/raid1/www/Hosts/bankrupt/TCREUR_Public/240726.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, July 26, 2024, Vol. 25, No. 150
Headlines
F R A N C E
KPMG FRANCE: Interpath Advisory to Acquire Restructuring Business
G E R M A N Y
PCF GMBH: Moody's Cuts CFR & EUR750M Sr Sec. Notes Rating to Caa1
TK ELEVATOR: S&P Alters Outlook to Stable, Affirms 'B' ICR
I R E L A N D
BAIN CAPITAL 2018-1: Fitch Affirms 'B+sf' Rating on Class F Notes
BARINGS EURO 2024-1: Fitch Assigns 'B-sf' Rating to Class F Notes
PENTA CLO 11: S&P Assigns B- (sf) Rating to Class F-R Notes
L U X E M B O U R G
GARFUNKELUX HOLDCO: Fitch Lowers Rating on Sr. Secured Notes to CCC
ZACAPA SARL: Moody's Affirms 'B2' CFR, Outlook Remains Stable
S W E D E N
INTRUM AB: Fitch Lowers Rating on Sr. Unsecured Debt to 'CC'
U N I T E D K I N G D O M
107 STATION STREET: Begbies to Lead Administration Proceedings
CARPETRIGHT LTD: PwC Named as Administrators for Carpet Retailer
CURIUM BIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable
ETC REALISATIONS: Grant Thornton Named as Administrators
FEATHERFOOT ST STEPHENS: Opus Named as Administrators
LEVIN GROUP: FRP Advisory to Lead Administration Proceedings
SELBY CONTRACT: Opus Appointed as Administrators
VIRIDIS: S&P Lowers Class E Notes Rating to 'B- (sf)'
WHEEL BIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Negative
[*] Amanda O'Sullivan Joins Interpath's Fin'l. Restructuring Team
X X X X X X X X
[*] BOOK REVIEW: The Phoenix Effect
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F R A N C E
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KPMG FRANCE: Interpath Advisory to Acquire Restructuring Business
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Interpath Advisory, a leading international financial advisory firm
and the largest independent turnaround and restructuring business
in the United Kingdom, has announced that it has signed a business
transfer agreement for the acquisition of the restructuring
activities of KPMG in France. This transaction is expected to close
in the autumn of 2024.
This agreement will considerably strengthen Interpath Advisory's
corporate restructuring advisory activities in France, supporting
companies in difficulty and their stakeholders. As part of the
agreement, over 100 employees in France will transfer to Interpath,
including six Managing Directors and six Directors.
This transaction is aligned with KPMG's strategy in France, and
will allow the firm to focus on high-demand areas, including core
Deal Advisory services such as M&A, corporate finance, due
diligence, private equity and strategy advisory.
"We look forward to welcoming to Interpath the teams from KPMG's
restructuring practice in France, whose excellent reputation is
well established in our market. In the face of both an increasingly
complicated global and domestic environment, as economic
uncertainty increases, we have no doubt that our expertise will be
particularly valuable in meeting the growing needs of our clients,
corporates and investment funds," said Baréma Bocoum, Managing
Director of Interpath Advisory in France.
"This agreement is part of our strategy in France to invest in A.I
and transformational M&A activities, combining our unique expertise
in due diligence, valuations, IPOs, tax and legal advice, with the
reach of our consulting capabilities, to deliver value to clients
through successful business transformations. KPMG member firms
across our EMA and wider global network continue to invest in and
strengthen turnaround and restructuring services for clients as
part of our Deal Advisory & Strategy capabilities. I look forward
to working with Interpath during this transition period," added
Damien Allo, Head of Advisory at KPMG in France.
About Interpath Advisory
Interpath recently opened its first office in France in the 9th
arrondissement of Paris under the management of Barema Bocoum.
Building on this momentum, Interpath aims more broadly to continue
its development in continental Europe, and to continue to enrich
its offer in France for companies and investment funds
The company was founded in May 2021 following the sale of KPMG's UK
Restructuring practice to H.I.G. Europe, the European affiliate of
H.I.G. Capital LLC, and Interpath's managing directors. Initially
based in the U.K., Interpath has grown rapidly and in addition to
its office in Paris, now operates across 15 other offices in the
UK, Ireland, BVI and Cayman Islands. The firm currently employs
over 750 professionals.
About KPMG France
KPMG is a global network of professional firms providing Audit, Tax
and Advisory services. We have 207,000 outstanding professionals
working together to deliver value in 153 countries and territories.
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G E R M A N Y
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PCF GMBH: Moody's Cuts CFR & EUR750M Sr Sec. Notes Rating to Caa1
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Moody's Ratings has downgraded PCF GmbH's (Pfleiderer) corporate
family rating to Caa1 from B3, probability of default rating to
Caa1-PD from B3-PD and the instrument rating on the EUR750 million
sustainability linked senior secured notes to Caa1 from B3. The
outlook remains negative.
RATINGS RATIONALE
The rating action reflects:
-- The company has announced its aim to extend the maturity of its
bonds by three years, having already secured support from the
RCF-providing banks and more than 60% of noteholders. To
incentivize this, the company offers consent and exit fees, as well
as a step-up call premium equivalent to a 400 basis point PIK
margin uplift on the EUR400 million senior secured notes, and a 75
basis point PIK margin uplift on the EUR350 million floating rate
notes. It intends to continue paying existing coupons in cash.
-- The company's sponsor, Strategic Value Partners LLC, has
proposed injecting EUR75 million of equity to fund growth
initiatives should bondholders accept the extension of the notes.
-- The proposed transaction will constitute a distressed exchange,
according to Moody's definition, which considers such a transaction
as default avoidance given the extension of the bonds' maturity.
-- A cyclical downturn in construction and renovation markets is
projected to lead to a significant deterioration in Pfleiderer's
credit metrics in 2024. Moody's anticipate Moody's adjusted gross
leverage to rise towards 10x, coupled with an EBITDA/interest ratio
of below 1.5x and a materially negative FCF this year. While a
recovery is expected from 2025 onwards, Moody's believe that
metrics will remain weak and not commensurate with requirements for
a B3 rating the following year. Furthermore, the proposed call
premium will increase the future debt load, despite supporting
current liquidity in the form of cash interest savings.
-- Although liquidity would initially improve if the transaction
is being accepted by creditors due to the equity injection and the
extension of debt maturities, risks of gradual deterioration over
the next 12-18 months are apparent. This is mainly due to cash
consumption related to the company's growth initiatives and value
creation plans, which should both benefit the credit profile over
the medium term. In 2024, Moody's forecast Moody's adjusted free
cash flow to be around negative EUR60-80 million, including
materially higher than average growth Capex in strategic
initiatives such as project Nord, followed by negative EUR0-30
million in 2025.
-- The rating action also reflects the uncertain recovery of the
construction markets in PCF's key geographic markets, having
observed delayed recovery assumptions in recent quarters. It also
reflects the uncertainty in receiving the 90% bondholder consent
required for the consensual extension of maturity. As an
alternative, the company plans to use a UK Scheme of Arrangement,
which requires 75% consent.
The downgrade of the rating reflects corporate governance
considerations linked to the proposed amendment of the notes. The
extension of the maturity of the notes will be viewed as a
distressed exchange. Additionally, Moody's consider the sponsor's
equity injection of EUR75 million to be insufficient to restore the
capital structure to a level commensurate with B3 requirements.
LIQUIDITY
Pfleiderer's liquidity will improve should the transaction proceed
as proposed. Pro-forma the EUR75 million equity injection, the
company had EUR113 million in cash on its balance sheet at the end
of March 2024, along with full availability under the EUR65 million
revolving credit facility (RCF) for a total liquidity of EUR178m.
The maturity of RCF is also set to be extended by three years to
January 2029, in exchange for a 25 basis point increase in margin
and a 1% upfront fee. However, Moody's expect liquidity to
deteriorate over the coming 12-18 months due to the anticipated
materially negative FCF generation.
STRUCTURAL CONSIDERATIONS
The EUR750 million sustainability linked senior secured notes are
rated Caa1, which is in line with the corporate family rating. In
Moody's waterfall analysis the notes rank junior to the EUR65
million super senior RCF. However, there is no notching on notes
due to the relatively small size of the RCF compared to notes.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the uncertainty in terms of the pace
of the credit metrics improvement over the next 12-18 months, given
the challenging market environment. Additionally, it reflects the
uncertainty in terms of receiving the required bondholder consent
and the implementation of the transaction as proposed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could consider downgrading Pfleiderer's rating if the
company fails to receive required bondholder consent for the
proposed transaction and the 2025-2026 maturities are not addressed
in due course. Downward rating pressure could also arise as a
result of larger negative free cash flow generation than currently
anticipated in 2024 and 2025 leading to a quicker deterioration in
liquidity than currently anticipated.
could consider upgrading Pfleiderer's rating if Moody's adjusted
debt/EBITDA would sustain below 6.5x, EBITDA/ interest would
sustain above 1.5x and Moody's adjusted FCF is sustainably positive
while liquidity profile is adequate at least.
The principal methodology used in these ratings was Paper and
Forest Products published in December 2021.
COMPANY PROFILE
Headquartered in Neumarkt, Germany, PCF GmbH (Pfleiderer) is an
intermediate holding company for a group of entities operating
under the Pfleiderer brand. Pfleiderer is one of the leading
European manufacturers of wood-based products and solutions, with
its origins dating back to 1894. In 2023, the company generated
EUR940 million of revenue while the company's adjusted EBITDA was
EUR141 million. Pfleiderer operates across two division: Engineered
Wood Products (82% of 2023 revenue) and Silekol (25%).
TK ELEVATOR: S&P Alters Outlook to Stable, Affirms 'B' ICR
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S&P Global Ratings revised its outlook on Germany-based TK Elevator
Topco, the holding company of TK Elevator Group (TK Elevator), to
stable from negative and affirmed its 'B' rating on the company,
its 'B' issue rating on the senior secured debt, and its 'CCC+'
issue rating on the senior unsecured debt. The recovery ratings on
the senior secured and unsecured debt remain at '3' and '6',
respectively.
S&P said, "The stable outlook reflects our expectation that TK
Elevator will continue to improve its operating performance over
the next 12-18 months by executing its efficiency measures and
revenue expansion, improving its S&P Global Ratings-adjusted EBITDA
margin toward 14%, and reducing leverage below 8x (excluding the
PIK notes) in fiscal 2024. We also incorporate our expectation of
increased FOCF generation of more than EUR100 million and a funds
from operations (FFO) cash interest coverage ratio of about 2x by
Sept. 30, 2025.
"Over the next 12-18 months we expect TK Elevator's business will
continue to expand, reflecting a robust order intake and a growing
service business, supporting the 'B' rating. Despite market-wide
subdued dynamics in new installation orders, reflecting a still
stagnant construction market, TK Elevator's order intake was about
EUR4.7 billion in the first six months (Oct. 1, 2023- March 31,
2024) of fiscal 2024, resulting in a record-high order backlog of
EUR6.5 billion and a book-to-bill ratio of above 1.0x in all
business divisions. We saw strong growth in demand for elevator
services and modernization across all regions and particularly in
the U.S., which more than offsets lower orders of new
installations, especially in China. In terms of sales, we observed
growth across all business lines and regions, led by 17% in
Modernization and 11% in the Americas. Accordingly, we anticipate a
slight acceleration in growth of about 5% to more than EUR9.3
billion for fiscal 2024, and of 3.5%-4.0% to more than EUR9.7
billion in fiscal 2025."
Improving margin profile, driven by efficiency and restructuring
measures as well as improved pricing and order mix. For fiscal
2024, we project TK Elevator will achieve an S&P Global
Ratings-adjusted EBITDA margin of about 13.4%, an increase from
12.1% in 2023. This improvement is driven by a robust order intake
with a stronger margin profile. New installations, representing
approximately 40% of revenues, exhibit greater volatility and lower
margins compared with the modernization and services segments,
which contribute around 60% of total revenues. Substantial order
intake within the modernization and services segments has
significantly enhanced the order backlog, improving the overall
margin development. Strategic initiatives, including the reduction
of legacy overhead costs, improving procurement processes, and
enhanced technical service capabilities have collectively bolstered
efficiency and cost management. Looking ahead to 2025, we
anticipate further margin improvements, with the EBITDA margin
expected to reach about 14.6%.
S&P said, "In the next 12-18 months, we anticipate that the
company's cash flow generation and leverage metrics will gradually
improve in line with earnings. We forecast positive FOCF of EUR110
million-EUR140 million in fiscal 2024 and EUR250 million-EUR290
million in fiscal 2025. Margin appreciation, positive working
capital of about EUR30 million-EUR40 million, and low capital
expenditure (capex) requirements will support FOCF. We expect TK
Elevator will use its revolving credit facility (RCF) less often,
which will improve its liquidity and support deleveraging. Low
intrayear working capital swings and a long-dated debt maturity
profile (no material maturity before 2027) with sufficient covenant
headroom also underpin the company's liquidity profile. Based on
the improvements in operational performance, we expect leverage
(excluding PIK notes) to fall below 8.0x in fiscal 2024 to about
7.9x, before moving to about 7.0x in fiscal 2025. We anticipate the
ratio of funds from operations (FFO) to cash interest will remain
stable at 1.4x, mainly due to the additional one-off cash interest
expenses in relation to the refinancing, but we project the ratio
will approach 2.0x in fiscals 2025-2026.
"The stable outlook reflects our expectation that TK Elevator will
continue to improve its operating performance over the next 12-18
months by executing its efficiency measures and revenue expansion,
improving its S&P Global Ratings-adjusted EBITDA margin toward 14%,
and reducing leverage to below 8x by fiscal 2024 (excluding the PIK
notes). We also incorporate our expectation of increased FOCF
generation of more than EUR100 million and a funds from operations
(FFO) cash interest coverage ratio of about 2x by fiscal 2025.
"We could lower the rating if the group does not increase its
revenue or absolute EBITDA as expected, resulting in debt to EBITDA
(excluding PIK notes) of more than 8x or an FFO cash interest ratio
of less than 2x by the end of fiscal 2025. These scenarios could
materialize following a contraction of EBITDA amid the tough
industry and weakening macroeconomic conditions."
S&P could also lower the rating if:
-- The EBITDA margin does not improve toward 14%;
-- The company cannot generate sustainable positive FOCF of more
than EUR100 million;
-- Liquidity deteriorates; or
-- The group undertakes significant debt-financed acquisitions.
S&P said, "Rating upside is very limited over the next 24 months,
owing to the group's high leverage and financial sponsor ownership.
Over the longer term, we could raise the rating if debt to EBITDA
reduces to clearly below 7x, supported by further EBITDA margin
expansion to above 15% and an FFO cash interest coverage ratio of
about 2.5x, as well as a more conservative financial policy.
"Governance factors are a moderately negative consideration in our
credit rating analysis of TK Elevator. Our assessment of the
group's financial risk profile as highly leveraged reflects
corporate decision-making that prioritizes the interests of the
controlling owners, as is the case for most rated entities owned by
private-equity sponsors. Our assessment also reflects sponsors'
generally finite holding periods and a focus on maximizing
shareholder returns. Environmental and social factors are an
overall neutral consideration in our credit rating analysis to
date. As a result of the more stringent carbon dioxide emissions
regulation, steel prices could increase, which could increase costs
and pressure margins if the group is not able to pass on these
costs in full to its clients."
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I R E L A N D
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BAIN CAPITAL 2018-1: Fitch Affirms 'B+sf' Rating on Class F Notes
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Fitch Ratings has upgraded Bain Capital Euro CLO 2018-1 DAC's class
B and C notes and affirmed the others.
Entity/Debt Rating Prior
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Bain Capital Euro
CLO 2018-1 DAC
A XS1713469598 LT AAAsf Affirmed AAAsf
B-1 XS1713468780 LT AAAsf Upgrade AA+sf
B-2 XS1713465257 LT AAAsf Upgrade AA+sf
C XS1713468194 LT AAsf Upgrade A+sf
D XS1713467469 LT BBB+sf Affirmed BBB+sf
E XS1713467030 LT BB+sf Affirmed BB+sf
F XS1713466909 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Bain Capital Euro CLO 2018-1 DAC is a cash flow CLO mostly
comprising senior secured obligations. The transaction is actively
managed by Bain Capital Credit, Ltd. and exited its reinvestment
period in April 2022.
KEY RATING DRIVERS
Amortisation Benefits Senior Notes: The transaction is continuing
to deleverage with the class A notes having paid down by about
EUR86 million since the last review in August 2023. The
amortisation has resulted in an increase in credit enhancement for
the class B and C notes and, consequently, their upgrade today.
Par Erosion but Limited Losses: The transaction is currently about
3.4% below target par versus 2.3% below target par in the last
review. The par erosion is due partly to EUR6.9 million reported
defaults in the portfolio. Exposure to assets with a Fitch-derived
rating of 'CCC+' and below is 8.4%, according to the trustee report
as of 6 June 2024, versus a limit of 7.5%.
Junior Notes Sensitive to Deterioration: The Stable Outlooks on the
class A to E notes reflect their comfortable default-rate cushion
at their respective ratings. The Negative Outlook on the class F
notes reflects their marginal default rate cushion at the rating
level and negative cushion under Fitch's analysis, notching all
assets with a Negative Outlook down by one notch. Currently 26.4%
of the portfolio is on a Negative Outlook, and they are sensitive
to defaults of the most vulnerable credits and refinancing risk of
obligors with assets maturing prior to June 2026.
This is based on its EMEA stress test, which assumes the immediate
default of its top market concern loans (MCL) and Tier 2 MCL and
downgrades of Tier 3 MCL and issuers with assets that have
maturities before June 2026 of up to two notches with a 'CCC-'
floor.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The
weighted-average rating factor (WARF), as calculated by Fitch under
its latest criteria, is 27.2.
High Recovery Expectations: Senior secured obligations comprise
96.6% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate of the current portfolio is 62%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 17.6%, and the largest
obligor represents 2.1% of the portfolio balance. Exposure to the
three largest Fitch-defined industries is 25.7% as calculated by
the trustee. Fixed-rate assets reported by the trustee are 8.1% of
the portfolio balance, versus a limit of 10%.
Transaction Outside Reinvestment Period: The transaction is failing
Fitch's 'CCC' test and another credit rating agency's Caa test,
hence restricting reinvestment outside its reinvestment period.
Other tests failing are weighted average life (WAL) test and
another credit rating agency's WARF test. Given the manager's
inability to reinvest and the short WAL, Fitch's analysis is based
on the current portfolio and notching the assets with Negative
Outlook in the portfolio down by one level.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
Deviation from Model-implied Ratings: The class C notes and D notes
are two and three notches below their model-implied ratings (MIR),
respectively. The deviations reflect limited default-rate cushion
at their MIRs under the Fitch-stressed portfolio and uncertain
macro-economic conditions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recogniesd statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Bain Capital Euro
CLO 2018-1 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
BARINGS EURO 2024-1: Fitch Assigns 'B-sf' Rating to Class F Notes
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Fitch Ratings has assigned Barings Euro CLO 2024-1 DAC final
ratings as detailed below.
Entity/Debt Rating
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Barings Euro
CLO 2024-1 DAC
Class A loan LT AAAsf New Rating
Class A notes XS2831525709 LT AAAsf New Rating
Class B notes XS2831526772 LT AAsf New Rating
Class C notes XS2831526004 LT Asf New Rating
Class D notes XS2831526186 LT BBB-sf New Rating
Class E notes XS2831526939 LT BB-sf New Rating
Class F notes XS2831526426 LT B-sf New Rating
Subordinated Notes XS2831526699 LT NRsf New Rating
TRANSACTION SUMMARY
Barings Euro CLO 2024-1 DAC is a securitisation of mainly senior
secured loans (at least 90%) with a component of senior unsecured,
mezzanine, and second-lien loans. The note proceeds were used to
fund an identified portfolio with a target par of EUR400 million.
The portfolio is managed by Barings (U.K.) Limited. The CLO has a
4.5-year reinvestment period and a 8.5-year weighted average life
(WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors in the 'B' category. The Fitch
weighted average rating factor (WARF) of the identified portfolio
is 24.1.
Strong Recovery Expectation (Positive): At least 90% of the
portfolio comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 64.4%.
Diversified Portfolio (Positive): The transaction also includes
various concentration limits, including the maximum exposure to the
three largest Fitch-defined industries in the portfolio at 40%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Neutral): The transaction has four matrices;
two effective at closing with fixed-rate limits of 7.5% and 15%,
and two effective one year post-closing with fixed-rate limits of
7.5% and 15%. All four matrices are based on a top-10 obligor
concentration limit of 20%. The closing matrices correspond to an
8.5-year WAL test while the forward matrices correspond to a
7.5-year WAL test.
The switch to the forward matrices is subject to the collateral
principal amount (defaulted obligations at Fitch-calculated
collateral value) is at least equal to the reinvestment target par
balance. The transaction has reinvestment criteria governing the
reinvestment similar to those of other European transactions.
Fitch's analysis is based on a stressed-case portfolio with the aim
of testing the robustness of the transaction structure against its
covenants and portfolio guidelines.
Cash flow Modelling (Neutral): The WAL used for the Fitch-stressed
portfolio and matrices analysis is 12 months less than the WAL
covenant to account for structural and reinvestment conditions
after the reinvestment period, including the satisfaction of the
over-collateralisation test and Fitch 'CCC' limit, together with a
WAL covenant that progressively steps down over time. These
conditions would in the agency's opinion reduce the effective risk
horizon of the portfolio during stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would not have a rating impact on the
notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class D and E notes display a
rating cushion of five notches, the class C notes have four
notches, the class F notes have three notches while the class B
notes have have two notches. The class A notes have no cushion as
'AAAsf' is the maximum achievable rating.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would lead to downgrades of up to
four notches for the class A to E notes and to below 'B-sf' for the
class F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to two notches, except for
the 'AAAsf' rated notes.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread to cover
losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Barings Euro CLO
2024-1 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
PENTA CLO 11: S&P Assigns B- (sf) Rating to Class F-R Notes
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S&P Global Ratings assigned its credit ratings to Penta CLO 11
DAC's class X-R, A-R, B-R, C-R, D-R, E-R, and F-R reset notes. At
closing, the issuer had unrated subordinated notes outstanding from
the existing transaction.
This transaction is a reset of the already existing transaction
which closed in May 2022. The issuance proceeds of the refinancing
debt were used to redeem the refinanced notes, and pay fees and
expenses incurred in connection with the reset.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event, upon which the
notes will pay semiannually.
This transaction has an approximately 1.5-year non-call period and
the portfolio's reinvestment period will end approximately 4.5
years after closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans that
are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading. This is assessed under
our operational risk framework.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which is in line with
S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,941.17
Default rate dispersion 509.61
Weighted-average life (years) 4.30
Obligor diversity measure 133.00
Industry diversity measure 19.46
Regional diversity measure 1.28
Weighted-average life (years) extended
to cover the length of the reinvestment period 4.48
Transaction key metrics (modeled assumptions)
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 155
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 3.37
Target 'AAA' weighted-average recovery (%) 36.08
Target weighted-average spread (net of floors; %) 3.96
Target weighted-average coupon (%) 6.88
Rating rationale
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. The portfolio primarily comprises broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we modelled the EUR400 million par
amount, the covenanted weighted-average spread of 3.86%, the
covenanted weighted-average coupon of 4.50%, and the covenanted
weighted-average recovery rates for the 'AAA' rating level (35.08%)
and the actual recovery for other rating levels. We applied various
cash flow stress scenarios, using four different default patterns,
in conjunction with different interest rate stress scenarios for
each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, the transaction's exposure to country risk is limited at
the assigned ratings, as the exposure to individual sovereigns does
not exceed the diversification thresholds outlined in our
criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-R to E-R notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our ratings on these notes. The class
X-R, A-R, and F-R notes can withstand stresses commensurate with
the assigned ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class
X-R, A-R, B-R, C-R, D-R, E-R, and F-R notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A-R to E-R
notes, based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F-R notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
the sale or extraction of thermal coal or coal-based power
generation, oil sands, fossil fuel; the production or trade of
illegal drugs or narcotics; the development, production,
maintenance of weapons of mass destruction, including biological
and chemical weapons, anti-personnel land mines, cluster munitions;
the trade in ozone depleting substances, endangered or protected
wildlife; production of or trade in pornography or prostitution;
payday lending; gambling; production of alcohol; more than 5% of
revenues from sale or production of civilian firearms; more than 5%
of revenues from non-sustainable palm oil production or marketing;
more than 25% of revenues from speculative transactions of soft
commodities; and more than 5% of revenues derived from the sale or
manufacture of tobacco.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, we have not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities."
Ratings
AMOUNT CREDIT
CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§
X-R AAA (sf) 2.00 N/A Three/six-month EURIBOR
plus 1.10%
A-R AAA (sf) 248.00 38.00 Three/six-month EURIBOR
plus 1.35%
B-R AA (sf) 46.00 26.50 Three/six-month EURIBOR
plus 1.90%
C-R A (sf) 22.00 21.00 Three/six-month EURIBOR
plus 2.15%
D-R BBB- (sf) 28.00 14.00 Three/six-month EURIBOR
plus 3.30%
E-R BB- (sf) 16.00 10.00 Three/six-month EURIBOR
plus 6.42%
F-R B- (sf) 13.00 6.75 Three/six-month EURIBOR
plus 8.30%
Sub. NR 36.00 N/A N/A
*The ratings assigned to the class X-R, A-R, and B-R notes address
timely interest and ultimate principal payments. The ratings
assigned to the class C-R, D-R, E-R, and F-R notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
===================
L U X E M B O U R G
===================
GARFUNKELUX HOLDCO: Fitch Lowers Rating on Sr. Secured Notes to CCC
-------------------------------------------------------------------
Fitch Ratings has downgraded Garfunkelux Holdco 2 S.A.'s (Lowell)
Long-Term Issuer Default Rating (IDR) to 'CCC' from 'B'. Fitch has
also downgraded Garfunkelux Holdco 3 S.A.'s (GH3) senior secured
debt rating to 'CCC' from 'B'. The ratings have been removed from
Rating Watch Negative (RWN). The Recovery Rating on the senior
secured debt is 'RR4'.
KEY RATING DRIVERS
The downgrade reflects Fitch's view that the challenges of
refinancing Lowell's 2025 and 2026 bonds have materially increased
as the timeline for doing so has further shortened. Significantly
higher bond yields also suggest further deterioration in market
sentiment toward the higher-leveraged portion of the debt
purchasing sector. This, in its view, reduces options for a
conventional debt refinancing of Lowell's upcoming maturities and
increases the risk of a debt restructuring that Fitch would
perceive as a distressed debt exchange (DDE).
Concentrated Maturities: Lowell's GBP390 million revolving credit
facility (RCF; 97% drawn at end-1Q24) matures in August 2025, its
two senior secured notes (GBP1.1 billion of outstanding amount
combined) in November 2025 and its third issue of senior secured
notes (GBP536 million outstanding) in May 2026.
Low Liquidity Buffer: Lowell's available liquidity, consisting of
unrestricted cash, securitisation availability and undrawn RCF
capacity, was GBP390 million at end-1Q24 (pro-forma for portfolio
sales in 2Q24), which would be insufficient to cover 2025
refinancing needs. Lowell's proven ability to sell and securitise
portfolios could help further moderately reduce outstanding debt
and manage liquidity, but a potential disposal of any large part of
the portfolio would at the same time undermine Lowell's future
cash-generating ability.
Constrained Access to Debt Markets: In its view, Lowell's ease of
access to debt-capital markets has diminished since its last rating
action in May 2024. This is underlined in high bond yields, which
may reflect a lack of liquidity as well as investor price
expectations, both pointing to limited market appetite. A
successful refinancing would ease near-term liquidity, but will
likely to lead to a material increase in funding costs, which would
put further pressure on Lowell's profitability given its high
leverage.
High Leverage: In Fitch's view, Lowell's leverage remains high,
despite recent portfolio sales and securitisations having reduced
net debt/EBITDA towards its target of below 3.0x by end-1H24.
Lowell's ability to generate recurring EBITDA is key to Fitch's
assessment of capitalisation and leverage as proceeds from these
more sporadic asset disposals represent a less reliable guide to
future income.
Lowell's tangible equity is negative due to sizeable past
acquisitions and pre-tax losses, although shareholder loans are
treated as equity by Fitch, and so does not provide balance-sheet
support for its capitalisation and leverage assessment.
Weak Profitability, Resilient Collections: Lowell's profitability
remains weak with a 3% negative pre-tax return on average assets in
1Q24. Despite cost-efficiency measures having been put in place,
profitability has been undermined by high funding and collection
costs. Collection performance has remained robust, but future cash
receipts are adversely affected by portfolio sales. Fitch expects
profitability to remain under pressure from Lowell's leverage and
cost of funding.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Announcement of a debt restructuring that Fitch would classify as
a DDE
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Successful refinancing that Fitch would not classify as a DDE,
thereby improving Lowell's near-term liquidity, especially if it
offers a route to improved leverage and profitability
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The 'CCC' rating of GH3's senior secured debt, junior to Lowell's
sizeable RCF, reflects Fitch's view of average recoveries of this
debt class.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The secured notes' rating is sensitive to changes in Lowell's
Long-Term IDR. Improved recovery expectations, for instance, as a
result of a thinner layer of debt senior to the notes, could be
positive for the notes' rating.
ESG CONSIDERATIONS
Lowell has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to the importance of
fair collection practices and consumer interactions and the
regulatory focus on them, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Lowell has an ESG Relevance Score of '4' for Financial Transparency
due to the significance of internal modelling to portfolio
valuations and to associated metrics such as estimated remaining
collections, 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 Prior
----------- ------ -------- -----
Garfunkelux
Holdco 3 S.A.
senior secured LT CCC Downgrade RR4 B
Garfunkelux
Holdco 2 S.A. LT IDR CCC Downgrade B
ZACAPA SARL: Moody's Affirms 'B2' CFR, Outlook Remains Stable
-------------------------------------------------------------
Moody's Ratings has affirmed the B2 long-term corporate family
rating and B2-PD probability of default rating of Zacapa S.a r.l.
("Zacapa" or "the company"), the parent company and 100% owner of
Ufinet LatAm, S.L.U. ("Ufinet" or "Ufinet LatAm"), a
carrier-neutral fiber network provider operating in Latin America.
Concurrently, Moody's have affirmed the B2 ratings for the $1,490
million backed senior secured first-lien term loan B (TLB) due 2029
and for the $175 million backed senior secured first-lien revolving
credit facility (RCF) due 2027, both borrowed by Zacapa. The
outlook remains stable.
"The B2 rating reflects the company's solid track record of revenue
growth and margin improvement, as well as its high revenue
visibility and growth opportunities underpinned by a consistent
rise in data traffic" says Agustin Alberti, a Moody's Ratings Vice
President - Senior Analyst and lead analyst for Ufinet.
"However, its debt-funded capex and M&A strategy has kept Moody's
adjusted leverage high at around 6.0x in 2023 together with weak
interest cover and negative free cash flow, leaving limited room
for underperformance in the next 12-18 months" adds Mr. Alberti.
RATINGS RATIONALE
Ufinet has improved its scale and diversification over the last
five years, doubling its size in terms of revenues and adjusted
EBITDA (as reported by the company) to reach $475 million and $256
million respectively in 2023, supported by strong operating
performance and small bolt on acquisitions. The company's growth is
driven by increased digitalization and data demand in Latin
America, the adoption of cloud technologies as well as demand for
towers and FTTH infrastructure.
Ufinet LatAm's 2023 revenue and EBITDA saw significant organic
year-on-year growth of 16.2% and 19.3% respectively, largely driven
by strong commercial performance, with notable growth in countries
such as Panama, Honduras and Chile, and the Transmission Services
business line being a primary growth driver. The EBITDA growth rate
excludes the cyber incident occurred in September 2023 which
resulted in $21.7 million of related costs. The company has engaged
with advisors to implement a plan to improve its cyber security
policies and systems.
In 2024, Moody's expect the company to report around $525 million
of revenue, with organic revenue and EBITDA growth of around 10% in
2024 and 2025, benefiting from secular growth in data traffic
across the region and new contracts linked to its expanded network.
Moody's project that EBITDA margin will remain solid at above 50%
with Moody's adjusted EBITDA growing to $310 million in 2025 from
$280 million in 2024 (around $248 million in 2023 excluding cyber
incident related costs).
The company's pro forma adjusted gross debt/EBITDA remains high
despite improving to around 5.9x (and at 6.4x including cyber
incident related costs) by year-end 2023 from 6.6x pro forma in
2022, on the back of strong revenue and EBITDA growth. Moody's
nevertheless expect the company to further improve this ratio
towards 5.5x over the next 12-18 months.
Moody's forecast that Moody's adjusted FCF will be negative in 2024
and 2025 (around $70-80 million annually), because of very high
annual capital spending of around $160-$180 million (around 30-35%
of sales) to support the company's growth strategy. Interest paid
will be around $120-$130 million in 2024-25 ($108 million in 2023)
because of a higher amount of debt and high interest rates, despite
the $1.15 billion of debt hedged until Q3 2026 at 3.7% Sofr.
However, Moody's acknowledge that underlying FCF generation is
positive when excluding growth capital spending investments.
Interest coverage (Moody's adjusted EBITDA – Capex/Interest
expense) also remains weak despite improving to 0.8x in 2023 from
0.6x in 2022, but Moody's expect it to further improve at around
1.0x over the next 12-18 months. When excluding growth capex,
Moody's estimate that interest coverage would improve to around
2.0x.
The B2 rating reflects Zacapa's good market position as the
region's largest independent, carrier-neutral fiber network
operator; extensive, owned, comparatively modern fiber network;
high revenue visibility, underpinned by a large contracted revenue
backlog, and medium- to long-term customer contracts with
historically high renewal rates; revenue growth and margin
improvement, which are better than those of its international
peers; and underlying strong free cash flow (FCF) before
discretionary growth capital spending.
The rating also reflects its relatively small scale in terms of
revenue; its high customer concentration, although it has decreased
in the last three years; its exposure to cyber risks; the
foreign-exchange risk arising from the volatility in some of its
operating currencies, with around 30% of its revenue in currencies
other than US dollar (in particular, the Colombian peso), while its
debt is denominated in US dollars; the company's debt funded capex
and M&A strategy, leading to negative FCF and high leverage levels;
and the event risk of further re-leveraging because of inorganic
growth opportunities.
LIQUIDITY
Ufinet has adequate liquidity, supported by an estimated cash
balance of around $30 million, and access to a $175 million backed
senior secured first-lien revolving credit facility (RCF) issued by
Zacapa, of which around $144 million was undrawn as of March 2024.
The RCF has a springing leverage maintenance covenant of 8.6x net
debt/consolidated EBITDA, should more than 35% of the facility be
drawn. The company does not have any significant maturities until
2027, when the RCF matures.
The company issued a $125 million TLB add on in May 2024, which was
partially used to repay existing drawings under the RCF and the
remaining to enhance its cash position.
RATIONALE FOR THE STABLE OUTLOOK
The stable rating outlook reflects the company's visible, growing
earnings stream and the supportive secular industry trends,
underpinned by consistent growth in data traffic. The stable
outlook also assumes that the company will continue to report a
strong operating performance offsetting its consistently high
leverage and weak cash flow metrics resulting from its debt funded
growth strategy.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop if Ufinet demonstrates
a track record of more conservative financial policies, such that
its gross leverage (Moody's-adjusted) sustainably drops below 4.5x;
and FCF turns positive on a sustained basis.
Downward pressure on the rating could develop if the company's
operating performance deteriorates and Ufinet's gross leverage
(Moody's-adjusted) remains above 6.0x, or Interest coverage
(defined as Moody's adjusted EBITDA-Capex/Interest expense) does
not improve above 1.0x on a sustained basis. Large debt-financed
acquisitions or shareholder distributions; or liquidity
deterioration could also exert downward pressure on the rating.
Moody's have decided to change the leverage factors at the B2
rating category (to 4.5x-6.0x from 4.0x-5.5x) to: (1) recognize the
good execution of the company's strategy leading to a solid track
record of profitable growth, (2) reflect the improvement of the
business profile driven by its increased scale and higher
diversification, and (3) better align with the leverage parameters
of its closest peers.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Communications
Infrastructure published in February 2022.
COMPANY PROFILE
Zacapa S.a r.l. (Zacapa) is the parent and 100% owner of Ufinet
LatAm, S.L.U. (Ufinet), a carrier-neutral fiber network provider
operating in 17 Latin American countries, where it manages more
than 110,000 kilometers of fiber, counting on a backlog of
long-term contracts with large industrial customers, including
major multinational telecom groups. In 2023, Ufinet reported
revenues of around $475 million and company adjusted EBITDA of $256
million.
===========
S W E D E N
===========
INTRUM AB: Fitch Lowers Rating on Sr. Unsecured Debt to 'CC'
------------------------------------------------------------
Fitch Ratings has downgraded Intrum AB (publ)'s Long-Term Issuer
Default Rating (IDR) and senior unsecured debt rating to 'CC' from
'CCC'.
KEY RATING DRIVERS
The downgrade reflects the increased risk of restructuring of the
outstanding bond issuances, which would be perceived as a
distressed debt exchange (DDE) under Fitch's Non-Bank Financial
Institutions Rating Criteria. This follows Intrum's announcement on
11 July 2024 that it has entered into a binding lock-up agreement
with the majority of its bondholders.
Fitch would downgrade the Long-Term IDR to 'C' on announcement of a
proposed debt exchange, and to 'RD' (Restricted Default) on its
completion, in accordance with its rating definitions.
Increased Risk of Imminent DDE: Intrum has repaid its EUR469
million bond that was due on 15 July 2024. However, Fitch believes
that an imminent default of some kind as per its criteria is
probable, as Intrum's high leverage, combined with restricted
access to debt capital markets and the proposed debt restructuring
will result in a material reduction in terms for creditors, which
Fitch would view as a DDE. Intrum has been in discussions with its
creditors since its announcement on 14 March 2024 that it had
appointed financial advisors to address its debt structure.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The announcement of a debt restructuring transaction that Fitch
would classify as a DDE would lead to a downgrade of Intrum's
Long-Term IDR to 'C'. On completion of the transaction Fitch would
downgrade the Long-Term IDR to 'RD' (Restricted Default) and
subsequently re-rate the company.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Diminishing risk of DDE in combination with improved market
confidence and sustainable deleveraging path.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Intrum's senior unsecured debt rating is equalised with the
Long-Term IDR, reflecting Fitch's expectation of average recovery
prospects, given that Intrum's funding is mostly unsecured.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
Intrum's senior unsecured debt rating is primarily sensitive to
changes to the Long-Term IDR.
Worsening recovery expectations, for instance, as a result of a
layer of more senior debt, could lead Fitch to notch the senior
unsecured debt rating down from Intrum's Long-Term IDR. Close to
full utilisation of its super-senior revolving credit facility
could trigger a downgrade of the bond rating by one notch.
ADJUSTMENTS
The 'cc' Standalone Credit Profile (SCP) is below the 'ccc+'
implied SCP due to the following adjustment reason: weakest link -
funding, liquidity & coverage (negative).
The 'b' business profile score is below the 'bb' category implied
score due to the following adjustment reason: business model
(negative).
The 'b' earnings & profitability score is below the 'bb' category
implied score due to the following adjustment reason: historical
and future metrics (negative)
The 'cc' funding, liquidity & coverage score is below the 'bb'
category implied score due to the following adjustment reason:
funding flexibility (negative).
ESG CONSIDERATIONS
Intrum has an ESG Relevance Score of '4' for Financial
Transparency, in view of the significance of internal modelling to
portfolio valuations and associated metrics such as estimated
remaining collections. However, being a feature of the debt
purchasing sector as a whole, this has a moderately negative impact
on Intrum's credit profile and is relevant to the rating in
conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Intrum AB (publ) LT IDR CC Downgrade CCC
ST IDR C Affirmed C
senior unsecured LT CC Downgrade RR4 CCC
===========================
U N I T E D K I N G D O M
===========================
107 STATION STREET: Begbies to Lead Administration Proceedings
--------------------------------------------------------------
107 Station Street Limited was placed in administration proceedings
in the High Court of Justice, Business and Property Courts in
Manchester, Court Number: CR-2024-MAN-000954, and Begbies Traynor
(Central) LLP was appointed as administrators on July 18, 2024.
107 Station Street Limited owns and operates a business center.
Its registered office is 107 Station Street, Burton-on-Trent,
Staffordshire, DE14 1SZ.
The Joint Administrators may be reached at:
Paul Stanley
Dean Watson
Begbies Traynor (Central) LLP
340 Deansgate
Manchester, M3 4LY
Any person who requires further information may contact:
Sarah Hackett
Begbies Traynor (Central) LLP
Tel: 0161 837 1700
E-mail: sarah.hackett@btguk.com
CARPETRIGHT LTD: PwC Named as Administrators for Carpet Retailer
----------------------------------------------------------------
Carpetright Limited was placed in administration proceedings in the
High Court of Justice Business and Property Courts of England and
Wales Insolvency and Companies List (ChD), No CR-2024-004119, and
PricewaterhouseCoopers LLP was appointed as administrators on July
22, 2024.
Carpetright Limited is one of the largest British retailers of
floor coverings and beds. The company is owned by Tapi Carpets. Its
registered office is at Nestware House, Purfleet Bypass, Purfleet,
Essex, England, RM19 1TT.
The Joint Administrator may be reached at:
Zelf Hussain
PricewaterhouseCoopers LLP
7 More London
Riverside
London, SE1 2RT
- and -
Rachael Maria Wilkinson
PricewaterhouseCoopers LLP
3 Forbury Place
23 Forbury Road
Reading, England, RG1 3JH
- and -
Peter David Dickens
PricewaterhouseCoopers LLP
1 Hardman Square
Manchester, M3 3EB
Tel: 0113 289 4000
E-mail: uk_carpetright_creditors@pwc.com
CURIUM BIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Ratings has affirmed the B3 long-term corporate family
rating and B3-PD probability of default rating of Curium Bidco
S.a.r.l (Curium or the company). Concurrently Moody's have affirmed
the B3 ratings of the company's senior secured bank credit
facilities. The outlook has been changed to stable from positive.
The rating action reflects the company's:
-- Continued high leverage and slower than expected pace of
deleveraging, which will also be impacted by a large debt-funded
acquisition
-- Cash flows remaining at around breakeven with surpluses
reinvested in new product development
-- The company's strong business profile with global leadership in
diagnostic radiopharmaceuticals with high barriers to entry, and
substantial growth opportunities particularly in nuclear
therapeutics
RATINGS RATIONALE
The change of outlook to stable, from positive, reflects the slower
than expected pace of improvement in the company's financial
metrics, rather than any deterioration in business performance or
profile. The company continues to grow strongly, while progressing
the development of new nuclear therapeutic drugs which have very
high sales potential, with a transformative impact on earnings.
However while this development is still a few years from full
potential, the company remains relatively highly levered and
investments in new product development and other business
improvement projects continue to absorb cash flows, limit EBITDA
growth and slow the deleveraging pace. A new acquisition in Turkey
is expected to close around the end of 2024 and will be debt
funded, which will also slow the pace of deleveraging.
The B3 CFR reflects the company's: (1) leading share globally in
growing markets; (2) complex supply chains and dual regulation
pathways which provide high barriers to entry; (3) long-term
contracts providing good revenue and supply-side visibility; (4)
strong ability to generate cash before growth capex.
The ratings also reflect Curium's (1) high Moody's-adjusted
leverage of 7.3x at December 2023 (or 6.1x prior to new product
development spending) with high investment in business development
slowing the pace of deleveraging and limiting cash generation; (2)
risks of supply chain or regulatory disruption, although its track
record is good; (3) execution risks of new product launches
particularly in the new segment of therapeutics; (4) presence of
separate subsidiary (Calyx) and large PIK outside the restricted
group which may result in a releveraging transaction for Curium.
ESG CONSIDERATIONS
Curium is exposed to environmental risks associated with the
manufacture of radioactive materials leading to site
decommissioning liabilities on the balance sheet, which, although
long-dated, increase over time. It has exposure to several social
risks, including product safety, and in this regard the company has
a good long term track record, and the short half-life of its
isotopes reduces product liability risks. Its supply chain is long
and complex and it relies on a limited number of facilities where
unplanned stoppage could be highly disruptive. Its financial
policies include a tolerance for high leverage and potential for
releveraging to support acquisitions or refinancing the PIK outside
the restricted group.
LIQUIDITY
Curium maintains solid liquidity. As at March 31, 2024 the company
held cash of EUR79 million and an undrawn revolving credit facility
(RCF) of EUR231 million. Moody's forecast the RCF to be drawn by
around EUR80 million over the next 12-18 months to part finance
pipeline development projects. There is headroom to finance upfront
consideration for the new acquisition in Turkey, although Moody's
expect new debt to be raised for this transaction. Further
discretionary utilisation of the RCF may occur in the event of bolt
on acquisitions. The RCF contains a net senior leverage springing
covenant tested if drawings net of cash and cash equivalents reach
or exceed 40% of facility commitments. Should it be tested, Moody's
expect that Curium would retain ample headroom against the test
level of 10.15x.
STRUCTURAL CONSIDERATIONS
The B3 ratings on Curium's first lien debt instrument ratings
comprising its RCF and term loan tranches reflect the fact that
they are essentially the only financial instruments in the
company's capital structure and rank pari passu, hence they are in
line with the B3 CFR.
The senior secured facilities have a security package comprising
direct guarantees from material operating subsidiaries on a first
ranking basis, with security in the form of share pledges,
intra-group receivables and material bank accounts.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that
Moody's-adjusted leverage, including development costs, will reduce
below 7x in the next 12-18 months. It also reflects continued high
capex investments in new products, leading to breakeven or low
positive free cash flow. The outlook assumes no material supply
chain disruption, that there are no material debt-funded
acquisitions causing leverage to increase on a sustained basis and
that liquidity remains solid.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if there is continued growth in
organic revenue and EBITDA; and a track record of successful
product launches; and Moody's-adjusted leverage sustainably reduces
towards 6.0x; and Moody's-adjusted Free Cash Flow (FCF)/Debt
increases sustainably towards 5%. In assessing FCF/Debt Moody's
will take into consideration unusually high levels of investment
expenditure to the extent this can be clearly identified.
The ratings could be downgraded if there is a decline in organic
revenue or EBITDA; or Moody's-adjusted leverage increases
sustainably above 7.5x; or FCF generation were to turn negative on
a sustainable basis; or the liquidity position deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
CORPORATE PROFILE
Curium, dual-headquartered in the UK and France, is a global
producer and supplier of nuclear medicine and radiopharmaceutical
products mainly for the diagnosis of cancer, cardiology as well as
renal, lung and bone diseases. The group was formed in January 2017
when financial investor CapVest acquired Mallinckrodt's SPECT
assets and combined them with IBA Molecular, which CapVest had
acquired in 2016. In 2023 Curium reported revenue of EUR877 million
and company-adjusted EBITDA of EUR269 million.
ETC REALISATIONS: Grant Thornton Named as Administrators
--------------------------------------------------------
ETC Realisations 2024 Limited, which previously trades as Elements
Talent Consultancy Limited, was placed in administration
proceedings in the High Court of Justice, Insolvency & Companies
List, No 004074 of 2024, and Grant Thornton UK LLP was appointed as
administrators on July 18, 2024.
Elements is an employment placement agency. Its principal trading
address is at Numera Partners Llp, 4th Floor Charles House, 108-110
Finchley Road, London, NW3 5JJ.
The Joint Administrators may be reached at:
Philip Stephenson
Nick M Wilson
Grant Thornton UK LLP
11th Floor, Landmark St Peter's Square
1 Oxford St
Manchester, M1 4PB
Telephone: 0161 953 6900
For further information, contact:
Jenna Carr
Grant Thornton UK LLP
Tel: 0161 214 6371
E-mail: Jenna.Carr@uk.gt.com
FEATHERFOOT ST STEPHENS: Opus Named as Administrators
-----------------------------------------------------
Featherfoot St Stephens Limited was placed in administration
proceedings in the High Court of Justice, Court Number:
CR-2024-MAN-000929, and Opus Restructuring LLP was appointed as
administrators on July 16, 2024.
Featherfoot St Stephens Limited is a property developer. Its
registered office and principal trading address is at Empire House,
92-98 Cleveland Street, Doncaster, DN1 3DP.
The Joint Administrators may be reached at:
Frank Ofonagoro
Mark Nicholas Ranson
Opus Restructuring LLP
2nd Floor, 3 Hardman Square
Spinningfields, Manchester, M3 3EB
Further details, contact:
Maria Price
E-mail: maria.price@opusllp.com
Amanda Hamlin
E-mail: amanda.hamlin@opusllp.com
LEVIN GROUP: FRP Advisory to Lead Administration Proceedings
------------------------------------------------------------
Levin Group Ltd was placed in administration proceedings in the
High Court of Justice, Court Number: CR-2024-4138, and FRP Advisory
Trading Limited was appointed as administrators on July 19, 2024.
Levin Group Ltd operates employment placement agencies. Its
registered office and principal trading address is at 155
Bishopsgate, London, EC2M 3TQ.
The joint administrators may be reached at:
Alastair Rex Massey
Philip David Reynolds
FRP Advisory Trading Limited
110 Cannon Street
London, EC4N 6EU
Tel: 020 3005 4000
Alternative contact:
Matthew Reay
E-mail: cp.london@frpadvisory.com
SELBY CONTRACT: Opus Appointed as Administrators
------------------------------------------------
Selby Contract Flooring Limited was placed in administration
proceedings in the High Court of Justice, Court Number:
CR-2024-000423, and Opus Restructuring LLP was appointed as
administrators on July 16, 2024.
Selby Contract Flooring Limited is a wholesaler of furniture,
carpets and lighting equipment. Its registered office and
principal trading address is at 24 Crimscott Street, London, SE1
5TE.
The Joint Administrators may be reached at:
Colin David Wilson
Ian McCulloch
Opus Restructuring LLP
1 Radian Court, Knowlhill
Milton Keynes, MK5 8PJ
Tel: 01908 087220
Alternative contact: Zoe Nelsey
VIRIDIS: S&P Lowers Class E Notes Rating to 'B- (sf)'
-----------------------------------------------------
S&P Global Ratings lowered to 'A+ (sf)', 'BBB (sf)', 'BB (sf)', 'B
(sf)', and 'B- (sf)' from 'AA+ (sf)', 'A+ (sf)', 'A- (sf)', 'BB+
(sf)', and 'BB- (sf)' its credit ratings on Viridis (European Loan
Conduit No. 38) DAC's class A, B, C, D, and E notes, respectively.
Rating rationale
S&P said, "The downgrades follow our review of the transaction's
credit and cash flow characteristics. Our S&P Global Ratings net
cash flow is now 17.3% lower than at our previous review due to
higher vacancy and non-recoverable expenses assumption for the
property. We have raised our capitalization (cap) rate to reflect
the relative location of the property within the City of London
office market. As a result, our S&P Global Ratings value is now
23.4% lower than at our previous review."
Transaction overview
The transaction is backed by one loan, which Morgan Stanley Bank
N.A. originated in June 2021 to facilitate the refinancing of the
Aldgate Tower office building located in the City of London.
A joint venture between Brookfield Property Partners L.P.
(Brookfield) and China Life Insurance (Group) Co. (China Life) owns
the property, with asset and property management provided by
Brookfield.
The GBP192.0 million senior loan is split into two pari passu
facilities. Facility A is securitized in this transaction and
equals GBP150 million, while Facility B, accounting for GBP42
million, does not form part of this securitization.
The loan does not provide for default financial covenants. Instead,
there are cash trap mechanisms set at 70.0% loan-to-value (LTV)
ratio throughout the loan term, or minimum debt yields set at 7.0%
(year 2) and 8.0% (year 3). The loan breached the debt yield
trigger in July 2023 and the LTV ratio cash trap trigger in October
2023. As a result, GBP1.1 million has been trapped in the cash trap
account as of the April 2024 payment date. There is no amortization
scheduled during the three-year loan term.
The loan was scheduled to mature on July 20, 2024. According to an
investor notice dated July 18, 2024, the loan maturity date has
been extended to January 2025, to allow time for the loan to be
refinanced. It is expected that China Life will provide funds to
the borrower in connection with the refinancing of the loan (the
refinancing equity injection), but this remains subject to receipt
of all necessary internal and external approvals.
As part of the amendments, the borrower deposited GBP10 million in
the cash trap account. Such amount will only be available to be (i)
released to the borrower with the prior consent of all of the
lenders; (ii) applied by the loan security agent in voluntary
prepayment of the loan if the borrower has not confirmed to the
loan facility agent that China Life has received all necessary
internal approvals to participate in the refinancing equity
injection by Aug. 31, 2024; or (iii) applied in mandatory
prepayment of the loan on the extended maturity date (or such
earlier date as the loan has been declared immediately due and
payable).
The borrower has provided certain undertakings in relation to
procuring the refinancing, including that a refinancing loan
agreement is signed no later than Oct. 20, 2024. A loan event of
default will occur if the borrower has not confirmed in writing
that China Life has received all necessary approvals to participate
in the refinancing equity injection by Sept. 15, 2024.
Transaction performance
The property's market value is GBP260.0 million as of July 2023,
which equates to an LTV ratio of 73.8% (including pari passu debt).
The updated valuation led to the breach of the 70.0% LTV ratio cash
trap threshold. Since closing in June 2021, the market value has
declined by 21.2% from GBP330.0 million.
Since S&P's previous review in April 2023, the property vacancy has
remained stable at 14.5%. However, one tenant vacated in April 2024
and another exercised its break option effective in August 2024,
which will raise the vacancy rate to 23%. The property is exposed
to high lease rollover risk as 38.4% of leases by area expire or
have a break in 2025 and 2026. The building vacancy is above the
submarket office vacancy for Aldgate/Whitechapel of 14.0% as of the
second quarter (Q2) of 2024 according to Knight Frank. The
submarket vacancy is also higher than the City of London vacancy
because before the pandemic the Eastern fringe sub-market of the
City of London attracted tenants in the tech and digital sector,
and is now seeing lower demand for office space.
Contractual rental income has remained stable at GBP15.1 million.
The current average rent per square foot is approximately GBP55.
However, adjusted net rental income has declined by 16.7% to
GBP11.6 million from GBP13.9 million due to higher void costs.
The property is multi-tenanted and leased to 17 tenants. The tenant
profile is diversified by industry, with the top five tenants
accounting for 72.1% of contracted rent. The second largest tenant,
InfinitSpace, benefits from half free rent until July 21, 2025, and
the fourth largest tenant, Gravita, benefits from free rent until
May 2025. The weighted-average unexpired lease term to break has
decreased to 5.2 years as reported in April 2024 compared with 5.9
years at our previous review.
Table 1
Tenant profile
% OF TOTAL LEASE BREAK/
TENANT SECTOR CONTRACTED RENT EXPIRY
Aecom Ltd. Engineering 25.7 Sept. 30, 2026/
Sept. 30, 2031
InfinitSpace Flexible 21.7 Jan. 31, 2037
working space
Uber London Ltd. Ride-sharing 9.9 May 31, 2025
Gravita Business Accounting 7.5 Jan. 31, 2029/
Services Jan. 31, 2034
Aecom Ltd. (WH Smith Retail 7.3 Sept. 30, 2031
Retail Holdings Ltd.
Sublet)
Top five total 72.1
Credit evaluation
S&P said, "We consider the portfolio's net cash flow (NCF) to be
GBP11.5 million on a sustainable basis. This is based on a fully
let rent of GBP17.8 million and adjusted for 23% vacancy and 16.3%
non-recoverable expenses. Our vacancy assumption has increased from
15% at our previous review and is in line with the current property
vacancy following the lease expiration and lease break exercised in
2024. Our non-recoverable expenses assumption has increased to
16.3% from 7.0% based on the property's recent historical costs and
forecast for non-recoverable expenses.
"We applied a 6.5% cap rate against this S&P Global Ratings NCF,
compared to 6.0% at our previous review, which reflects the
relative location of the property in the Eastern fringe of the City
of London as secondary compared with the core City office market.
We deducted GBP2.5 million of free rent under the InfinitSpace and
Gravita leases. We then deducted 5% of purchase costs to arrive at
our S&P Global Ratings value. Our S&P Global Ratings value of
GBP165.4 million represents a 36.4% haircut to the July 2023 market
value of GBP260.0 million."
Table 2
Loan and collateral summary
CURRENT REVIEW PREVIOUS REVIEW CLOSING
Data as of April 2024 April 2023 April 2021
Loan outstanding
principal (mil. GBP) 192.0 192.0 192.0
Annual contracted rent
(mil. GBP) 15.1 15.0 12.1
Vacancy (%) 14.5 14.5 31.6
Market value (mil. GBP) 260.0 300.0 330.0
LTV ratio (%) 73.8 64.0 58.2
Debt yield (%) 6.03 7.24 N/A
N/A--Not applicable.
Table 3
S&P Global Ratings key assumptions
CURRENT PREVIOUS
REVIEW REVIEW CLOSING
S&P Global Ratings rent
fully let (mil. GBP) 17.8 17.5 17.9
S&P Global Ratings vacancy (%) 23.0 15.0 15.0
S&P Global Ratings expenses (%) 16.3 7.0 5.3
S&P Global Ratings NCF (mil. GBP) 11.5 13.9 14.4
S&P Global Ratings value (mil. GBP) 165.4 215.9 217.8
S&P Global Ratings cap rate 6.5 6.0 6.0
Haircut to reported market value (%) 36.4 28.0 34.0
S&P Global Ratings LTV ratio before
recovery rate adjustments (%) 116.1 88.9 88.2
NCF--Net cash flow.
LTV--Loan to value.
Other analytical considerations
S&P said, "We also analyzed the transaction's payment structure and
cash flow mechanics. We assessed whether the cash flow from the
securitized assets would be sufficient, at the applicable rating,
to make timely payments of interest and ultimate repayment of
principal by the legal maturity date of each class of notes, after
considering available credit enhancement and allowing for
transaction expenses and liquidity support."
At closing, the issuer deposited GBP5 million in an interest
shortfall reserve, which could be released on the later of (i) the
interest coverage ratio (ICR) reaching 1.8x, and (ii) the property
achieving 90% occupancy. The reserve was released to the borrower
in 2022 when occupancy increased to 90.3% and is no longer
available as credit support.
At closing, the issuer also issued an additional GBP5.5 million of
class A notes, the proceeds of which, together with a portion
(GBP289,473.68) of the vertical risk retention loan, is held in
cash in the transaction account. These funds serve as a liquidity
reserve in lieu of a traditional liquidity facility. The total note
issuance is therefore larger than the outstanding loan balance.
As of the April 2024 note payment date, the liquidity reserve
balance was GBP5.8 million, unchanged since closing. There have
been no liquidity reserve drawings to date.
The loan is hedged with an interest rate cap with a strike of 1%,
which expires at loan maturity. As part of the loan amendments, the
borrower entered into an interest rate cap agreement with a strike
of 1% until the extended maturity date in January 2025. The loan
ICR without the cap is 0.75x. As the property does not generate
sufficient cash flow to pay interest on the loan and the notes, the
junior classes of notes would incur interest shortfalls if the loan
remained unhedged. The liquidity reserve is available to pay senior
expense shortfalls and interest shortfalls on the class A through D
notes, but not on the class E notes. Additionally, funds in the
class X diversion ledger are available to be applied in accordance
with the interest priority of payments, and funds in the cash trap
account will be applied to pay down principal on the loan and
notes.
S&P said, "Our analysis also included a full review of the legal
and regulatory risks, operational and administrative risks, and
counterparty risks. Our assessment of these risks remains unchanged
since closing and is commensurate with the assigned ratings."
Rating actions
S&P said, "Our ratings address the issuer's ability to meet timely
interest payments and principal repayment no later than the legal
final maturity in July 2029. After the loan maturity date in July
2024, the amount of interest representing the amount by which
Sterling Overnight Index Average (SONIA) exceeds 4.0% per year will
be subordinated to the payment of interest and principal on the
notes. Our ratings do not address the likelihood of payment of such
excess amounts.
"Our opinion of the property's long-term sustainable value is now
23.4% lower than at our previous review because of our increased
vacancy and non-recoverable expenses assumptions. In addition, we
increased our cap rate assumption to reflect the relative position
of the property within the City of London market.
"We recognize that the borrower is in the process of obtaining
refinancing for the loan. However, it is subject to China Life
receiving internal approvals to participate in the refinancing
equity injection, which is uncertain.
"The S&P Global Ratings LTV ratio is 116.1%, compared with 88.9% at
our previous review. We gave credit to the GBP10 million deposited
in the cash trap account, which will be used to repay the loan if
it is not refinanced by the extended maturity date. After
considering transaction-level adjustments and the results of our
cash flow analysis, we lowered our ratings to 'A+ (sf)' from 'AA+
(sf)' on the class A notes, to 'BBB (sf)' from 'A+ (sf)' on the
class B notes, and to 'BB (sf)' from 'A- (sf)' on the class C
notes.
"We also lowered our ratings to 'B (sf)' from 'BB+ (sf)' on the
class D notes and to 'B- (sf)' from 'BB- (sf)' on the class E
notes. The liquidity reserve is available to pay interest
shortfalls on the class D notes, but not on the class E notes. Even
though these two tranches do not pass our 'B' rating level
stresses, the repayment of interest and principal on these classes
of notes does not rely on favorable economic and financial
conditions, in our view."
WHEEL BIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Negative
------------------------------------------------------------------
Moody's Ratings has changed the outlook on Wheel Bidco Limited's
(PizzaExpress or the company) ratings to negative from stable.
Concurrently, Moody's have also affirmed the company's ratings,
including its B3 corporate family rating and B3-PD probability of
default rating. Moody's also affirmed the B3 rating of the GBP335
million backed senior secured notes due 2026 and Ba3 rating of the
GBP30 million senior secured bank credit facility (RCF).
RATINGS RATIONALE
The rating action reflects weaker than previously expected
operating performance in the context of intense competition in the
casual dining segment and declining real disposable income of the
UK's population. PizzaExpress reported a decrease in like-for-like
dine-in covers in the last 12 months, including -7% in Q1 2024. The
company adjusted EBITDA margin declined to 11.3% in 2023 from 13.9%
a year before, although slightly higher again in Q1 2024.
As a result, its Moody's-adjusted debt / EBITDA peaked at 6.8x at
the end of 2023, significantly higher than the 5.9x at end of
previous year. It improved slightly to 6.6x at end of Q1 2024, and
Moody's expect it to gradually decrease to 6.4x by the end of the
year. However, the company's Moody's-adjusted EBIT interest cover
deteriorated to 0.8x in 2023 and will likely remain under pressure
as rents increase following the CVA completed in 2020 and
uncertainty around earnings recovery. The company is also facing an
increasing refinancing risk for its bond due in July 2026, which
currently yields at close to 15% compared with the 6.75% coupon.
The company's B3 CFR is also supported by (1) long established
brand with scale and clear positioning in the casual dining
restaurant segment; (2) fixed interest, which protects from higher
interest rates, although refinancing in 2026 is approaching; (3) a
degree of diversification, supported by its access to delivery
business; and (4) adequate liquidity.
Less positively, the CFR also factors in (1) cost inflation and
intense competition have kept margins strained as the
competitiveness of the industry makes it difficult to fully pass on
the costs to consumers; (2) limited cash generation may obstruct
refurbishment plans and therefore decrease brand attractiveness and
sales over time; (3) decreasing household disposable income and
still low, although gradually improving, consumer confidence in the
UK make earnings recovery slower than Moody's previously expected.
ESG CONSIDERATIONS
In terms of governance, Moody's note the concentrated ownership
structure with the company's three largest shareholders owning over
60% of the equity. On social risks, Moody's believe that
PizzaExpress brand is exposed to competitive tensions such that
consumers find other brands or eating out options more attractive.
LIQUIDITY
PizzaExpress has adequate liquidity, supported by GBP50 million of
cash as of the end of March 2024, as well as full availability
under a GBP30 million senior secured bank credit facility (RCF) to
support capital spending and working capital needs. The RCF is
subject to a leverage covenant under which Moody's expect the
company to have significant capacity. The company has no debt
maturities until 2026.
STRUCTURAL CONSIDERATIONS
The B3 CFR and the company's probability of default rating of B3-PD
are at the same level, reflecting Moody's assumption of a 50% loss
given default (LGD) at the structural level, in line with Moody's
standard practices when there are at least two levels of seniority
among the tranches of funded debt.
The senior secured RCF and backed senior secured notes benefit from
a collateral package, which includes share pledges and guarantees
from the issuer and material subsidiaries, and floating charges
over the assets of the issuer and guarantors. The RCF's priority
right of repayment in the event of a default, coupled with its
relatively modest size, drives the three-notch uplift in its Ba3
rating compared with the B3 CFR and the rating of the backed senior
secured notes.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects Moody's expectation that the
operating environment will make it difficult for PizzaExpress to
recover both growth in top-line and profitability from the current
levels. It also reflects gradually increasing refinancing risk for
the company's notes.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure will require (1) sustained positive
organic revenue and EBITDA growth; (2) Moody's-adjusted debt/EBITDA
reducing well below 5.5x; (3) EBIT/interest expense sustained above
1.5x; and (4) maintenance of adequate liquidity.
Conversely, negative rating pressure could arise if (1) a
persistent decrease in EBITDA margins and contraction in LFL sales
for a prolonged period; (2) EBIT/interest does not improve above
1x; and (3) substantial deterioration in liquidity including
increased refinancing risk.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Restaurants
published in August 2021.
CORPORATE PROFILE
Founded in 1965, PizzaExpress is one of the largest operators in
the UK casual dining market, in terms of the number of restaurants.
It has 358 sites in the UK and Ireland, 30 directly operated
international restaurants and around 70 international restaurants
operated by franchisees. In addition, the company has a licensed
retail business. In the 12 months that ended March 2024, the
company generated revenue and (pre-IFRS 16) EBITDA from continuing
operations of roughly GBP450 million and GBP53 million,
respectively.
The company's three largest shareholders— Bain Capital Credit,
Cyrus Capital Partners and Glendon Opportunities — collectively
own 61% of the business.
[*] Amanda O'Sullivan Joins Interpath's Fin'l. Restructuring Team
-----------------------------------------------------------------
Interpath Advisory has further strengthened the leadership of its
Financial Restructuring team with the appointment of Amanda
Blackhall O'Sullivan.
Amanda is one of the UK's leading restructuring practitioners and
will join Interpath as a Managing Director in early 2025. She was
previously a Partner in the Turnaround and Restructuring Strategy
practice at EY Parthenon, leading the firm's Creditor Advisory
team.
She brings to Interpath 30 years' experience of providing
distressed financial advisory services and delivering large scale
complex restructurings to diverse stakeholder groups, including
capital providers, corporate boards, sponsors and government.
Amanda's arrival further strengthens the leadership of Interpath's
wider Financial Restructuring team which in recent years, driven by
managing director James Fagan, has advised on a number of
significant financial restructuring engagements, both in the UK and
globally, working with clients in sectors including Oil & Gas,
Government, Healthcare, Aerospace and Financial Services. The team
is also a key driver of Interpath's ongoing international expansion
into overseas markets, including its planned expansion into
mainland Europe.
Commenting on Amanda's appointment, Mark Raddan, CEO of Interpath,
said: "Amanda is one of the preeminent practitioners in the field,
having advised on some of the most high-profile cases in the
market, so I am absolutely delighted to welcome her to Interpath.
"These remain challenging times, with a wide range of macro factors
including inflation, the high cost of borrowing and geopolitical
turbulence meaning companies and their stakeholders are
increasingly walking a financial tightrope. Her experience of
delivering large, complex, cross-border restructurings will help us
to further grow and expand our financial restructuring
capabilities, both here in the UK and beyond."
Amanda Blackhall O'Sullivan said: "Interpath's long-standing
heritage in financial restructuring, coupled with the strength of
its ambitions to grow and expand at pace, make this a really
exciting time to be joining the firm. The collaboration that I've
already seen happening across the business, both between different
service lines and different geographies, means there is a real
opportunity to help companies and their stakeholders to unpick and
solve complex problems. I look forward to joining the team early
next year and can't wait to get started."
About Interpath Advisory
Interpath recently opened its first office in France in the 9th
arrondissement of Paris under the management of Barema Bocoum.
Building on this momentum, Interpath aims more broadly to continue
its development in continental Europe, and to continue to enrich
its offer in France for companies and investment funds
The company was founded in May 2021 following the sale of KPMG's UK
Restructuring practice to H.I.G. Europe, the European affiliate of
H.I.G. Capital LLC, and Interpath's managing directors. Initially
based in the U.K., Interpath has grown rapidly and in addition to
its office in Paris, now operates across 15 other offices in the
UK, Ireland, BVI and Cayman Islands. The firm currently employs
over 750 professionals.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The Phoenix Effect
-----------------------------------
Nine Revitalizing Strategies No Business Can Do Without
Authors: Carter Pate and Harlann Platt
Publisher: John Wiley & Sons, Inc.
Softcover: 244 Pages
List Price: $27.95
Review by Gail Owens Hoelscher
Buy a copy for yourself and one for a colleague on-line at
http://amazon.com/exec/obidos/ASIN/0471062626/internetbankrupt
Think of all the managers of faltering companies who dream of
watching those companies rise from the ashes all around them! With
a record number of companies failing in 2001, and another
record-setting year expected for 2002, there are a lot of ashes
from which to rise these days.
Carter Pate and Harlan Platt highly value strong leadership able to
sharpen a company's focus and show the way to the future. They
believe that all too often, appropriate actions required to improve
organizations are overlooked because upper management either isn't
aware of the seriousness of the issues they face or they don't know
where to turn for accurate information to best address their
concerns. In the Phoenix Effect, the authors present their ideas to
"confront, comprehend, and conquer a company's ills, big and
small."
These ideas are grouped into nine steps: (i) Find out whether the
company needs a tune-up, a turnaround, or crisis management. Locate
the source of "the pain." (ii) Analyze the true scope of the
company's operations. Decide whether to stay in the same
businesses, withdraw from existing businesses, or enter new ones.
(iii) Hold the company to its mission statement. If it strives to
be "the most environmentally friendly." Figure out how. (iv) Manage
scale. Should the company grow, stay the same size, or shrink? (v)
Determine debt obligations and work toward debt relief. (vi) Get
the most from the company's assets. Eliminate superfluous assets
and evaluate underused assets. (vii) Get the most from the
company's employees. Increase output and lower workforce costs.
(viii) Get the most from the company's products. Turn out products
that are developed and marketed to fill actual, current customer
needs. (ix) Produce the product. Search for alternate ways to
create the product: owning or leasing facilities, outsourcing,
etc.
The authors believe that "how you're doing is where you're going."
They assert that the "one fundamental source of life in companies,
as in people, is the capacity for self-renewal, the ability to
excite your team for game after game. to go for broke season after
season." This ability can come from "(g)enetics, charisma, sheer
luck, stock options -- all crucial, yes, but the best renewal
insurance is a leader who always knows exactly how his or her
company is doing."
There are a lot of books written on this topic. Pate and Platt
successfully bridge the gap between overgeneralization and too
detail. They are equally adept at advising on how to go about
determining a business's scope and arguing for Monday rather than
Friday for implementing layoffs. They don't dwell on sappy
motivational techniques. They don't condescend to the reader or
depend too much on folksy vernacular and cliche. Their message is
clear: your company's phoenix, too, can rise from its ashes.
Carter Pate has served on the Board of multiple public companies.
During his two decades as a Partner at PricewaterhouseCoopers, he
held several global leadership positions, including being the
Global Managing Partner of the Advisory Services Practice,
Healthcare Practice and the Government practice. He subsequently
served as the CEO of Providence Service Corporation (revenue $1.5B)
and as the CEO of MV Transportation, one of the largest privately
held transportation companies.
Dr. Harlan D. Platt is a professor of Finance and Insurance at
Northeastern University. He is president of 911RISK, Inc., which
specializes in developing analytical models to predict corporate
distress. He received a Ph.D. from the University of Michigan, and
holds a B.A. degree from Northwestern University.
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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,
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