
supportive regulation, a material improvement in asset quality
(i.e. significantly smaller network losses or lower own electricity
consumption), or a sustained positive effect resulting from the
launch of organised electricity markets
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- A reassessment of Aqualia's strategic incentives to support GGU
as 'low' would imply a standalone rating approach for GGU and lead
to a downgrade of its IDR
- FFO net leverage (excluding connection fees) above 4.5x and FFO
interest coverage (excluding connection fees) below 2.5x on a
sustained basis
- Higher business risk
- A sustained reduction in profitability and cash flow generation
(e.g. through a failure to reduce water losses or deterioration in
cash collection rates); an aggressive financial policy with
increased dividends; or a material increase in exposure to
foreign-currency fluctuations.
LIQUIDITY AND DEBT STRUCTURE
SHLs Dominate Debt: At end-2023 GGU's GEL512 million debt comprised
almost exclusively the USD164million SHL provided by Aqualia in
2022 and GEL62 million drawn under a second EUR60 million SHL
extended by Aqualia in 2023.
Liquidity Depends on Refinancing/Support: GGU's cash on balance was
low at GEL7 million at end-2023 but the company had around GEL105
million available under the second SHL extended by Aqualia last
year. The interest payable on the USD164million SHL is being
accumulated and capitalised under the second SHL extended by
Aqualia. Fitch expects GGU to refinance the SHLs with the proposed
bond with restricted terms. The SHLs are due in 2024 but Fitch
understands from management that Aqualia is prepared to extend
their maturity if the bond issue does not take place. As a result,
Fitch assesses GGU's liquidity position as sufficient, also
considering the possibility of deferring the refinancing beyond
2025.
ISSUER PROFILE
GGU is a water utility and renewable energy business that supplies
potable water and provides wastewater collection and processing
services to almost 1.3 million people in Georgia. More than half of
the electricity generated by GGU is sold to third parties, while
the remainder is used by its water supply and sanitation services
business for internal consumption to power its water distribution
network.
DATE OF RELEVANT COMMITTEE
04 July 2024
ESG CONSIDERATIONS
GGU has an ESG Relevance Score of '4' for Water & Wastewater
Management due to heavily worn-out water infrastructure and large
water losses, 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 Recovery
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Georgia Global
Utilities JSC
senior unsecured LT BB-(EXP) Publish RR4
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G E R M A N Y
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OQ CHEMICALS: S&P Rates Super Senior Bridge Loan Prelim. 'CCC+'
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S&P Global Ratings assigned its preliminary 'CCC+' issue rating to
the super senior bridge loans of EUR37.04 million and $45.19
million (about EUR75 million together), due in 2025, to be issued
by OQ Chemicals Holding Drei GmbH and OQ Chemicals Corporation,
both subsidiaries of OQ Chemicals International Holding GmbH
(D/--).
S&P said, "The preliminary '1' recovery rating on the new EUR75
million super senior bridge facility due 2025 indicates our
expectation of a very high (90%-100%; rounded estimate: 95%)
recovery in the event of a default. It reflects the super priority
ranking in the capital structure ahead of the existing term loan B
(TLB) and revolving credit facility (RCF). It also reflects our
preliminary view of OQ Chemicals' creditworthiness after the debt
restructuring as described in the transaction restructuring
agreement signed on June 21, 2024 and agreed to by over 95% of the
lenders. Our preliminary view is that we would rate OQ Chemicals
International Holding GmbH 'CCC-' if the restructuring goes ahead
as planned. The rating is likely to be constrained by a lack of
visibility as well as uncertainty in the outcome regarding the
merger and acquisition (M&A) process and whether a buyer will
emerge willing to repay all existing debt at par, resulting in
heightened risk of another restructuring or default in the short
term.
"We have also revised our expected recovery estimate to 50% from
60% on the existing EUR475 million and $500 million term loans,
reflecting higher priority debt post-restructuring, despite the
reduction in the RCF commitments. However, the recovery rating on
these loans remains unchanged, at '3'."
The issuance of the new super senior loans are part of a broader
capital restructuring of OQ Chemicals. In June 2024, key
stakeholders (an ad hoc group of term loan lenders, the company,
and shareholder) have agreed on the following restructuring plan:
-- An interim extension of the RCF maturity date from July 12,
2024 to Oct. 10, 2024;
-- A new super senior bridge financing of about EUR75 million;
-- A framework for an extension of the maturity dates to Dec. 31,
2026 for the TLB, revolving credit facilities, and the new super
senior bridge loans; and
-- An M&A process to be run by the company with the objective of
realizing any equity value for the current shareholder and
achieving an at par (plus accrued) cash recovery for the lenders.
S&P understands that more than 95% of the lenders adhered to the
restructuring agreement, thereby lending a high degree of certainty
to the plan's implementation even if a scheme of arrangement
process is required to ratify the transaction restructuring
agreement.
The final issue and recovery ratings on the super senior bridge
loans will depend on the successful implementation of the debt
restructuring. The preliminary ratings should therefore not be
construed as evidence of the final ratings. If the
post-restructuring capital structure is materially different from
the one presented, S&P reserves the right to withdraw or revise the
ratings.
S&P said, "We will also reassess our ratings on OQ Chemicals and
its subsidiaries when the restructuring is completed, the loans
maturity extended, and when the company resumes interest payments
on its term loans, or an outcome of the M&A process is crystalized.
OQ Chemicals expects to complete the debt restructuring in October
2024.
"We continue to value OQ Chemicals as a going concern, given its
leading market position as an oxo chemicals producer and its
adequate end-market and geographic diversity."
Simulated default assumptions:
-- Year of default: 2025
-- Jurisdiction: U.K.
Simplified waterfall:
-- Net recovery value for waterfall after admin. expenses (5%):
about EUR733 million
-- Estimated priority claims: about EUR140 million
--Recovery range: 90%-100% (rounded estimate: 95%)
--Recovery rating: 1
-- Value available for first-lien claim: about EUR625 million
-- Estimated first-lien debt claim: about EUR1,026 million
--Recovery range: 50%-70% (rounded estimate: 50%)
--Recovery rating: 3
All debt amounts include six months of prepetition interest.
PLUSSERVER GMBH: EUR260MM Bank Debt Trades at 78% Discount
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Participations in a syndicated loan under which PlusServer GmbH is
a borrower were trading in the secondary market around 22.4
cents-on-the-dollar during the week ended Friday, July 19, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR260 million Term loan facility is scheduled to mature on
September 16, 2024. The amount is fully drawn and outstanding.
Based in Germany, PlusServer GmbH is a multi-cloud data service
provider with a core market in the D-A-CH region.
TELE COLUMBUS: EUR462.5MM Bank Debt Trades at 25% Discount
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Participations in a syndicated loan under which Tele Columbus AG is
a borrower were trading in the secondary market around 75
cents-on-the-dollar during the week ended Friday, July 19, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR462.5 million Term loan facility is scheduled to mature on
October 16, 2028. The amount is fully drawn and outstanding.
Tele Columbus AG provides cable services. The Company offers cable
television programming, telephone, and internet connection services
to homeowners and the housing industry. Tele Columbus operates
throughout Germany.
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I R E L A N D
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AERCAP GLOBAL: Fitch Rates Jr. Subordinated Notes 'BB+'
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Fitch Ratings has assigned a 'BB+' long-term debt rating to the
$750 million, 6.95% fixed-rate reset junior subordinated notes due
in 2055 co-issued by AerCap Global Aviation Trust (AGAT;
BBB/Positive) and AerCap Ireland Capital Designated Activity
Company (AerCap Ireland Capital DAC; BBB/Positive), both indirect,
wholly-owned subsidiaries of AerCap Holdings N.V. (AerCap).
Proceeds from the issuance will be used for general corporate
purposes, which may include the redemption of existing junior
subordinated notes issued by AerCap. The Fitch-rated Long-Term
Issuer Default Rating (IDR) of AerCap is 'BBB' with a Positive
Rating Outlook.
KEY RATING DRIVERS
The junior subordinated note rating is two notches below AerCap's
'BBB' Long-Term IDR, reflecting the notes poor recovery prospects
in a stressed scenario. This is due to the subordinated nature of
the instrument as well as the cumulative and compounding feature of
the coupon in the event of a deferral, which implies a higher
probability of loss absorption.
Covenant Light: The co-issued junior subordinated notes are jointly
and severally guaranteed on an unsecured junior subordinated basis
by AerCap and a number of other wholly owned subsidiaries. The
notes and associated guarantees rank equal with all existing and
future junior indebtedness of the co-issuers but senior to AerCap's
existing fixed-rate reset junior subordinated notes due in 2079
(rated BB) which are callable partly or in full as early as Oct.
10, 2024.
The indenture contains certain covenants including reporting
requirements related to AerCap, a change of control provision
related to the disposition of substantially all assets of AerCap as
well as select event of default clauses. While no explicit
financial covenants are stipulated for the co-issued notes, the
guarantors may be subject to financial covenants on other existing
financial instruments.
Equity Credit: Fitch has assigned 50% equity credit to the
co-issued junior subordinated notes on the basis of its Corporate
Hybrids Treatment and Notching Criteria. In this regard, Fitch's
assessment recognizes the long-dated tenor of the instrument, the
absence of any material financial covenants and the optionality to
defer interest payments for up to five consecutive years.
Full equity credit on the instrument is primarily constrained by
the coupon deferral feature, which is compounding and cumulative in
nature (subject to a dividend stopper option), which effectively
limits the permeance of the notes in Fitch's view.
Leverage Largely Unaffected by Junior Debt Issuance: Proforma for
the notes' issuance, AerCap's leverage (calculated as debt to
tangible equity; adjusted for 50% equity credit on all its junior
subordinated debt outstanding) will remain around 2.5x at 1Q24,
which is within Fitch's leverage triggers (2.5x for an upgrade; 3x
for a downgrade).
Fitch expects AerCap to continue manage leverage conservatively
going forward.
Strong franchise; Large Unencumbered Asset Base: AerCap's ratings
reflect its scale and franchise strength as the world's largest
aircraft lessor, evidenced progress on the transition of the
portfolio to its 75% new technology aircraft target; access to
multiple sources of capital; a predominately unsecured funding
profile with a significant unencumbered asset base; relatively
consistent operating cash flow generation and a strong and
experienced management team.
Orderbook; Barbell Portfolio Strategy: Rating constraints include
funding and placement risks associated with the company's orderbook
and modestly higher exposure to less liquid tier 2 and tier 3
aircraft relative to peers, given the company's historical
"barbell" portfolio construction strategy.
Rating constraints applicable to the aircraft leasing industry more
broadly include the monoline nature of the business; vulnerability
to exogenous shocks; sensitivity to higher oil prices, inflation
and unemployment, which negatively affect travel demand; potential
exposure to residual value risk and reliance on wholesale funding
sources.
The Positive Outlook reflects AerCap's operating consistency and
maintenance of strong credit metrics, which Fitch expects will be
sustained through the cycle even in a less favorable operating
environment. While the operating environment for aircraft lessors
is expected to remain competitive, a one-notch upgrade of the
rating over the next 12 months-18 months could be supported by the
maintenance of strong and differentiated risk management and asset
quality performance, sustained sound net margin profitability while
maintaining leverage below 2.5x, maintaining a significant portion
of unsecured funding, a robust funding profile from revolver
availability and liquidity coverage in excess of 1.5x.
For more information on the key rating drivers and sensitivities
underpinning AerCap's ratings, please see "Fitch Affirms AerCap
Holdings N.V. at 'BBB'; Outlook Revised to Positive".
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A revision in the Outlook to Stable could arise from a weakening in
operating performance that Fitch would expect to persist over the
outlook horizon, including a weakening in profitability, higher
impairments or a reduction in leverage headroom against AerCap's
internal target of net debt to equity of 2.7x. In addition, a
deviation from its funding strategy leading to unsecured debt
comprising a notably lower than anticipated proportion of total
debt on a sustained basis could be negatively viewed.
Beyond that, a rating downgrade could arise from a material
increase in secured debt levels, leverage exceeding 3x on a
sustained basis, resulting in particular from outsized capital
returns, impairments or a higher risk appetite, liquidity coverage
approaching or falling below 1.0x or a weakening in portfolio
quality- in particular new technology aircraft representing notably
less than the 75% long term target communicated by management.
Macroeconomic and/or geopolitical-driven pressure on airlines,
leading to additional lease restructurings, rejections, lessee
defaults, and impairments, which negatively affect the company's
cash flow generation, profitability and liquidity position could
also lead to negative rating actions.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Sustaining liquidity coverage in excess of 1.5x while maintaining a
significant portion of unsecured funding and diversified access to
funding markets would be positively viewed. A continued strong and
differentiated risk management and asset quality performance, while
maintaining robust net margin profitability and sustaining leverage
below 2.5x, could also yield positive rating actions.
A reduction in the size of the orderbook relative to the owned
fleet, proactive management of near-term debt maturities and a
material increase of highly liquid tier 1 aircraft could also drive
positive rating momentum.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The junior subordinated notes co-issued by AerCap Ireland Capital
DAC and AGAT are two notches below AerCap's 'BBB' Long-Term IDR,
reflecting the notes' subordinated nature and poor recovery
prospects in a stressed scenario.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The co-issued junior subordinated notes are primarily sensitive to
changes in AerCap's IDRs, and secondarily, to the relative recovery
prospects of the instruments.
SUBSIDIARY AND AFFILIATE RATINGS: KEY RATING DRIVERS
AGAT and AerCap Ireland Capital DAC are wholly owned subsidiaries
of AerCap, and their IDRs are equalized with the Long-Term IDR of
AerCap.
SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES
AGAT and AerCap Ireland Capital DAC's ratings are primarily
sensitive to changes in AerCap's Long-Term IDR and are expected to
move in tandem.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating
----------- ------
AerCap Global
Aviation Trust
junior subordinated LT BB+ New Rating
AerCap Ireland
Capital Designated
Activity Company
junior subordinated LT BB+ New Rating
===================
K A Z A K H S T A N
===================
CENTERCREDIT JSC: S&P Affirms 'BB-/B' ICRs, Outlook Positive
------------------------------------------------------------
S&P Global Ratings affirmed its long-term issuer credit rating on
Kazakhstan-based Bank CenterCredit JSC (BCC) at 'BB-'. The outlook
is positive. At the same time, S&P affirmed its 'B' short-term
issuer credit rating on the bank.
Additionally, S&P affirmed its 'kzA' Kazakhstan national scale
rating on BCC.
S&P said, "BCC's capitalization has strengthened, and we expect the
bank will operate with a larger capital buffer. We anticipate that
our risk-adjusted capital (RAC) ratio will be 7.2%-7.8% in
2024-2026 compared with 6.4% in 2023, supported by the bank's
profitable growth and zero expected dividends, as well as by
reduced economic risk in Kazakhstan, which we revised down in March
2024 in our Banking Industry and Country Risk Assessment (BICRA).
We expect some deceleration of the bank's loan book growth from 42%
in 2023 to 25%-30% in 2024 and 15%-20% annually in 2025-2026, which
will be in line with the system average. We anticipate a decline in
the net interest margin to 6.8%-7.2% in the forecast period from
about 7.5% in the first quarter of 2024, reflecting declining
interest rates. We also expect the bank's return on average equity
to stabilize in the long term on the back of loan book growth
deceleration but remain solid and exceed 20%-25% (compared with
about 40% in 2023). In our forecast we consider the bank's expected
capital outflows associated with potential injections to its
subsidiaries, including recapitalization of Sinoasia B&R Insurance
JSC (BB/Stable/--), as well as other potential investment projects.
However, we do not expect that the investments will exceed 5%-7% of
the bank's total adjusted capital and will be neutral for the
bank's capital adequacy. We now consider the bank's capital buffer
to be adequate in the international context, a factor that remains
neutral for the rating.
"We expect that BCC's key asset-quality indicators will remain
stable. BCC has finalized its loan book cleanup after the
asset-quality review conducted in 2019. The share of nonperforming
assets (including Stage 3, purchased or originated credit-impaired
loans, and repossessed collateral) declined to 5.7% as of April 1,
2024, from 9.9% at year-end 2022, and it is now favorable compared
with the system average level of about 8%. We expect BCC will
maintain its asset quality at the current level. Although some
risks may arise from its rapid loan book growth, BCC has been
focusing on quality borrowers over the past few years as part of
its strategic shift to stricter underwriting. Nevertheless, we
forecast credit costs over the next year will remain at 2.5%-2.9%,
still elevated on the back of the bank's rapid growth and
increasing share of lending to retail clients and small and midsize
enterprises (SME). However, we believe such credit costs will be
manageable for BCC due to improving revenue generation.
"BCC's high systemic importance strengthens its creditworthiness,
in our view. The long-term rating is one notch higher than our
assessment of the bank's stand-alone credit profile, reflecting our
view of BCC's high systemic importance in Kazakhstan, and the
Kazakh government as supportive toward the banking system. This
stems from by BCC's position as the third-largest domestic bank by
retail deposits, with an about 12.4% market share as of May 1,
2024.
"The positive outlook on BCC reflects our expectation that, within
the next 12-18 months, we could raise the rating if industry risks
ease for banks operating in Kazakhstan.
"We could consider revising the outlook to stable if we reverse our
trend on BICRA industry risk in Kazakhstan to stable. We could also
consider a downgrade or an outlook revision to stable if we believe
that rapid business expansion and an aggressive dividend policy
would weaken the bank's capitalization, with a RAC ratio dropping
sustainably below 5% or if we were to observe unexpected
substantial deterioration of major asset quality metrics, although
we consider this scenario less likely.
"We could raise the rating within the next 12-18 months if we
improve our assessment of industry risks in Kazakhstan, while the
bank also maintains resilient asset quality metrics and sustainable
capital buffers."
=================
L I T H U A N I A
=================
AKROPOLIS GROUP: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed AKROPOLIS GROUP, UAB's Long-Term Issuer
Default Rating (IDR) at 'BB+' with a Stable Outlook. Fitch has also
affirmed Akropolis's senior unsecured rating at 'BB+' with a
Recovery Rating of 'RR4'.
Akropolis is concentrated on five shopping centres with an average
retail gross lettable area (GLA) of 64,000 square metres (sqm) in
Lithuania (A/Stable) and Latvia (A-/Positive). This limits asset,
tenant and geographical diversification, which is a rating
constraint.
The concentration risks are balanced against Akropolis's dominant
position in its local retail markets, which is reflected in its
continuously robust operating performance, including low vacancies.
Its financial profile is strong for the rating with low leverage
and ample liquidity. Fitch-calculated net debt/EBITDA is around
3.0x and forecast to rise to a still moderate 4.3x in 2027 as
Akropolis incurs substantial capex on its Akropolis Vingis
mixed-use development. Fitch expects EBITDA interest coverage to be
high at 3.0x despite 2026 and 2027 debt refinancing with higher
interest rates.
KEY RATING DRIVERS
Rental Income Growth: In 2023 Akropolis's rental income increased
12% like-for-like (2022: 25%), driven mainly by CPI indexation of
8.2%. The average indexation applied in January 2024 was 7.2%.
EBITDA margin, excluding one-off income related to marketing
activities, improved in 2023 to 95% (2022: 93%), helped by lower
property operating expenses, including stabilised energy costs that
the group passed on to its tenants.
Growing Tenants' Sales and Footfall: The tenants' occupancy cost
ratio (OCR) remained broadly flat at an affordable 10%, helped by a
7% increase in tenants' sales. This was due mainly to still high
(albeit lower than in 2022) inflation of 8.7% in Lithuania and 9.1%
in Latvia and increasing footfall. The Akropolis assets attracted
over 44 million visitors in 2023 (7% increase year on year).
High Occupancy: Occupancy was high at 97% at end-2023 with only
Akropole Alfa shopping centre in Riga experiencing a 6% vacancy.
Fitch does not expect the damage in Alfa caused by heavy rainfall
on 1 July 2024 to materially affect the operations of the asset.
Akropolis's GLA weighted average lease terms (to break) was 3.8
years (end-2022: 3.7 years) but would be lower if weighted by
income. Given the strong market position of Akropolis's assets
re-letting risk related to its material 2024 lease expiries (23% by
rent) is, in Fitch view, limited. A substantial portion of it has
already been re-let.
Dividend Payment: For the first time since 2020 Akropolis in April
2024 paid out dividends of EUR70 million from its accumulated
profits, using its end-2023 readily available cash of EUR206
million. Fitch does not expect material dividends in 2025-2027, due
to scheduled Akropolis Vingis capex and debt maturities, which
management plans to address ahead of time.
Concentrated Portfolio: Akropolis's five assets valued at around
EUR1 billion (end-2023) are in the small Lithuanian (around 60% by
portfolio's market value) and Latvian (around 40%) retail markets.
The largest asset, Akropolis Vilnius, comprises over 30% of the
group's portfolio value. The number of assets and the size of the
retail markets, where some well-known international brands are
present via franchisees, mean tenant and asset concentration is
high. The top 10 retail tenant groups generate 40% of rent,
including 11% from tenants owned by Akropolis's parent company,
Vilniaus Prekyba Group (VP Group).
Low Leverage: Fitch forecasts Akropolis's net debt/EBITDA to remain
at around 3x in 2024 (2023: 3.1x), as rents indexation and limited
capex offset dividend payments. Fitch expects leverage to gradually
increase to 4.3x in 2027, due to high capex on the Akropolis Vingis
project. Fitch forecasts EBITDA interest coverage to decrease to
near 3x in 2027 (2023: 5.1x) as Akropolis will refinance its debt
at higher interest costs. Fitch-calculated loan-to-value (LTV) was
below 30% at end-2023.
Akropolis Vingis Delayed: Akropolis expects to receive building
permit for the construction of its mixed-use development in Vilnius
in 2H24. The project will have total gross building area of around
220,000 sqm, including retail, office, residential for rent and
entertainment space. In 2023 capex on the project was around EUR10
million, mainly related to planning, permitting and some
infrastructure works. The total capex, uncommitted at this stage,
is planned at around EUR300 million but may be reassessed ahead of
works commencement. The first rental income receipts are now
expected in 2028.
Akropolis has also continued refurbishment of the common space in
its Klaipeda shopping centre and an 480 sqm extension of Akropolis
Vilnius. The total related capex is expected at EUR7 million in
2024.
No Independent Oversight: Akropolis's concentrated ownership by the
privately-held Vilnius Prekyba (VP) Group means financial
disclosure and corporate governance are not comparable with listed
companies'. This, together with a lack of independent directors on
Akropolis's board, means that the arm's length nature of
related-party transactions (including the Maxima Group and sister
tenants) does not have the independent oversight of listed peers.
PSL Assessment: Fitch rates Akropolis on a consolidated plus
one-notch basis under its Parent and Subsidiary Linkage (PSL)
Criteria. Fitch views its legal ringfencing as 'porous' based on
self-imposed restrictions in the documentation of its EUR300
million bond maturing in June 2026. The restrictions include a
maximum 60% total indebtedness/total assets (quasi-LTV) and less
stringent limits on transactions with affiliates and dividends that
limit potential value transfers to VP Group.
Access and control is assessed as 'open' due to full ownership by
the VP Group and despite Akropolis being separately funded with its
own treasury functions and independent cash management.
DERIVATION SUMMARY
Akropolis's EUR1 billion retail portfolio is similar in size and
concentration to Balkans Real Estate B.V.'s (BRE; BB(EXP)/Stable)
EUR0.7 billion (fully consolidated) portfolio of retail (70% of
market value) and office (30%) assets. However, country risk
exposure is materially higher as all its assets are in Serbia
(BB+/Stable). MAS PLC's (BB/Stable) nearly EUR1.0 billion central
and eastern European portfolio is predominantly in Romania
(BBB-/Stable), but has slightly lower asset concentration.
The portfolios of NEPI Rockcastle N.V. (BBB+/Stable), valued at
EUR6.7 billion, of Globalworth Real Estate Investments Limited
(BBB-/Stable) at EUR2.8 billion, and of Globe Trade Centre S.A.
(BB+/Stable) at EUR2 billion are bigger and more diversified.
However, only GTC and BRE are diversified between retail and
offices.
Akropolis has the most conservative financial profile with net
debt/EBITDA expected at below 4.0x until 2026 and an LTV below 35%.
BRE's and NEPI's net debt/EBITDA are expected at below 6.0x. NEPI's
assets are lower-yielding at a net initial yield of 6.9%. The
financial profiles of Globalworth and GTC are weaker.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Rent increase of 6% in 2024, predominantly due to CPI indexation.
Rent CAGR in 2024-2027 of 3%, reflecting indexation
- Stable occupancy of close to 97%
- Around EUR260 million capex until 2027, mostly related to the
Akropolis Vingis project
- Dividend of EUR70 million in 2024 and EUR10 million yearly in
2025-2027
- Akropolis's bond to be refinanced at 6.5% in 2026
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Expansion of the portfolio in less correlated markets while
maintaining portfolio quality
- Unencumbered assets/unsecured debt cover above 2.0x
- Net debt/EBITDA below 8.5x
- A consistent interest-rate hedging policy
- Improved corporate governance
- Improvement of the consolidated profile of VP Group
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Net debt/EBITDA above 9.0x and LTV trending above 55%
- Unencumbered assets/unsecured debt cover below 1.75x
- Failure to complete the Akropolis Vingis development on schedule
and/or materially outside the assumed budget
- Twelve-month's liquidity score below 1.0x
- Transactions with related-parties that are detrimental to
Akropolis's interests
- Deterioration of the consolidated profile of VP Group/or weaker
limitation on value transfers to VP Group leading to 'open'
assessment of legal ringfencing
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: At end-2023 Akropolis had EUR206 million of cash,
excluding EUR19 million held in accounts pledged to banks as
collateral that Fitch treats as restricted. The readily available
cash, together with Fitch-forecast cash flow from operations less
capex of EUR43 million, comfortably covers EUR70 million dividend
paid in May and EUR8 million loan amortisations in 2024. The next
meaningful debt repayment is in 2026 when Akropolis's EUR300
million unsecured Eurobond matures. Akropolis does not use
committed revolving credit facilities as a contingent source of
liquidity.
Four out of Akropolis's five assets are unencumbered, resulting in
an unencumbered assets/unsecured debt of 2.3x.
ESG CONSIDERATIONS
Akropolis has an ESG Relevance Score of '4' for Governance
Structure, reflecting the lack of corporate governance attributes
to both mitigate key person risk from its dominant shareholder
Nerijus Numa and ensure independent oversight of related-party
transactions. This has a negative impact on the credit profile, and
is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
AKROPOLIS GROUP, UAB LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed RR4 BB+
===================
L U X E M B O U R G
===================
FOUNDEVER GROUP: EUR1BB Bank Debt Trades at 23% Discount
--------------------------------------------------------
Participations in a syndicated loan under which Foundever Group SA
is a borrower were trading in the secondary market around 77.3
cents-on-the-dollar during the week ended Friday, July 19, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR1 billion Term loan facility is scheduled to mature on
August 28, 2028. The amount is fully drawn and outstanding.
Foundever Group S.A., domiciled in Luxembourg, is a leading global
provider of CX products and solutions. Foundever generated $3.7
billion revenue for the twelve months ended March 31, 2024. The
company is owned by the Creadev Investment Fund (Creadev), which is
controlled by the Mulliez family of France.
SANI/IKOS GROUP: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Sani/Ikos Group Newco S.C.A.'s
(Sani/Ikos Group) Long-Term Issuer Default Rating (IDR) at 'B-'
with Stable Outlook. Fitch also has assigned an expected long-term
rating of 'B-(EXP)' to Sani/Ikos Financial Holdings 1 S.a r.l.'s
announced EUR350 million 2030 notes, with a Recovery Rating of
'RR4'.
The 'B-' IDR reflects Sani/Ikos Group's smaller scale and a weaker
financial profile than peers', with free cash flow (FCF)
consistently under pressure from an asset-heavy business model.
Leverage is persistently high due to the time gap between
debt-funded capex and operational cash inflows. The company also
has an aggressive financial policy, as evident in its distributions
to shareholders in 2022 and 2023.
The weak financial profile is balanced by the group's strong niche
in the luxury lodging business, which typically enjoys lower demand
sensitivity to economic cycles.
The Stable Outlook reflects the solid performance of the group's
newly-opened hotels, including those outside Greece, and the
continued record of strong occupancies and strict budget discipline
that allow it to maintain strong profitability despite aggressive
growth.
KEY RATING DRIVERS
Debt Maturity Addressed Proactively: Sani/Ikos Group is addressing
its 2026 December maturities well in advance with its EUR350
million bond. Pro-forma for the refinancing, only 24% of
outstanding debt principal will mature before 2030, with annual
repayments of EUR50 million-EUR80 million smoothly distributed over
2024-2029. Fitch also assumes that the majority of a EUR50 million
increase in bond amount will primarily be used to enhance
liquidity.
Solid Performance Continues in 2024: Fitch forecasts the 2024
season to see slightly weaker demand than in the record 2023, but
Fitch still incorporates high single-digit to low double-digit
growth in average daily rate (ADR) to reflect further price-list
increases and a more limited usage of discounts in advance bookings
earlier in the year. Its forecast assumes that continuous growth of
room rates will not affect occupancy levels that have historically
been high at around 90%-95% during the operating season
(translating into 45%-55% full-year occupancy).
New Hotels Opened in 2023: Sani/Ikos Group opened two hotels in
2023, as part of its ambitious multi-year capex plan to add five
properties to a 10-hotel asset base in 2022. Its EBITDA margin of
33% in 2023 reflects good integration of its new assets, and their
ramp-up also supported ADR increases for the 2024 season. Three new
hotel additions are expected from already committed projects, one
in 2026 and two in 2027.
Strong ADRs Offset Cost Inflation: Strong ADRs growth throughout
2023 and so far in 2024 has allowed Sani/Ikos Group to cover
growing costs and should help sustain profitability despite
anticipated wage inflation. Fitch expects material cost inflation
to persist in 2024. Fitch sees further pricing optimisation as the
group continues to increase its share of direct sales and reduces
its discounts.
FCF Improvement From 2028: Strong EBITDA has historically converted
into robust funds from operations (FFO) margins of 16%-22%.
However, FCF has remained volatile due to high capex intensity
linked to expansion projects. The Fitch rating case assumes that
capex intensity, accounting only for secured developments,
materially reduces by 2028, with prospects for FCF turning
positive.
Fitch expects capex by 2028 will partially shift from increasing
hotel count to extension and renovation of existing hotels. Fitch
forecasts that the FCF margin will remain deeply negative at
25%-35% in 2024-2025 before it gradually improves to -5% in 2027.
Deleveraging Delayed by New Projects: The group's ambitious planned
expansion to a total 15 operating hotels has considerable execution
risk, as the construction pipeline is subject to cost inflation and
delays, especially for the remaining two hotels due in 2027 and the
extension of existing hotels. Its current forecast assumes 2026
EBITDAR leverage will still be slightly above its negative
sensitivity of 7.5x, and further commitments to new developments
could delay deleveraging even further. However, this should be
balanced by the group's strong underlying performance of its hotels
and a continuously growing asset base over the long term.
Seasonal Operations but Adequate Profitability: Sani/Ikos Group's
resorts generally operate six to seven months a year, with
occupancy close to 95% (converting to annualised occupancy of
around 50%-60%). This allows for material optimisation of costs,
which are not easily scalable but highly variable off-season. In
addition, high hotel density per resort (300 rooms or more with
high break-even occupancy) and above-average revenue per available
room make Sani/Ikos Group operationally more efficient than peers
and lead to strong EBITDA margins of above 30% (2023: 33%). Fitch
expects Sani/Ikos Group's EBITDA margins to improve further to
above 35% by 2026 as it ramps up new sites.
Niche Positioning, Small Scale: Sani/Ikos Group has a niche market
position with its 12 upscale resorts, including seven luxury
all-inclusive hotels, with a system size of only 3,477 rooms. Most
of the hotels are in Greece and although the group has been
expanding in Spain and Portugal, Fitch believes Greece will remain
its key market over the medium term. Fitch also projects its
business scale (as measured by EBITDAR) will remain consistent with
a 'B' rating category in the sector. Nevertheless, Fitch
acknowledges that Sani/Ikos Group's niche positioning within its
segment allows it to benefit from limited competition and price
inelasticity of demand, which drive its strong operating
performance.
Fully-Owned but Encumbered Assets: Sani/Ikos Group directly manages
and mostly fully owns its current hotel portfolio, which allows
control over asset development and day-to-day operations. According
to management, this helps ensure consistently high levels of
service and efficiency. Fitch estimates that the fairly new real
estate portfolio should allow Sani/Ikos Group to keep maintenance
capex at around 3% of revenue. Fitch views this as low relative to
peers'. All of Sani/Ikos Group's owned operating real estate
(except newly-acquired Pinomar) is currently mortgaged at the
operating company (opco) level.
DERIVATION SUMMARY
Sani/Ikos Group's business profile compares well with that of FIVE
Holdings (BVI) Limited (B+/ Stable), which is also a small hotel
chain mostly concentrated on one single market (Dubai). FIVE has
slightly fewer rooms and greater room concentration on sites than
Sani/Ikos Group. It operates only under one brand, while Sani/Ikos
Group has two. FIVE also has fewer repeat bookings, as FIVE targets
young and affluent guests, while Sani/Ikos Group benefits from
greater loyalty of mid-to high-income families with children.
Conversely, Sani/Ikos Group relies on British and German guests,
while FIVE is more diversified in this respect.
Sani/Ikos Group is present only in the luxury segment, like FIVE.
Its predominantly all-inclusive offer results in higher ADR than
FIVE, but the latter's total revenue generated per available room
nights (TrevPar) is higher due to its food & beverage revenue and
the year-round operations of FIVE's properties compared with
Sani/Ikos Group operating six months a year.
Fitch deems both companies asset-heavy with the only difference
being that FIVE prefers to sell and lease back hotel space, while
Sani/Ikos Group continues to fully own hotels after constructing
them. This results in FIVE's lower EBITDA margin than Sani/Ikos
Group's. However, FIVE's EBITDAR margin is stronger as it generates
substantial revenue from food & beverage, which is driven by its
entertainment events. The two-notch rating difference results
mostly from its expectation of FIVE's strong deleveraging and
higher expected free cash flow (FCF) generation than Sani/Ikos
Group.
Sani/Ikos Group is rated below German-based hotel operator One
Hotels GmbH (Motel One, B+/ Stable), which focuses on the
"affordable design" segment in western Europe. Motel One operates
under a different business model as it leases its hotel portfolio.
It is larger than Sani/Ikos Group, with 26,470 rooms in 2023 and
EBITDAR of more than EUR400 million, close to the 'BB' category
median. Furthermore, Fitch expects lower leverage and positive FCF
for Motel One, which explain the two-notch difference with
Sani/Ikos Group.
Sani/Ikos Group is significantly smaller in number of rooms and
business size than higher-rated globally diversified peers such as
Accor SA (BBB-/Positive), Hyatt Hotels Corporation (BBB-/Stable),
and Wyndham Hotels & Resorts Inc. (BB+/Stable). It also has a
weaker financial structure, with higher leverage and more limited
financial flexibility. This results in significant rating
differential with these peers.
KEY ASSUMPTIONS
- ADR to rise 10% in 2024 followed by a 4% to 5% increase per year
in 2025-2027, with average occupancies declining to 90% in 2027
from 93% in 2024-2025 following new hotel openings
- EBITDA margin estimated at 33.5% in 2024, growing to 36% in 2026
following ramp-up of new hotels and renovation and extensions of
plans at hotels already in operation. Fitch forecasts a slight
decline of margin in 2027, with two new hotels opening in the year
- Capex, including secured projects only and revised development
and acquisition cost on existing and new locations, of around
EUR725 million over 2024-2027
- Additional net debt proceeds of EUR220 million to fund expansion
plans in 2025-2027, following an anticipated net debt increase of
EUR140 million in 2024
RECOVERY ANALYSIS
- A bespoke recovery analysis for Sani/Ikos Group creditors
reflects a 'traded asset valuation', which is similar to a
liquidation process, backed by a substantial asset base, although
Sani/Ikos Group senior secured noteholders have no direct recourse
to ring-fenced assets. Senior noteholders could seize ownership of
its main operating entities by exercising share pledges, and
attempt to sell the SPVs that hold the assets (net of asset-backed
debt that would need to be redeemed on change of control).
- A 10% administrative claim assumed
- Although opco creditors in a liquidation could seize their
respective assets and obtain full recovery before the remainder of
the proceeds is distributed among noteholders, Fitch assumes assets
could be sold either individually or in aggregate
- Real estate value, externally estimated at EUR2.5 billion as at
end-2023 (excluding sites under development), has an advance rate
of 50%
- Asset-backed opco debt of EUR970 million (including used capex
facility lines and drawn EUR13 million revolving credit facility)
ranks first, followed by EUR15 million vendor financing and a EUR15
million shareholder loan from the Ikos Pinomar minority shareholder
issued at opco level, which Fitch estimates on enforcement would
rank ahead of holding company (holdco)-level senior secured notes.
All of Sani/Ikos Group's owned operating real estate (except for
the Pinomar asset) is currently mortgaged at the opco level
- Pro forma for the refinancing, the waterfall-generated recovery
computation of 41% for the holders of the announced senior secured
notes assumes average recovery prospects on default and hence no
notching from the IDR for the announced bond, resulting in a
'B-(EXP)'/'RR4' debt rating
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Visibility of EBITDAR gross leverage trending below 6x
- More limited negative FCF generation with the margin trending
towards low negative single digits under current capex assumptions
- EBITDAR fixed charge cover above 2.0x on a sustained basis.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Material underperformance with occupancy and ADR deterioration in
current portfolio or from newly-opened hotels, resulting in the
EBITDA margin falling below 30%
- No visibility of EBITDAR gross leverage trending below 7.5x over
the forecast horizon
- EBITDAR fixed charge cover below 1.5x
- Liquidity deterioration due to negative FFO generation, with
minimal headroom in available liquidity to cover business
requirements, interest and committed capex over the next 24 months
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Sani/Ikos Group had EUR100 million
available cash at end-2023 (excluding EUR8 million of estimated
restricted cash), with over EUR200 million additionally available
through an undrawn committed capex facility. Further, the group
signed a new EUR25 million RCF in April maturing in 2027, as well
as an additional secured asset financing of EUR229 million maturing
in 2031. The refinancing will add EUR39 million liquidity net of
fees.
Capex and Maturities Covered: Operational cash flow, existing capex
lines and new secured debt are expected to cover most of the
planned capex and debt maturities in 2024-2026. The group has a
record of raising new debt, which partially alleviates liquidity
risk should building cost inflation increase its capex. Overall,
the maturity profile of Sani/Ikos Group's debt has improved
substantially, with the refinancing extending maturities to 2030
from 2026.
The majority of opco debt was refinanced in 2H22 with all
maturities extended and two further asset-level debt financings
issued in 2023. Pro-forma for the refinancing the debt profile will
see two sizeable repayment peaks in 2030 and 2031, but Fitch
expects the group to refinance them ahead of maturity.
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
----------- ------ -------- -----
Sani/Ikos Group
Newco S.C.A. LT IDR B- Affirmed B-
Sani/Ikos
Financial
Holdings 1
S.a r.l.
senior
secured LT B-(EXP)Expected Rating RR4
=====================
N E T H E R L A N D S
=====================
SPRINT BIDCO: EUR700MM Bank Debt Trades at 76% Discount
-------------------------------------------------------
Participations in a syndicated loan under which Sprint Bidco BV is
a borrower were trading in the secondary market around 23.8
cents-on-the-dollar during the week ended Friday, July 19, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR700 million Term loan facility is scheduled to mature on
September 17, 2029. The amount is fully drawn and outstanding.
Sprint Bidco B.V. is a special purpose vehicle that owns the
Dutch-based bicycle company Accell. The Company’s country of
domicile is the Netherlands.
===============
S L O V A K I A
===============
365.BANK: Fitch Affirms Then Withdraws 'BB' LT IDR, Stable Outlook
------------------------------------------------------------------
Fitch Ratings has affirmed 365.bank, a.s.'s Long-Term Issuer
Default Rating (IDR) at 'BB' with Stable Outlook and simultaneously
withdrawn all of the bank's ratings.
Fitch has chosen to withdraw the ratings of 365.bank for commercial
reasons. Fitch will no longer provide ratings or analytical
coverage of the issuer.
KEY RATING DRIVERS
Prior to their withdrawal, 365.bank's IDRs were driven by its
standalone creditworthiness, as expressed by its Viability Rating.
The ratings considered the bank's adequate profitability and
solvency metrics, and healthy funding and liquidity profile,
balanced against the limited franchise, as indicated by its
moderate national market share in the concentrated Slovakian
banking sector, and residual risks stemming from the still
significant, albeit reducing, legacy corporate exposures and the
retail loans' seasoning after a period of rapid growth.
The ratings also considered the bank's higher-than-sector average
impaired (Stage 3) loan ratios, largely driven by the legacy
impaired loans stock dominated by the consumer finance loans, which
were already reasonably provisioned.
Prior to withdrawal, the bank's Government Support Rating of 'no
support' reflected Fitch's view that support from the authorities
could not be relied on, given that Slovakia had adopted resolution
legislation that required senior creditors to participate in
losses.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Not applicable as the ratings have been withdrawn.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Not applicable as the ratings have been withdrawn.
VR ADJUSTMENTS
Prior to the withdrawal, the following adjustments were made to the
VR:
The earnings & profitability score at 'bb' is below the 'bbb'
category implied score due to the following adjustment reason:
earnings stability (negative).
The capitalisation & leverage score at 'bb' is below the 'a'
category implied score due to the following adjustment reason: risk
profile and business model (negative).
The funding and liquidity score at 'bb+' is below the 'bbb'
category implied score due to the following adjustment reason:
deposit structure (negative).
ESG CONSIDERATIONS
Before the rating withdrawal, 365.bank's highest level of ESG
credit relevance score was '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 Prior
----------- ------ -----
365.bank, a.s. LT IDR BB Affirmed BB
LT IDR WD Withdrawn BB
ST IDR B Affirmed B
ST IDR WD Withdrawn B
Viability bb Affirmed bb
Viability WD Withdrawn bb
Government Support ns Affirmed ns
Government Support WD Withdrawn ns
===========
S W E D E N
===========
IGT HOLDING: S&P Alters Outlook to Negative, Affirms 'B' ICR
------------------------------------------------------------
S&P Global Ratings revised its outlook on Swedish software company
IGT Holding IV AB (IFS) to negative from stable. At the same time,
S&P affirmed its 'B' long-term issuer and issue credit rating on
the company and assigned its 'B' issue rating on the company's
proposed EUR400 million term loan B.
The negative outlook reflects that S&P could downgrade IFS over the
next 12 months if it fails to improve FOCF to debt in line with our
base case.
IFS's debt-funded acquisition will temporarily weaken its credit
metrics. S&P said, "We expect the company will fund the acquisition
of Copperleaf with proceeds from the proposed debt issuance of a
EUR400 million syndicated placed term loan B under the existing
credit agreement (issued by IGT Holding IV AB) and a $300 million
(EUR280 million) PIK privately placed loan issued by the ultimate
parent IGT Holding 1 AB. This will result in FOCF to debt of about
1% and an EBITDA cash interest coverage of 1.8x in 2024. In
addition to higher debt and interest costs, we expect EUR60 million
in exceptional costs in 2024 that will weigh on S&P Global
Ratings-adjusted EBITDA. That said, we expect IFS's revenues will
continue to increase organically by 15%-20% in 2024. We also expect
EBITDA margin improvements from 2025, led by lower exceptional
costs and the successful integration of the acquired companies. We
therefore think IFS's EBITDA cash interest coverage could improve
to about 2.5x and FOCF to debt could approach 5% by 2025. Our
negative outlook reflects the near-term weakness in credit metrics
and the potential risk that credit metrics could fail to improve in
case of further debt-funded acquisitions, operational missteps, or
continued high exceptional costs."
IFS's acquisition appetite creates rating pressure. As part of a
fast-growing and fragmented market, IFS has a relatively large
appetite for acquisitions to accelerate its revenue growth and
solidify its market position. This limits the company's FOCF
improvement as acquisitions are followed by material cash
restructurings that weighs down on IFS's FOCF. S&P said, "FOCF to
debt was below our 5% threshold over 2021-2023 due to IFS's
migration from a perpetual license-based billing model to a
software as a service (SaaS) model. This migration benefited the
company's long-term growth and profitability prospects and
increased recurring revenues. Once IFS has finished the migration,
we were expecting FOCF to debt of 8% in 2024 but the new
debt-funded acquisition is delaying the recovery of this ratio by
another 12-24 months. However, we note that the company's financial
policy of maintaining net leverage of 4.3x-5.3x (as defined by the
company under the existing credit agreement), which translates into
adjusted leverage of 6.5x-7.5x (excluding the PIK loan), remains
supportive of the current rating."
The acquisition of Copperleaf enhances IFS's product proposition
but is margin-dilutive for the IFS group. Copperleaf provides
enterprise asset investment planning and management (AIPM) software
that complements IFS's enterprise asset management (EAM) solutions.
The combination of both solutions will enhance IFS's product
proposition in the EAM segment. S&P said, "Furthermore, given the
complimentary nature of Copperleaf's solutions, we believe IFS has
opportunities to increase cross-selling revenues, given the limited
overlap in the existing client base. In our opinion, the
acquisition modestly improves IFS's scale and geographic diversity
as Copperleaf is more exposed to North America than IFS. Copperleaf
generates about Canadian dollar (C$) 80 million to C$100 million
(EUR55 million-EUR65 million) in revenues but is breakeven on
EBITDA largely due to significant expansion since its initial
public offering. EmpowerMX is significantly smaller than Copperleaf
and will only contribute 1% to IFS's revenues. Consolidating the
businesses will therefore be margin-dilutive and we expect the
consolidation will reduce IFS's margins by about 150 basis points
(bps). Furthermore, higher exceptional costs in 2024, mainly
related to restructuring and the integration of acquisitions, will
further impair adjusted EBITDA margins, which we expect will be
about 23%-24% in 2024, compared with 26.6% in 2023. We therefore
believe the margin-dilutive effect of the acquisition will offset
IFS's modestly improved business positioning."
IFS will continue to experience strong organic growth and margin
expansion over the next 2-3 years. S&P said, "We expect IFS's
revenues will continue to increase by over 15% organically, driven
by the company's well-invested product suite, and its strong
competitive position across its key verticals--mainly asset-heavy
industrial sectors, such as aerospace and defense, energy and
utilities, and manufacturing. Growth in maintenance revenues and
the migration to a SaaS model boosted IFS's already increasing
share of annual recurring revenues to about 80% by year-end 2023.
This provides a natural hedge against cyclical trends. We expect
margins will gradually improve from 2025, after a temporary dip in
2024, as exceptional costs will reduce and the successful
integration of acquisitions will expand the entire group's margins.
A gradually declining contribution from lumpier, lower-margin
consulting revenues will also improve adjusted EBITDA margins to
about 28% by 2026 and lead to a more stable earnings base. As a
result, adjusted debt to EBITDA, including the PIK loan, will
improve to just over 6.0x in 2025, from about 8.3x in 2024. FOCF to
debt will approach 5% by 2025, from breakeven levels in 2024."
S&P said, "Our view of IFS's credit quality remains in line with
our view of the consolidated group's credit quality under Impala
Bidco S.a r.l. (Impala). WorkWave, along with its associated
holding company debt, was carved out of IFS's ultimate parent,
Impala. This leaves IFS as the only consolidated subsidiary in the
group. As such, Impala's revenues, EBITDA, and cash flows are
similar to those of IFS. That said, Impala's adjusted leverage is
higher than IFS's due to the proposed holding company PIK loan. We
treat it as debt but recognize it is subordinated to IFS's debt,
has a longer maturity than IFS's debt, and is cash flow neutral as
it is a non-cash interest instrument. As such, we look at leverage
excluding and including PIK and we therefore forecast that, in line
with our expectations for IFS, the consolidated group's leverage,
including the PIK loan, will remain sustainably below 9x (below 8x
excluding the PIK loan) and that consolidated FOCF to debt will
increase and approach 5% by 2025.
"The negative outlook reflects that we could downgrade IFS over the
next 12 months if it fails to improve its EBITDA cash interest
coverage and FOCF to debt in line with our base case.
"We could lower the rating over the next 12 months if IFS's EBITDA
cash interest coverage remains below 2.0x, or if the company fails
to improve its FOCF in line with our base case.
"We could also lower the rating if IFS's adjusted debt to EBITDA
(excluding the PIK loan) exceeds 8x (or 9.0x including the PIK
loan)." S&P thinks this could occur if IFS:
-- Increases its debt to fund acquisitions or pay dividends;
-- Fails to integrate the acquisitions as smoothly as planned,
resulting in lower-than-expected EBITDA, spurred by lower synergies
or higher integration costs; or
-- Lost market share due to intensifying competition, leading to a
higher customer churn. Yet we view this as unlikely.
S&P said, "We would revise the outlook to stable if IFS's FOCF to
debt (including the PIK loan) approached 5% on the back of EBITDA
growth, strong organic growth, and the smooth integration of
acquired assets. We would also require adjusted debt to EBITDA
(excluding the PIK loan) to remain below 8x on a sustained basis
(or 9.0x including the PIK loan).
"Governance factors are a moderately negative consideration in our
credit rating analysis of IFS. Our assessment of the company's
financial risk profile as highly leveraged reflects corporate
decision-making that prioritizes the interests of the controlling
owners, which is the case for most rated entities owned by
private-equity sponsors. Our assessment also reflects such
sponsors' generally finite holding periods and focus on maximizing
shareholder returns. This is partly offset by the fact that most
directors on IFS's board are independent.
"Environmental and social factors have a neutral influence on our
credit rating analysis of IFS. While not material for the current
issuer credit rating, we view positively IFS's commitment to carbon
neutrality by 2025 and the presence of a robust sustainability
product strategy."
===========
T U R K E Y
===========
ANADOLU ANONIM: Fitch Affirms 'BB-' IFS Rating, Outlook Positive
----------------------------------------------------------------
Fitch Ratings has affirmed Anadolu Anonim Turk Sigorta Sirketi's
(Anadolu Sigorta) Insurer Financial Strength (IFS) Rating at 'BB-'
with a Positive Outlook. Fitch has also affirmed Anadolu Sigorta's
National IFS Rating at 'AA+(tur) with a Stable Outlook.
The affirmation reflects Anadolu Sigorta's company's very strong
position in the country's highly competitive insurance sector, high
asset risk driven by its substantial exposure to Turkish assets, as
well as adequate capitalisation and improved profitability. The
Positive Outlook reflects that on Turkiye's sovereign rating as the
sovereign rating and its Outlook affect its assessment of the
industry profile and operating environment where the insurer
operates as well as Anadolu Sigorta's company profile and the
credit quality of its investment portfolio.
The company's 'AA+(tur)' National IFS rating largely reflects its
strong franchise in Turkiye, and a regulatory solvency ratio
consistently and comfortably over 100%.
KEY RATING DRIVERS
Leading Turkish Insurer: Anadolu Sigorta's business profile is
supported by the company's very strong position in the country's
highly competitive insurance sector. Anadolu Sigorta was the
third-largest non-life insurer in Turkiye at end-2023, with a
market share of about 10%. Fitch expects its strong competitive
positioning to support the resilience of Anadolu Sigorta's credit
profile against the challenges posed by the Turkish economy.
Improved Investment and Asset Risk: Anadolu Sigorta is highly
exposed to domestic assets. Its investment portfolio largely
comprised deposits in Turkish banks and Turkish government bonds at
end-2023. As a result, Fitch sees the company's credit quality as
highly correlated with that of Turkish banks and the sovereign.
Although asset risk remains its main rating weakness, Anadolu
Sigorta's investment risk has improved following the sovereign
upgrade due to higher average investment credit quality, as
measured by a lower risky assets ratio.
Capitalisation Supportive of Rating: The company's capitalisation,
as measured by Fitch's Prism Global model, improved to 'Adequate'
at end-2023 from 'Somewhat Weak' at end-2022. The improvement was
driven by a higher equity base as a result of higher retained
earnings. The local regulatory solvency ratio was comfortably above
100% at end-2023 and end-1Q24, which support the company's ratings.
Other capital metrics, such as net written premium/equity and net
leverage, also improved and remained supportive of the rating.
Improved Earnings: Anadolu Sigorta's profitability improved
substantially in 2023, supported by both stronger, albeit still
negative, underwriting performance and higher investment income as
interest rates rose sharply in 2H23. The company invests largely in
bank deposits, which offered very high returns, given the increase
in interest rates to 42.5% at December 2023. In 2023, the company
reported a net income of TRY5.9 billion (2022: TRY1.1 billion),
corresponding to a net income return on equity (ROE) of 55% (2022:
22%).
In 1Q24, Anadolu Sigorta's reported combined ratio improved to 100%
(1Q23: 126%), due to improved performance of the motor third-party
liability line, in part driven by an increase in the discount rate
from 28% to 35%, as announced by the Turkish regulator in February
2024. However, underwriting performance remains unprofitable.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Turkiye's Long-Term Local-Currency Issuer Default
Rating (IDR) or major Turkish banks' ratings, leading to a material
deterioration in the company's investment quality
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of Turkiye's IDR or major Turkish banks' ratings
leading to a material improvement in the company's investment
credit quality
NATIONAL IFS RATING
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An ROE exceeding inflation levels for a sustained period, while
maintaining a strong market position in Turkiye
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- A decline in regulatory solvency ratio to below 100% on a
sustained basis
- Substantial deterioration of the company's market position in
Turkiye
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Anadolu Anonim Turk
Sigorta Sirketi LT IFS BB- Affirmed BB-
Natl LT IFS AA+(tur) Affirmed AA+(tur)
===========================
U N I T E D K I N G D O M
===========================
AMSCAN INTERNATIONAL: Baaj Capital Acquires Party Supplier
----------------------------------------------------------
The business and assets of Amscan International and associated
companies including Ginger Ray and Christy's by Design have been
sold to Baaj Capital, according to Interpath Advisory, the
appointed administrators for the Companies.
James Clark and Will Wright of Interpath Advisory were appointed
Joint Administrators of Amscan International Limited, Christys by
Design Limited, Ginger Ray Limited and Party Delights Limited on
July 15, 2024. At the same time, Clark and Howard Smith were
appointed Joint Administrators to Wonder Group Bidco Limited and,
on July 10, Clark and Ryan Grant were appointed Joint
Administrators to Amscan Holdco Limited.
The Companies are part of The Wonder Group, the international
wholesaler and retailer of costume and party products headquartered
in Milton Keynes, and with operations in markets including U.S.,
Germany, Sweden, Malaysia, Australia, and Hong Kong.
According to information on Interpath's Web site, Wonder Group had
experienced a period of underperformance in trading in the wake of
a downturn in consumer spending. This underperformance was
compounded by the insolvency of a major customer, Party City, in
early 2023. In response, the directors sought to examine options
for the Group, including exploring the possibility of a sale or
refinancing. However, when it became clear that a solvent outcome
was not possible, the directors took the difficult decision to seek
the appointment of administrators.
Following their appointment, the joint administrators sold the
business and certain assets of the Companies to four separate
companies owned by the investment firm Baaj Capital. As part of the
transaction, a total of 133 employees based across the Companies'
sites in Milton Keynes, Weybridge, Manchester, and Sheffield
transferred to the purchaser.
Interpath advised the Group through a highly complex international
restructuring, coordinating activities across multiple
jurisdictions and managing an intricate network of stakeholders
culminating in solvent sales of the Group's Malaysian and Swedish
subsidiaries, saving a further 635 jobs. The Group's Australian
subsidiary is in Receivership but continues to trade and is subject
to an ongoing sale process which will hopefully result in a going
concern solution for the future of that business.
James Clark, managing director at Interpath Advisory and joint
administrator, said: "With roots dating back to 1773, the Wonder
Group has grown over the years to become a truly international
business with operations spanning all four corners of the globe.
However, in common with many consumer-facing businesses, it has
been hit recently by the dual-impact of fragile consumer confidence
and rising costs.
"We are pleased to have concluded these transactions which will see
the UK trading entities move into the ownership of Baaj Capital.
Successfully delivering both these transactions in the UK and
overseas was incredibly complex and we’d like to thank all those
who have worked tirelessly over recent weeks in challenging
circumstances to save a large part of the Group’s businesses in
going concern transactions. In particular we would like to thank
the Group's employees for their patience and understanding
throughout the restructuring process and we wish them the very best
for the future."
A spokesperson for Baaj Capital commented, "We are delighted to
conclude the purchase of the business of these Companies in the
Wonder Group and saving the jobs of 133 employees in the process.
We now look forward to rebuilding the business with a strong
management team and new investment. The long history of
Yorkshire-based Christy's by Design is now secured to move forward
together with the other brands of the group."
Legal support was provided by Shoosmiths LLP (acting for Baaj
Capital) and Addleshaw Goddard LLP acting for the administrators.
THG PLC: Fitch Affirms 'B+' LongTerm IDR, Outlook Negative
----------------------------------------------------------
Fitch Ratings has affirmed THG PLC's (THG) Long-Term Issuer Default
Rating (IDR) at 'B+' with a Negative Rating Outlook. Fitch has also
affirmed THG Operations Holdings Limited's EUR600 million term loan
B at 'BB-' with a Recovery Rating of 'RR3'.
The Negative Outlook reflects still limited rating headroom under
Fitch's projected leverage for 2024. THG also faces significant
execution risk in its efforts to recover its former operating
margins and free cash flow (FCF) amid stiff competition and a still
challenging consumer environment in most markets. Weakened pricing
power and foreign exchange (FX) challenges could still pressure
margin recovery in 2024, despite normalising cost inflation.
The rating reflects THG's well-entrenched and stable market
positions with robust sales performance and the ability to recruit
new customers and retain existing ones. THG also has solid
liquidity.
KEY RATING DRIVERS
Delayed Deleveraging: Fitch calculates EBITDA leverage to remain
above 5.5x for 2024, Fitch's negative sensitivity for the rating.
Fitch expects it to decrease well below 5x from 2025, supported by
EBITDA growth to above GBP115 million and its assumption of full
repayment of its GBP131 million term loan. As this deleveraging
remains subject to successful execution of a turnaround strategy,
the Outlook remains Negative and there is no rating headroom for
additional acquisitions through 2027. The latter is in line with
the company's near-term strategy to focus on integrating recent
acquisitions and driving organic revenue growth in its three
business.
Mixed Near-Term Trading Performance: Fitch expects the trading in
THG's nutrition business to improve from 2H24 as the group
commences manufacturing in Asia to mitigate FX fluctuations and its
products become fully available with the completion of rebranding.
Sales in nutrition declined 9.0% year-on-year in 1Q24, but Fitch
expect this to recover in 2H24. Fitch believes positive trading
momentum in its beauty division is likely to continue in 2H24,
following normalized manufacturing and reversal of industry
de-stocking. Robust trading, particular in the premium beauty
portfolio, should support revenue growth of high single digits in
the beauty business in 2024.
Fitch expects revenue in THG's Ingenuity resume growth from 2H24,
as third-party sales strengthen and contract flows build up from
new and existing clients. Overall, Fitch expects flat revenue in
2024, before it gradually grows in low single digits for the
following two years.
Management Focus on Profitability: Fitch expects THG to continue
product portfolio optimization with the focus on more profitable
products and markets to support profit margin recovery. Fitch
believes that management's decision to prioritise higher-margin
sales, at the cost of near-term shrinking revenue, should help
return the overall profit margin to historical levels of 5%-6% from
2025, as demonstrated in its EBITDA margin rebound in 2023 to 2.9%
from 0.3% in 2022. Fitch estimates Fitch-defined EBITDA margin will
increase towards 5% in 2024 and 5.5% in 2025.
Easing Costs Challenges: Fitch estimates gross margin for 2024 to
carry on improving as pricing for whey continues to normalise,
which contributed to the margin improvement in 2023. Fitch projects
distribution costs to continue decreasing following recent
completion of investments in automation and network localisation.
Fitch assumes modest pressure on profitability from rising
personnel costs in 2024, which may be mitigated by cost-cutting,
while marketing expenses are likely to be high to support revenue
growth.
High Execution Risks: There are downside risks to its 2024-2025
forecasts, but Fitch expects THG to manage its balance sheet over
the coming year without material utilisation of available credit
facilities. Fitch expects THG's free cash flow (FCF) generation to
break even in 2024 benefitted by higher profits, while capex
subsides on project completion and as cost savings come through.
Fitch expects FCF generation to remain broadly neutral to 2027,
with small working capital inflow and modest capex around 4.5% of
revenue.
Developing Business Position: THG's established position in the
beauty (Lookfantastic.com) and wellbeing (Myprotein) consumer
markets demonstrates a robust business model, underpinned by
moderate geographic diversification and increasing penetration of
markets outside the UK and Europe. THG's in-house "Ingenuity"
'technology and operations' platform and owned infrastructure are
high barriers to new entrants. This end-to-end supply chain reaches
a global online audience, which is available to third parties,
including global fast-moving consumer goods (FMCG) groups providing
tailored direct-to-consumer (D2C) solutions.
Business Reconfiguration: THG has the option following completion
of divisional separation to pursue strategic transactions with its
business units to maximise long-term shareholder value. It may
proceed with a planned separation of nutrition or beauty,
potentially leading to an eventual sale, demerger or partnership
arrangement.
The sale of a material division would trigger a partial or full
repayment of its TLB, but there is still uncertainty about how the
potential proceeds will be utilised in addition to servicing the
debt.
DERIVATION SUMMARY
Fitch rates THG under its framework for Consumer Products: Ratings
Navigator Companion. Fitch recognises THG's retailing and business
service offerings, but its business model is underpinned by an
end-to-end supply chain that aligns its business model most closely
with Fitch's consumer framework.
Avon Products, Inc.'s (BB/Stable) and Natura &Co Holding S.A.
(Natura, part of the same group; BB+/Stable ) rating differential
with THG's reflects the significantly larger scale of Natura's
operations, synergies from Avon's acquisition, the revitalisation
of its product portfolio and its digitalisation plan. Natura also
has low leverage due to recent equity issuance and higher operating
profitability.
Non-food retailer The Very Group Limited (TVG; B-/ Negative), a
pure online retailer in the UK, is rated two notches below THG due
to its weaker business profile, including geographical
concentration in one country, and a heavily leveraged balance
sheet.
THG's IDR is two notches higher than Ocado Group PLC's (B-/Stable),
reflecting THG's stronger financial metrics and the higher
execution risk faced by Ocado due to the slow ramp-up of existing
Customer Fulfillment Centre (CFCs) and the rollout of new CFCs to
drive earnings growth and profitability. This is partially offset
by Ocado's strong position as an international technology and
business services provider with a significant proportion of
long-term contracted earnings. In its view, Ocado has a greater
exposure to pure online retail, including greater inventory risk.
THG's IDR is rated above beauty seller Oriflame Investment Holding
Plc (CCC). Oriflame was downgraded in November 2023 due to the
continuing severe structural weakness of the direct-selling
business model in combination with lack of clarity over the
company's turnaround plan. THG's higher rating reflects the greater
diversification of its revenue streams, a strong online D2C channel
presence and less exposure to FX risks related to emerging markets.
THG's business model is well-placed to capture the continuing
transition of consumers to online channels, providing a stronger
ability to deleverage relative to Oriflame.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Organic decline of existing product portfolio revenue of around
1% in 2024, followed by a low single-digit growth for 2025-2027
- Fitch-adjusted EBITDA margin at 4.9% for 2024 and improving
towards 5.6% by 2025 and 5.7% in 2026 (2023: 2.9%; 2022: 0.3%)
- Working-capital inflow of GBP36 million for 2024 and GBP13
million for 2025, reflecting improved inventory management and
global logistics network, then normalising to slight inflows from
2026
- Capex declining to GBP95 million in 2025-2027, from GBP100
million in 2024
- No M&A over the rating horizon
- No dividend payments over the rating horizon
RECOVERY ANALYSIS
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that THG would be restructured as a
going concern (GC) rather than liquidated in a default.
THG's post-restructuring GC EBITDA reflects Fitch's view of a
sustainable EBITDA of around GBP95 million, which represents a 6%
discount to Fitch's 2024 EBITDA forecast. This would be in line
with its sustainable profitability after the disposal of a
loss-making businesses in 2023. Fitch believes that THG's ability
to generate revenue and profits has not fundamentally changed and
the GC EBITDA is unchanged from its previous review in October
2023.
Its GC EBITDA includes a conservative estimate of EBITDA
contribution from the acquisitions of Cult Beauty, among others, in
2021. Stress on EBITDA would most likely result from operational
issues, most likely worsened by slower growth and weaker margins
than envisaged in the beauty and wellbeing divisions.
Fitch applies a distressed enterprise value (EV)/EBITDA multiple of
5.5x to calculate a GC EV, reflecting THG's growing position in
both beauty and wellbeing D2C channels, underpinned by internally
developed intellectual property.
Based on the payment waterfall, multi-currency revolving credit
facility of GBP170 million equivalent and the three-year term loan
of GBP131 million (assumed to be fully drawn in default) ranks pari
passu with the senior secured term loan totaling EUR600 million.
After deducting 10% for administrative claims, Fitch's waterfall
analysis generates a ranked recovery for the senior secured loans
in the 'RR3' band, indicating a 'BB-' instrument rating, one notch
above the IDR. The waterfall-generated recovery computation
analysis on current metrics and assumptions is 59%.
RATING SENSITIVITIES
Factors That May Individually or Collectively Lead to Negative
Rating Action/Downgrade
- More aggressive financial policy or operating underperformance
leading to a lack of deleveraging with EBITDA leverage remaining
above 5.5x
- Operating EBITDA interest coverage below 3x on a sustained basis
- Increased competition, weak pricing power and/or delay to or
failure in delivering expected savings leading to weak
profitability
- Consistently negative FCF margin (after interest and taxes),
eroding liquidity buffer
Factors That Could, Individually or Collectively, Lead to an
Affirmation With a Stable Outlook
- EBITDA margins trending towards 5% and FCF turning neutral from
2024
- EBITDA leverage below 5.5x on a sustained basis
- EBITDA interest coverage above 3.0x
Factors That May Individually or Collectively Lead to Positive
Rating Action/Upgrade
- Sales growth driven by increased scale, solid pricing power,
along with a stable cost base, driving EBITDA margin improvements
- EBITDA leverage below 4x (or net debt/EBITDA below 3.5x) on a
sustained basis
- EBITDA interest coverage above 4x
- Maintenance of solid liquidity and visibility that FCF margin
(after interest and taxes) remains positive
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch expects THG to maintain a cash balance
of above GBP200 million in 2024-2025, with broadly neutral cash
flow generation. Combined with a fully undrawn GBP170 million RCF
due in 2026, this ensures comfortable liquidity, especially given
the lack of meaningful debt repayments in the next two years. THG
has FX and interest rate swaps in place to mitigate exposure to
Euribor.
In its liquidity calculations, Fitch treats GBP40 million of cash
as restricted, reflecting limited intra-year working-capital swings
and rapidly increasing business scale.
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
----------- ------ -------- -----
THG Operations
Holdings Limited
senior secured LT BB- Affirmed RR3 BB-
THG PLC LT IDR B+ Affirmed B+
WD FF LIMITED: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed WD FF Limited's (Iceland) Long-Term
Issuer Default Rating (IDR) at 'B' with a Stable Outlook. Fitch
also affirmed the senior secured notes issued by its subsidiary
Iceland Bondco PLC at 'B+' with a Recovery Rating of 'RR3'.
Iceland's IDR reflects its high EBITDAR leverage balanced against a
successful specialist retail business model focused on the frozen
food and value-seeking consumer segments, whose profits, with the
exception of an adverse impact of high electricity costs on its
FY23 (year-end March), have been resilient through business cycles.
Fitch believes these food and grocery retail segments will continue
benefiting from current subdued household spending in the UK,
supporting Iceland's profit growth.
Iceland's estimated EBITDAR leverage of 6.4x at FYE24 is now in
line with the company's 'B' rating, albeit at the top end. Fitch
expects further deleveraging over FY25-FY26, helped by steady
revenue growth and slight improvements in profitability. This
should result in comfortable leverage headroom under the rating, as
underscored in its Stable Outlook.
KEY RATING DRIVERS
Improving Leverage Headroom: Fitch projects Iceland's EBITDAR gross
leverage to gradually fall to 6.2x in FY25 and to below 6.0x in
FY26 from an estimated 6.4x at FYE24 (FYE23: 8.2x). This will be
driven by a GBP30 million debt repayment in FY25 and continued
EBITDA growth. Fitch views this leverage profile as more
comfortable, providing headroom within the 'B' rating. Fitch
expects average EBITDAR coverage at around 1.5x, which is adequate
for the rating, aided by lower debt. Iceland has hedged its
interest rate and currency exposure on the euro-denominated portion
of the new notes, which are floating rate.
Expected Continued EBITDA Recovery: Fitch estimates EBITDA
recovered to GBP154 million in FY24, after a 24% contraction in
FY23 due to high energy costs as a frozen food retailer. Fitch
forecasts EBITDA to improve further to GBP162 million in FY25 or
3.8% of sales, from 3.7% in FY24 and 2.5% in FY23. This will be
driven by continued sales growth, benefiting from Iceland's value
positioning and a decline in energy costs. Fitch expects these
trends to continue, which together with cost savings, should help
offset cost inflation. As food price inflation eases, Fitch expects
Iceland to maintain revenue growth with volume increases.
Profit Pressures Managed: Fitch expects Iceland to continue to
benefit from various cost-saving measures to help offset cost
inflation. Generally, cost inflation is harder to absorb for
smaller-scale grocers such as Iceland that operate with thinner
EBITDA margins than large and more diversified mainstream grocers
(5%-6%). Iceland's energy costs are over 95% locked in for FY25,
and Fitch factors in a further GBP20 million reduction in costs on
the back of GBP50 million confirmed savings in FY24.
Cash-Generative Business: Similar to other food retailers, Iceland
is a cash-generative business. Fitch expect positive free cash flow
(FCF) margins, at slightly above 1% from FY26, similar to its
estimate for FY24, which is in line with peers' and reflected in
the Stable Outlook. Fitch expects however a neutral FCF in FY25
following increased investment in its new Warrington warehouse.
Fitch assumes this will temporarily cause capex to peak at GBP70
million, before it returns to a more normalised GBP50 million from
FY26.
Restaurants Now in Restricted Group: Iceland's restaurants business
- under its subsidiary Individual Restaurants Limited - has now
become a guarantor of the senior secured notes and is therefore
included in the restricted group. Fitch has therefore included its
revenue, EBITDA contribution for FY24, although the latter is
immaterial, as well as its debt, to its metrics calculations. Most
of this business' debt has been repaid, leaving a GBP18 million
shareholder loan. Fitch accounts the loan as debt given its
upcoming contractual maturity, although Iceland expects it to be
rolled over.
Value Positioning Benefits: Fitch expect the UK food industry to
continue to see stiff competition but for Iceland to remain a
competitive player with its value product offering for consumers
with weaker spending power and amid cost-of-living pressures.
Iceland is UK's second-largest frozen food retailer after Tesco.
Its sales grew during the global financial crisis and its share in
the UK grocery market rose slightly during 2008-2024, despite
competitive pressures and the rapid growth of discount stores. This
was achieved with greater product differentiation, lower pricing,
investment in its stores and formats, and improved brand
positioning on sustainability.
DERIVATION SUMMARY
Iceland's business risk profile, as a mostly UK-based specialist
food retailer, is constrained by its modest size and lower
diversification than that of other Fitch-rated European food
retailers, such as Tesco PLC (BBB-/Stable), Bellis Finco plc (ASDA;
B+/Positive) and Market Holdco 3 Limited (Morrisons; B/Positive).
All three peers are larger, have greater diversification and a high
share of freehold store ownership compared with Iceland. Iceland
has a smaller market share than those peers in the UK grocery
segment, but is second behind Tesco in the frozen food category.
Also, its offer is not confined to frozen food, with 60% of its
revenue generated from the sales of other food and non-food
products.
Fitch expects Iceland's EBITDAR gross leverage to reduce to around
6.2x in FY25, which is higher than other Fitch-rated UK peers'
(Morrisons to deleverage to near 6.0x by 2025; ASDA to be below
5.0x in 2025 and Tesco's around 3.0x). Peers also benefit from
stronger coverage ratios than Iceland.
Iceland is larger in sales than Picard Bondco S.A. (B/Stable), a
French specialist food retailer also active in frozen foods, but
its profitability is materially weaker (EBITDAR margin of 6% versus
Picard's 17%) making them comparable at EBITDAR level, and
supporting superior cash flow generation versus other food
retailers. Picard operates mostly in the higher-margin premium
segment and benefits from strong brand awareness. Picard's EBITDAR
gross leverage is currently higher than Iceland's but Fitch
projects this ratio will improve after debt reduction to around
6.5x in FY24-FY27. The weaker financial structure is partially
offset by Picard's stronger business profile.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer:
- Retail revenue (excluding restaurants) growth of 2.1% in FY25,
driven by volume and consumer focus on value, followed by growth
around 3.0% in FY26 and thereafter as slower like-for-like growth
is compensated by higher net store openings
-Three net new store openings in FY25, increasing toward around 20
stores a year in FY28
- EBITDA margin to slightly increase towards 4% (FY24: estimated
3.7%), as cost savings offset wage inflation and on further
normalisation of energy cost
- Working-capital outflow of GBP9 million in FY25, driven by the
Warrington depot's planned opening. This is followed by neutral
working capital in FY26-FY28
- Capex peaking at GBP70 million in FY25 due to Warrington depot
investment and normalising at GBP50 million from FY26
- No dividends or other distributions to FY28
- Full repayment of its GBP30 million 2025 senior secured notes in
FY25
RECOVERY ANALYSIS
Fitch's Key Recovery Rating Assumptions:
Fitch's recovery analysis assumes that Iceland would be reorganised
as a going concern in bankruptcy rather than liquidated. Fitch have
assumed a 10% administrative claim.
Iceland's going-concern (GC) EBITDA assumption reflects the scale
of the company's business with new store openings each year, an
improved cost base with visibility on energy costs and its disposal
of a loss-making business in Ireland. Fitch has included the
restaurant business in its going-concern EBITDA calculation as it
has been recently added within the restricted group.
The GC EBITDA to GBP120 million reflects its view of a sustainable,
post-reorganisation EBITDA on which Fitch bases the enterprise
valuation (EV). The assumption also reflects corrective measures
taken in the reorganisation to offset the adverse conditions that
trigger its default, such as cost-cutting efforts or a material
business repositioning.
Fitch appies an EV multiple of 4.5x to the going-concern EBITDA to
calculate a post-reorganisation EV.
Iceland's revolving credit facility (RCF) of GBP50 million is
assumed to be fully drawn in default. The RCF is super senior to
the company's senior notes in the debt waterfall.
Its waterfall analysis generates a ranked recovery for Iceland's
senior secured notes in the 'RR3' category, resulting in a 'B+'
rating with recoveries of 58%. This is up from 56% since its review
of the rating in 2023, reflecting a total GBP25 million repayment
under its 2025 senior secured notes (GBP20 million during 4QFY24,
and an additional GBP5 million in 1QFY25). Fitch expects further
improvement in the recovery percentage within the 'RR3' range, once
the remaining GBP25 million amount is repaid with cash before its
maturity in March 2025, but this is unlikely to lead an upgrade of
the 'RR3' of the notes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Like-for-like sales growth and the maintenance of stable market
shares, leading to increases in EBITDA margin towards 5%
- EBITDAR gross leverage below 5.5x on a sustained basis
- EBITDAR fixed-charge coverage above 2.0x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Decline in like-for-like sales, with loss of market shares due to
competition or to permanently lower capex, or inability to pass on
cost inflation to consumers, leading to accelerating EBITDA margin
erosion or neutral FCF on a sustained basis
- Tightening of liquidity due to unexpected cash outflows
- EBITDAR gross leverage above 6.5x on a sustained basis
- EBITDAR fixed-charge coverage below 1.5x on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch views Iceland's liquidity as
comfortable, with estimated cash of GBP129 million at FYE24, which
excluded a restricted GBP20 million for working-capital purposes
(Fitch's adjustment). In addition, Iceland has an undrawn RCF of
around GBP50 million and Fitch expects it to generate positive FCF
from FY26 onwards. Iceland's debt maturity profile is adequate,
with no significant debt amount maturing before December 2027.
ISSUER PROFILE
Iceland is a British food retailer specialising in frozen and
chilled food products at a low price point. It operates around
1,000 stores in the UK.
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
----------- ------ -------- -----
Iceland Bondco PLC
senior secured LT B+ Affirmed RR3 B+
WD FF Limited LT IDR B Affirmed B
*********
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-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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