/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240827.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, August 27, 2024, Vol. 25, No. 172 Headlines F R A N C E SOLOCAL GROUP: Moody's Withdraws 'C' LT Corp. Family Rating G E R M A N Y PCF GMBH: Fitch Cut LT IDR to 'RD' Distressed Debt Exchange REVOCAR SA 2024-2: Fitch Assigns 'BB+(EXP)sf' Rating to Cl. D Notes I R E L A N D CVC CORDATUS XXIII: Fitch Assigns 'BB-sf' Rating to Class E-R Notes HENLEY CLO VII: Fitch Assigns 'B-sf' Rating to Class F-R Notes INVESCO EURO III: S&P Assigns B- (sf) Rating to Class F-R Notes JUBILEE 2019-XXII: Fitch Assigns B-sf Final Rating to Cl. F-R Notes MALLINCKRODT PLC: Fitch Affirms 'B-' LT IDR, Alters Outlook to Pos. RRE 20: S&P Assigns BB- (sf) Rating to EUR18MM Class D Notes I T A L Y MUNDYS SPA: Moody's Affirms 'B1' CFR, Outlook Remains Stable K A Z A K H S T A N FORTEBANK JSC: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable N O R W A Y ERLING LUX: 90% Markdown for Sixth Street's NOK7.4MM Loan R U S S I A REGIONAL ELECTRICAL: Fitch Affirms BB- LongTerm IDR, Outlook Stable S P A I N BBVA CONSUMER 2024-1: Fitch Puts 'BB+(EXP)sf' Rating to Cl. Z Notes U N I T E D K I N G D O M SALUS NO. 33: S&P Lowers Class C Notes Rating to 'BB (sf)' ZELLIS HOLDINGS: S&P Withdraws 'B-' Long-Term Credit Rating - - - - - =========== F R A N C E =========== SOLOCAL GROUP: Moody's Withdraws 'C' LT Corp. Family Rating ----------------------------------------------------------- Moody's Ratings has withdrawn the C long-term corporate family rating and the C-PD probability of default rating of SoLocal Group S.A. (SoLocal), a French provider of local media advertising and digital solutions to the small and medium-sized enterprise (SME) sector. Concurrently, Moody's have withdrawn the C rating on the EUR17.8 million senior secured bond due 2025 issued by SoLocal Group S.A. The outlook prior to the withdrawal was negative. RATINGS RATIONALE Moody's have decided to withdraw the rating(s) following a review of the issuer's request to withdraw its rating(s). COMPANY PROFILE SoLocal, headquartered in Paris, France, is a provider of local media advertising and digital solutions predominantly to the small and medium-sized enterprise (SME) sector in the country. In 2023, SoLocal reported revenue of EUR360 million and estimated EBITDA as calculated by management of EUR64 million. ============= G E R M A N Y ============= PCF GMBH: Fitch Cut LT IDR to 'RD' Distressed Debt Exchange ----------------------------------------------------------- Fitch Ratings has downgraded PCF GmbH's (PCF) Long-Term Issuer Default Rating to 'RD' (Restricted Default) from 'CCC+' and its senior secured notes (SSNs) to 'CC' from 'B-', and removed them from Rating Watch Negative (RWN). The downgrades follow what Fitch views as a distressed debt exchange (DDE), which resulted in a material reduction in terms and has the effect of allowing PCF to avoid an eventual probable default. Subsequently, Fitch has upgraded the IDR to 'CCC+' and SSNs to 'B-' with a Recovery Rating of 'RR3' to reflect PCF's strong business profile coupled with improved liquidity prospects following significant extensions to its debt maturities. The 'RR3' on the new SSNs reflects its expectation of recoveries in the low 50% range (61% previously). Fitch forecasts PCF's debt to increase due to the accrual of call premium including 'early-bird' charges, and Fitch believes that PCF has limited headroom for additional borrowings without affecting the notes' 'RR3'. The rating also reflects the continued underperformance of PCF and a weakened leverage profile. Fitch expects only a modest recovery in demand in 2H24 and low-single-digit revenue growth from 2025. This will result in lower EBITDA generation and a longer deleveraging profile. Key Rating Drivers DDE Drives Downgrade: Fitch treats PCF's exchange offer as a DDE, as Fitch believes the amendments to the terms constituted a material reduction in the original terms, including extending debt maturities by three years to April 2029. PCF had received consent from more than the required threshold 90% of its bondholders, thereby allowing to avoid an eventual probable default. The downgrade of the IDR to 'RD' on the completion of the DDE was in line with its criteria. Leverage Limits Rating: Fitch forecasts that EBITDA gross leverage will peak at 8.7x in 2024, due to lower EBITDA and higher gross debt. Fitch's rating case includes accrued call premium and 'early-bird' coupon, which will contribute to an increase in gross debt. Fitch expects leverage to remain high, commensurate with a 'CCC' rating category in the short-to-medium term. Fitch expects it to only improve to around 6.0x from 2026 and to Fitch's 'B' category mid-point of 5.5x only from 2027. Constrained EBITDA Generation: Fitch forecasts PCF's EBITDA margin to decline to 10.4% in 2024 and to remain within 11.5%-14% for 2025-2027, which is significantly below its last year's expectations. Combined with more moderate revenue growth, this results in materially lower absolute EBITDA for 2024-2027. This is due to inflationary pressures affecting consumer purchasing power, leading to lower volumes. Fitch expects material improvement in PCF's margin only from 2026, backed by cost-saving initiatives and integration benefits from its proposed acquisition of Nord. Fitch expects PCF's profitability to be strong for the rating, although execution risk remains. Equity Injection to Improve Liquidity: PCF announced a EUR75 million equity injection from its shareholder, Strategic Value Partners, which would be used to fund the Nord M&A of EUR30 million and support liquidity. Management is currently focused on EBITDA growth and has developed a value-creation plan that includes expanding into adjacent products or channels and cost efficiencies. Eroded FCF Margins: Fitch believes that recent inflationary pressures, combined with ongoing business restructurings, have weakened PCF's liquidity and free cash flow (FCF) profile. Fitch forecasts that PCF's FCF will remain deeply negative in 2024 due to weaker EBITDA, which is a significant deviation from its last year's expectations of modestly positive FCF for 2024-2026. Fitch expects PCF's FCF profile to remain moderately negative in 2025 before it turns neutral-to-positive from 2026. This improvement is based on its expectations of increased demand from 2H25 and an annual capex forecast of around EUR60 million to 2027. Stable Business Profile: PCF's limited geographical and product diversification is mitigated by its exposure to the more stable renovation market versus the new-build market. Approximately 75% of its engineered wood product revenue comes from renovation activities. Although its financial profile has been hit by subdued macroeconomic conditions, its business profile remains consistent with a 'BB' rating category. PCF's end-markets were moderately diversified in 2023 across kitchen producers (29% of total revenue), furniture makers (29%), the non-residential construction market (24%), and residential construction (15%). This has historically resulted in sustained revenue and competitive operating margins for PCF. Fitch expects volume declines in 2024 as new construction activity, particularly residential projects, continues to slow. However, Fitch forecasts a single-digit rise in revenues from 2025, driven by better macroeconomic conditions. Derivation Summary Fitch compares PCF with HESTIAFLOOR 2 (Gerflor; B/Positive), Tarkett Participation (B+/Stable), and Victoria plc (B+/Stable). With forecast revenue at just below EUR1 billion in 2024, PCF is slightly smaller than Gerflor and Victoria. Additionally, its high exposure to Germany (around 50% of sales) results in less geographical diversification than its peers. Similar to Gerflor, PCF is primarily a B2B company but is less diversified across segments, being focused on kitchen manufacturers, furniture makers, and wholesale, versus Gerflor's broader exposure to contractors in residential, public, social, and commercial construction, as well as transport and sports facilities. Like its peers, PCF benefits from a strong exposure to more stable renovation activities, at around 70% of total revenue, including subsidiary Silekol, or 75% for its engineered wood products business. PCF's EBITDA margins have historically exceeded Victoria's, partly supported by its own biomass combined heat and power plants that covered virtually all its energy needs. However, they were severely hit by demand decline in 2023. PCF's forecast EBITDA leverage of 8.7x in 2024 and 7.4x in 2025 is higher than that of its peers. Key Assumptions - Revenue to decline 5.6% in 2024 before growing 7% in 2025 and 12%-14% in 2026 and 2027, respectively - EBITDA margin around 10.4% in 2024 and improving to 11.7%-13.8% for 2025-2027 on cost initiatives and revenue growth - Annual capex at EUR60 million-EUR62 million for 2024-2027 - No dividends across the rating horizon - M&A estimated at EUR30 million in 2024 and EUR20 million annually for 2026-2027 - Equity injection of EUR75 million in 2H24 Recovery Analysis - The recovery analysis assumes that PCF would be a going-concern (GC) in bankruptcy and that it would be reorganised rather than liquidated - Fitch estimates a GC value available for creditor claims at about EUR531 million, assuming GC EBITDA of EUR115 million. The GC EBITDA reflects its view of a sustainable, post-reorganisation EBITDA on which Fitch bases its enterprise valuation (EV). Fitch's current GC EBITDA also factors in EBITDA contribution from project Nord, which Fitch believes would be fully operational from 2026 - The GC EBITDA reflects the loss of major customers and rising raw-material costs accompanied by postponed selling price increases. The assumption also reflects corrective measures taken in a reorganisation to offset the adverse conditions that trigger default - A 10% administrative claim - Fitch uses an EV multiple of 5.5x EBITDA to calculate a post-reorganisation valuation, which is comparable to multiples applied to other building products producers. The multiple is based on PCF's strong market position in western Europe with resilient earnings due to its high exposure to value-added products, use of an efficient cost pass-through mechanism and fairly high barriers to entry. The multiple also reflects its smaller scale than some other Fitch-rated peers', concentrated geographical diversification and limited range of products - Fitch deducts about EUR37.9 million from the EV for its various factoring facilities - Fitch estimates the total amount of senior debt for creditor claims at EUR935 million, comprising a super senior secured revolving credit facility (RCF) of EUR65 million, SSNs of EUR862 million (face value at EUR750 million + call premium + 'early-bird' premium at redemption date of 15 April 2029) and an equipment financing facility of EUR8.3 million - These assumptions result in a recovery rate for the senior secured notes within the 'RR3' range to generate a one-notch uplift to the debt rating from the IDR - The principal waterfall analysis output percentage on current metrics and assumptions is 53% RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA margin above 9% - Neutral FCF margin from 2026 onwards - EBITDA leverage consistently below 7.5x - EBITDA interest coverage above 2.0x Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Lack of a deleveraging trajectory - Deterioration in PCF's liquidity profile Liquidity and Debt Structure Limited Liquidity: As of end-June 2024, PCF had EUR12 million in Fitch-defined cash (adjusted by EUR10million for working-capital swings) alongside an undrawn EUR60 million RCF. Although liquidity is sufficient to cover its negative FCF over the next 24 months, before it turns positive from 2026, PCF's liquidity profile has deteriorated over the past 12-18 months. PCF had previously maintained cash balances exceeding EUR100 million. Fitch believes that the liquidity profile and financial flexibility of PCF has improved not only due to its extended maturity profile but also with the shareholder equity injection. Debt Maturity Extended: PCF's long-term debt consists of EUR750 million in sustainability-linked notes, split between EUR400 million 4.75% fixed-rate notes and EUR350 million floating-rate notes, with the current maturity extended to April 2029. Fitch calculates that the call premium, including the 'early-bird' premium charges, to be accrued on the SSNs would lift SSN debt quantum to EUR862 million at maturity. In addition, PCF has extended extend the maturity of its EUR65 million RCF to January 2029 from October 2025. Fitch-adjusted debt also includes a drawn factoring facility of EUR38 million and an EUR8.3 million equipment financing facility (as of end-2023) maturing in 2027. Issuer Profile PCF is one of the leading European manufacturers of wood products, specialising in the production of materials for the furniture industry, the interior industry and construction. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- PCF GmbH LT IDR RD Downgrade CCC+ LT IDR CCC+ Upgrade RD senior secured LT CC Downgrade RR3 B- senior secured LT B- Upgrade RR3 CC REVOCAR SA 2024-2: Fitch Assigns 'BB+(EXP)sf' Rating to Cl. D Notes ------------------------------------------------------------------- Fitch Ratings has assigned RevoCar S.A., Compartment 2024-2's notes expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. Entity/Debt Rating ----------- ------ RevoCar S.A., Compartment 2024-2 A XS2884019345 LT AAA(EXP)sf Expected Rating B XS2884019931 LT A+(EXP)sf Expected Rating C XS2884020434 LT BBB+(EXP)sf Expected Rating D XS2884020608 LT BB+(EXP)sf Expected Rating E XS2884021085 LT NR(EXP)sf Expected Rating Transaction Summary This is the 15th public securitisation of German auto loan receivables under the RevoCar platform. The receivables are granted to private and commercial customers by Bank11 für Privatkunden und Handel GmbH to finance new and used vehicles. The portfolio is static. An interest-rate swap will cover the mismatch between fixed-rate assets and floating-rate notes. KEY RATING DRIVERS Performance Deterioration Reflected: Fitch assumes a default base case of 1.5%. This is above most recent historical vintages factoring in moderate performance deterioration in Bank11's book as evidenced by increased arrears and defaults over the past two years. Bank11's stricter underwriting from 2022, the robust labour market with real wage growth in Germany, as well as the strong record of previous RevoCar transactions are expected to support performance. Fitch applies a 'AAA' multiple of 6.25x. Ample Excess Spread: The weighted average (WA) pool yield of 6.3% reflects the repricing of the originator's assets. Interest in excess of the issuer's expenses can be used to align the liability balance with the non-defaulted asset balance. The useable lifetime excess spread accounted for in its modelling to cure defaults is 2.0% to 3.7% of the initial asset balance depending on the rating scenario and class of notes. Triggers Limit Pro Rata Period: The class A to D notes amortise pro rata from closing. In its modelling, the full repayment of the notes depends on the length of the pro rata period, which is not only driven by the level of credit losses but also by the timing of losses and prepayment rates. Fitch views the performance triggers as effective in ending the pro rata period in the event of a significant deterioration in performance. Servicer Risks Considered: Fitch considers servicer discontinuity risk reduced by the provisions for finding a replacement servicer, the standard nature of the assets and the amortising liquidity reserve, which provides more than three months of liquidity coverage to class A. Interest on the class B to D notes is deferrable. Prepayments are exposed to commingling risk because they are transferred monthly, whereas all scheduled payments are remitted to the issuer's accounts daily. A reserve does not fully cover the commingling exposure yielding an uncovered amount. Fitch therefore calculated an assumed additional loss of 0.7% of the initial portfolio balance at the start of amortisation to account for uncovered commingling exposure. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Auto performance will not be immune to inflationary pressures on household finances and slightly increasing unemployment in 2024. Fitch believes that the importance of car ownership and the overall prime borrower quality remain strong performance differentiators for auto-lease transactions. Ratings may be negatively affected if defaults and losses are larger and/ or more back-loaded than assumed, leading to a longer pro-rata period and a lower lifetime excess spread. Expected impact of increased defaults on the notes' ratings (class A/B/C/D): Current ratings: 'AAAsf'/'A+sf'/'BBB+sf'/'BB+sf' Increase default rate by 10%: 'AAAsf'/'Asf'/'BBB+sf'/'BB+sf' Increase default rate by 25%: 'AA+sf'/'A-sf'/'BBBsf'/'BBsf' Increase default rate by 50%: 'AAsf'/'BBB+sf'/'BBB-sf'/'BB-sf' Expected impact of decreased recoveries on the notes' ratings (class A/B/C/D): Reduce recovery rates by 10%: 'AAAsf'/'A+sf'/'BBB+sf'/'BB+sf' Reduce recovery rates by 25%: 'AAAsf'/'A-sf'/'BBBsf'/'BBsf' Reduce recovery rates by 50%: 'AAAsf'/'BBB+sf'/'BBB-sf'/'BB-sf' Expected impact of increased defaults and decreased recoveries on the notes' ratings (class A/B/C/D): Increase default rates by 10% and decrease recovery rates by 10%: 'AAAsf'/'Asf'/'BBBsf'/'BBsf' Increase default rates by 25% and decrease recovery rates by 25%: 'AA+sf'/'BBB+sf'/'BB-sf'/'B+sf' Increase default rates by 50% and decrease recovery rates by 50%: 'AA-sf'/'BB+sf'/'BBsf'/'B-sf' Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Lower defaults and smaller or more front-loaded losses than assumed, leading to less negative lifetime excess spread. 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 RevoCar 2024-2 Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was available for this transaction. 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 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. ============= I R E L A N D ============= CVC CORDATUS XXIII: Fitch Assigns 'BB-sf' Rating to Class E-R Notes ------------------------------------------------------------------- Fitch Ratings has assigned CVC Cordatus Loan Fund XXIII DAC refinancing notes final ratings and affirmed the non-refinanced notes, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- CVC Cordatus Loan Fund XXIII DAC A-1 XS2441239618 LT AAAsf Affirmed AAAsf A-2 XS2455336169 LT AAAsf Affirmed AAAsf B-1 XS2441239881 LT PIFsf Paid In Full AAsf B-1-R XS2877495114 LT AAsf New Rating B-2 XS2441240038 LT AAsf Affirmed AAsf C XS2441240202 LT PIFsf Paid In Full Asf C-R XS2877522701 LT Asf New Rating D XS2441240467 LT PIFsf Paid In Full BBB-sf D-R XS2877599162 LT BBB-sf New Rating E XS2441240624 LT PIFsf Paid In Full BB-sf E-R XS2877701628 LT BB-sf New Rating F XS2441240970 LT B-sf Affirmed B-sf X XS2441239451 LT AAAsf Affirmed AAAsf Transaction Summary CVC Cordatus Loan Fund XXIII DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds have been used to purchase a portfolio with a target par of EUR500 million. The portfolio is actively managed by CVC Credit Partners Investment Management Limited (CVC). The transaction will exit its reinvestment period in October 2026 and has approximately a 6.2-year weighted average life (WAL) test. KEY RATING DRIVERS 'B'/'B-' Portfolio Credit Quality: Fitch places the average credit quality of obligors at 'B'/'B-'. The Fitch- weighted average rating factor (WARF) of the current portfolio was 25.1 as reported by the trustee in the July 2024 investor report. High Recovery Expectations: At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rate (WARR) of the current portfolio as of July 2024, as reported by the trustee, was 60.2%. Diversified Asset Portfolio: The transaction has two matrices corresponding to two fixed-rate asset limits at 7.5% and 15% of the portfolio balance. Both matrixes have a top 10 obligor concentration limit of 23%. The transaction also includes limits on the Fitch-defined largest industry at a covenanted maximum 17.5% and the three largest industries at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration Affirmation of Non-Refi Notes: The affirmation of the non-refinanced notes with Stable Outlooks reflects the transaction's sound performance so far. As of the July 2024 investor report, the transaction was 18bp above target par and passing all coverage, collateral-quality and portfolio-profile tests. The portfolio had EUR2.7 million exposure to defaulted assets and assets with a Fitch-derived rating of 'CCC+' or below stood at 3.1% against a limit of 7.5%, as calculated by the trustee. Updated Matrix: Fitch has updated the two abovementioned matrices for the transaction. The break-even WARR points within the matrices are lower than in the previous matrices due to tighter margins paid on the refinanced notes, and the WAL test limit of approximately 6.2 years is lower than the 8.5 years in the original transaction (7.5 years on the forward matrices). 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 current portfolio would have no impact on the class A-R to D-R notes, would lead to a downgrade of no more than one notch for the class E-R notes and to below 'B-sf' for the class F notes. Downgrades, based on the current portfolio, may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than Fitch-stressed portfolio, the class B-1-R,B-2, E-R and F notes have a cushion of two notches, while the class C-R and D-R notes have a cushion of three notches. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to four notches for the rated 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 for the rated notes, except for the 'AAAsf' rated notes. During the reinvestment period, upgrades, which are based on the Fitch-stressed portfolio, may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades, except for the 'AAAsf' notes, may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG relevance scores for this transaction. In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, programme, instrument or issuer, Fitch will disclose in the key rating drivers any ESG factor which has a significant impact on the rating on an individual basis. HENLEY CLO VII: Fitch Assigns 'B-sf' Rating to Class F-R Notes -------------------------------------------------------------- Fitch Ratings has assigned Henley CLO VII DAC refinancing notes final ratings and affirmed its non-refinanced notes, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Henley CLO VII DAC A XS2445870897 LT PIFsf Paid In Full AAAsf A-R XS2874094274 LT AAAsf New Rating B-1 XS2445870970 LT PIFsf Paid In Full AAsf B-1-R XS2874094431 LT AAsf New Rating B-2 XS2445871432 LT AAsf Affirmed AAsf C XS2445871515 LT PIFsf Paid In Full Asf C-R XS2874094787 LT Asf New Rating D XS2445871606 LT PIFsf Paid In Full BBB-sf D-R XS2874094944 LT BBB-sf New Rating E XS2445872083 LT PIFsf Paid In Full BB-sf E-R XS2874095164 LT BBsf New Rating F XS2445872166 LT PIFsf Paid In Full B-sf F-R XS2874095321 LT B-sf New Rating Transaction Summary Henley CLO VII DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. The portfolio is actively managed by Napier Park Global Capital Ltd. The CLO exits its reinvestment period in April 2025, with a remaining weighted average life (WAL) of six years. KEY RATING DRIVERS 'B'/'B-' Portfolio Credit Quality: Fitch places the average credit quality of obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor of the current portfolio is 26.1. High Recovery Expectations: At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate of the current portfolio is 61.4%. Diversified Asset Portfolio: The transaction had four matrices corresponding to two fixed-rate asset limits at 15% and 7.5% of the portfolio balance and two WAL limits of 7.5 and 6.5 years. All matrices have a top 10 obligor concentration limit of 20%. The transaction also includes limits on the Fitch-defined largest industry at a covenanted 17.5% and the three largest industries at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Affirmation of Non-Refi Notes: The affirmation of the class B-2 notes with Stable Outlook reflects the transaction's sound performance so far. As of the July 2024 investor report, the transaction was 0.8% below target par but passing all coverage, collateral-quality and portfolio-profile tests. The portfolio has no defaulted assets and assets with a Fitch-derived rating of 'CCC+' or below stood at 2.3% against a limit of 7.5%, as calculated by the trustee. Transaction Inside Reinvestment Period: The transaction is within its reinvestment period, during which the manager can reinvest principal proceeds and sale proceeds subject to compliance with the reinvestment criteria. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio and tested the notes' achievable ratings across the Fitch test matrices, since the portfolio can still migrate to different collateral quality tests. Cash Flow Analysis: The WAL used for the transaction's Fitch-stressed portfolio and matrix analysis is 12 months less than the WAL covenant to account for structural and reinvestment conditions post-reinvestment period, including the over-collateralisation and Fitch's 'CCC' limitation tests, among others. Combined with loan pre-payment expectations, this ultimately reduces the maximum risk horizon of the portfolio. 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 lead to downgrades of two notches for the class E-R notes, one notch for the class B-1-R to D-R notes and to below 'B-sf' for the class F-R notes. It would have no impact on the class A-R 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 F-R notes display a rating cushion of three notches, the class B-1-R, B-2, C-R and D-R notes two notches, the class E-R one notch and the class A notes have no cushion. 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 three notches for the class A-R to D-R notes and to below 'B-sf' for the class E-R and F-R 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 five notches, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on 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 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 Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG relevance scores for Henley CLO VII DAC. In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, programme, instrument or issuer, Fitch will disclose in the key rating drivers any ESG factor which has a significant impact on the rating on an individual basis. INVESCO EURO III: S&P Assigns B- (sf) Rating to Class F-R Notes --------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Invesco Euro CLO III DAC's class X, A-R, B-R, C-R, D-R, E-R, and F-R notes. The issuer had also issued EUR36.275 million of subordinated notes on the original closing date. This transaction is a reset of the already existing transaction. The existing classes of notes were fully redeemed with the proceeds from the issuance of the replacement notes on the reset date and the ratings on the original notes have been withdrawn. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs, upon which the notes pay semiannually. This transaction has a 1.19 year non-call period, and the portfolio's reinvestment period will end approximately 2.19 years after closing. The ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with S&P's counterparty rating framework. Portfolio benchmarks CURRENT S&P Global Ratings weighted-average rating factor 2,983.58 S&P Global Ratings weighted-average rating factor including defaulted assets 2999.28 Default rate dispersion 639.76 Weighted-average life (years) 4.069 Obligor diversity measure 80.37 Industry diversity measure 21.94 Regional diversity measure 1.28 Transaction key metrics CURRENT Total par amount (mil. EUR) including defaults 400.94 Defaulted assets (mil. EUR) 0.897 Number of performing obligors 115 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 6.79 'AAA' actual portfolio weighted-average recovery (%) 35.88 'AAA' portfolio weighted-average recovery (%) – modeled 35.88 Modeled weighted-average spread (%) 4.37 Actual weighted-average spread (%) 4.37 Modeled weighted-average coupon (%) 4.32 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'. We consider that the portfolio primarily comprises broadly syndicated speculative-grade senior secured term loans and senior secured bonds on the effective date. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR400 million par amount, the actual (modeled) weighted-average spread (4.37%), the actual (modeled) weighted-average coupon (4.32%), and the actual (modeled) portfolio weighted-average recovery rates for all rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "The transaction's documented counterparty replacement and remedy mechanisms to adequately mitigate its exposure to counterparty risk under our counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "Until the end of the reinvestment period on Oct. 30, 2026, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, if the initial ratings are maintained. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "The operational risk associated with key transaction parties (such as the collateral manager) that provide an essential service to the issuer is in line with our operational risk criteria. "Our credit and cash flow analysis indicate that the available credit enhancement for the class B-R to E-R notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we capped our assigned ratings on the notes. The class X, A-R, and F-R notes can withstand stresses commensurate with the assigned ratings. "For the class F-R notes, our credit and cash flow analysis indicates that the available credit enhancement could withstand stresses commensurate with a lower rating. However, we have applied our 'CCC' rating criteria, resulting in a 'B- (sf)' rating on this class of notes. The ratings uplift for the class F-R notes reflects several key factors, including: -- The class F-R notes' available credit enhancement, which is in the same range as that of other CLOs S&P has rated and that has recently been issued in Europe. -- The portfolio's average credit quality, which is similar to other recent CLOs. -- S&P's model generated break-even default rate at the 'B-' rating level of 21.32% (for a portfolio with a weighted-average life of 4.069 years), versus if it was to consider a long-term sustainable default rate of 3.1% for 4.069 years, which would result in a target default rate of 12.62%. -- S&P does not believe that there is a one-in-two chance of this tranche defaulting. -- S&P does not envision this tranche defaulting in the next 12-18 months. -- Following this analysis, S&P considers that the available credit enhancement for the class F-R notes is commensurate with the assigned 'B- (sf)' rating. S&P said, "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we also included the sensitivity of the ratings on the class X 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 weapons or firearms, illegal drugs or narcotics etc. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Invesco Euro CLO III is a European cash flow CLO securitization of a revolving pool, comprising mainly euro-denominated senior secured loans and bonds issued by speculative-grade borrowers. Invesco European RR L.P. manages the transaction. Ratings list AMOUNT CLASS RATING* (MIL. EUR) SUB (%) INTEREST RATE§ X AAA (sf) 2.50 N/A Three/six-month EURIBOR plus 0.70% A-R AAA (sf) 248.00 38.00 Three/six-month EURIBOR plus 1.11% B-R AA (sf) 42.00 27.50 Three/six-month EURIBOR plus 2.00% C-R A (sf) 22.00 22.00 Three/six-month EURIBOR plus 2.50% D-R BBB- (sf) 28.00 15.00 Three/six-month EURIBOR plus 3.85% E-R BB- (sf) 14.00 11.50 Three/six-month EURIBOR plus 6.31% F-R B- (sf) 13.80 8.05 Three/six-month EURIBOR plus 8.50% Sub. Notes NR 36.275 N/A N/A *The ratings assigned to the class X, 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. JUBILEE 2019-XXII: Fitch Assigns B-sf Final Rating to Cl. F-R Notes ------------------------------------------------------------------- Fitch Ratings has assigned Jubilee CLO 2019-XXII DAC reset notes final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Jubilee CLO 2019-XXII DAC A-1-R XS2874156131 LT AAAsf New Rating AAA(EXP)sf A-2-R XS2874156214 LT AAAsf New Rating AAA(EXP)sf B-1-R XS2874156305 LT AAsf New Rating AA(EXP)sf B-2-R XS2874156560 LT AAsf New Rating AA(EXP)sf C-R XS2874156487 LT Asf New Rating A(EXP)sf D-R XS2874156644 LT BBB-sf New Rating BBB-(EXP)sf E-R XS2874156990 LT BB-sf New Rating BB-(EXP)sf F-R XS2874156727 LT B-sf New Rating B-(EXP)sf Sub XS1980850579 LT NRsf New Rating NR(EXP)sf Transaction Summary Jubilee CLO 2019-XXII DAC is a securitisation of mainly senior secured obligations (at least 96%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds have been used to fund a portfolio with a target par of EUR500 million and redeem its outstanding notes. The portfolio is actively managed by Alcentra Ltd. The collateralised loan obligation (CLO) has about a 4.5-year reinvestment period and a 7.0 year weighted average life (WAL) test limit. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch places the average credit quality of obligors in the identified portfolio at 'B'/'B-'. The Fitch weighted average rating factor (WARF) of the identified portfolio is 24.8. High Recovery Expectations (Positive): At least 96% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the identified portfolio is 62.4%. Diversified Asset Portfolio (Positive): The transaction includes various concentration limits in the portfolio, including a fixed-rate obligation limit at 12.5%, a top 10 obligor concentration limit at 20%, and a 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 an approximately 4.5-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year, to 7.0 years, on the step-up date, which is one year after closing. The WAL extension is subject to conditions including satisfying the collateral quality tests and the aggregate collateral balance (with defaulted obligations at Fitch-calculated collateral value) being at least equal to the reinvestment target par. Cash Flow Modelling (Neutral): The WAL used for the Fitch-stressed portfolio was 12 months less than the WAL covenant to account for structural and reinvestment conditions after the reinvestment period, including passing the over-collateralisation and Fitch 'CCC' limitation tests, and a WAL covenant that progressively steps down over time, both before and after the end of the reinvestment period. In Fitch's opinion, these conditions reduce the effective risk horizon of the portfolio during stress periods. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade 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 have no impact on the ratings. Downgrades, which are based on the identified portfolio, may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B-R, C-R, D-R and E-R notes have a rating cushion of two notches and the class F-R notes have four notches. The class A-1-R notes and class A-2-R notes do not display any rating cushion as they are already at the highest achievable rating. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of three notches for the class A-1-R, A-2-R and E-R notes, would lead to a downgrade of four notches for the class B-1-R to C-R notes, two notches for the class D-R notes, and to below 'Bsf' for the class F-R notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the 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 three notches for the rated notes, except for the 'AAAsf' rated notes. During the reinvestment period, upgrades, which are based on the Fitch-stressed portfolio, may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades, except for the 'AAAsf' notes, may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG relevance scores for Jubilee CLO 2019-XXII 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. MALLINCKRODT PLC: Fitch Affirms 'B-' LT IDR, Alters Outlook to Pos. ------------------------------------------------------------------- Fitch Ratings has affirmed Mallinckrodt plc's (MNK or Mallinckrodt refers to this entity and its subsidiaries) Long-Term Issuer Default Rating (IDR) of 'B-' and revised the Rating Outlook to Positive from Stable. The Positive Outlook reflects the company's success in stabilizing operations. Fitch will continue to monitor the company's approach to capital deployment and its strategy for intermediate and long-term growth. Fitch has also affirmed the 'BB-'/'RR1' ratings to ST US AR Finance LLC's ABL facility and Mallinckrodt International Finance S.A.'s and Mallinckrodt CB LLC's first-out, first-lien (1L) term loans. In addition, Fitch has upgraded Mallinckrodt International Finance S.A.'s and Mallinckrodt CB LLC's second-out, first-lien loans and notes ratings to 'BB-'/'RR1' from 'B'/'RR3'. Key Rating Drivers Therakos Divestiture to Reduce Leverage: Fitch views the divestiture of Therakos as strategically sound given that the business is MNK's only oncology-focused therapy, which faces increased competition from newly introduced oral medications. The net proceeds of the $925 million proposed transaction will be used to pay down a portion of its outstanding loans and notes. The transaction will result in a less diversified product portfolio given that Therakos accounts for roughly 13% of total firm sales. Nevertheless, the expected reduction in EBITDA leverage more than offsets the negative impact of increased product portfolio concentration. While the transaction is positive for MNK's leverage, Fitch believes that the company will need to pursue external business opportunities to build its pipeline and product portfolio, which may require additional borrowing. Stabilization of Specialty Brands Critical: Fitch believes moderation of the underlying headwinds, particularly those regarding Acthar (22% of total sales) and INOmax (14% of total sales), is important to MNK's long-term credit profile. Competitive alternatives have been challenging these two top-selling products. However, Fitch recognizes that the company has begun to stabilize its operating profile, particularly with the recent performance of Acthar and the strong growth in specialty generics. In addition, MNK has launched follow-on products Acthar Gel SelfJect and INOmax Evolve to aid in stabilizing the operating performance of these franchises. These next-generation products should be easier and less costly to administer. The company will need to demonstrate the value of them to providers and payers. New Potential Driver: MNK has recently launched Terlivaz (terlipressin) for the treatment of hepatorenal syndrome type 1. The company needs to successfully commercialize this product as it has the potential to be a key long-term growth driver. Nevertheless, Fitch expects Mallinckrodt to eventually expand its drug pipeline through targeted M&A and strategic collaborations. Fitch does not expect the contribution from M&A and Terlivaz to be significant early in the forecast. Specialty Generics a Competitive Segment: Mallinckrodt's generic medication sales are relatively resistant to economic trends, although they are partly sensitive to insurance rolls and third-party reimbursement. More importantly, pricing on many of its generic products is competitive and can periodically face significantly increased pressure on reimbursement. In addition, increased concern regarding opioid abuse has reduced demand for a number of the company's narcotic analgesic medications and active pharmaceutical ingredients. However, 1H24 performance was strong, owing to supply disruption affecting competitors. Fitch expects this growth will revert to a moderate market growth during the intermediate term as competition reenters the market. Repaired Balance Sheet and Liability Profile: MNK's emergence from its Chapter 11 process reduced debt by $1.9 billion and eliminated $1 billion in scheduled opioid litigation payments. The improved financial flexibility should help the company continue to stabilize its operating profile and pursue external growth opportunities in the long term. Many of the financial metrics are generally consistent with a higher rating. However, the company will likely need external opportunities to build its pipeline for longer-term growth. The company is still liable for annual CMS settlement payments ranging from $15 million to $33 million. Fitch views these as manageable for the firm. Derivation Summary MNK (B-/Positive Outlook) is meaningfully smaller (in terms of revenue/EBITDA) than its peers Jazz Pharmaceuticals plc/JAZZ (BB/Stable Outlook) and Bausch Health Companies Inc./BHC (CCC). MNK's cash flow generation is weaker than both Jazz and BHC, but its EBITDA leverage is lower than BHC's. MNK's near-term revenue challenges are more significant than those for BHC and JAZZ. MNK's pipeline is similar to BHC's but sparser than JAZZ's. Product revenue concentration is relatively similar for all three firms. Key Assumptions - Low single-digit to flat organic revenue declines during the forecast period as INOmax faces competitive pressure early on and the commercialization of Terlivaz, Acthar Selfject and INOmax Evolve advance; - Acthar/CMS payments of $20 million to $33 million during the forecast period. These payments are deducted from EBITDA; - Manageable annual capital expenditures of $55 to $65 million; - Annual FCF remains positive during 2024 through 2027; - Bolt-on acquisitions in the outer years of the forecast period; - The Therakos divestiture occurs for roughly $925 million and the net proceeds are used to pay down debt; - Leverage relatively flat during the forecast period and after the Therakos divestiture. Recovery Analysis In assigning instrument ratings for issuers with a 'B+' or below IDR, Fitch conducts a bespoke analysis. The recovery analysis assumes that Mallinckrodt plc would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch estimates a going concern enterprise value (EV) of $2 billion for Mallinckrodt plc and assumes that administrative claims consume 10% of this value in the recovery analysis. The going concern EV (GCEV) is based on estimates of post-reorganization EBITDA and the assignment of an EBITDA multiple. Fitch assumes a GCEV, which assumes both depletion of the current position to reflect an assumed cause of distress that causes a default, and a level of corrective action assumed to occur during restructuring. Fitch's estimate of Mallinckrodt plc's going concern EBITDA of $400 million reflects a scenario in which the company continues to face significant share erosion with Acthar Gel and less so with INOmax. The $400 million GCEV assumption is an increase from $300 million assumed at the last review. The updated assumption reflects Fitch's current view that MNK's operations are more stable and durable than originally anticipated following its emergence from bankruptcy in November 2023. Acthar Gel's performance has begun to stabilize and the company recently launched a follow-on product for Acthar. Fitch assumes in a new bankruptcy scenario that MNK would continue to invest in its business related to R&D and marketing, with ongoing efforts to improve operational efficiencies. Fitch assumes a recovery enterprise value/EBITDA multiple of 5.0x which is lower than the 6.0x-7.0x Fitch typically assigns to specialty pharmaceutical manufacturers. The multiple reflects the competitive headwinds that Mallinckrodt plc faces with INOmax, while recognizing the relative stability in a number of the company's other businesses. Fitch applies a waterfall analysis to the GCEV based on the relative claims of the debt in the capital structure, and assumes that the company would draw $160 million on its ABL facility in a bankruptcy scenario. ST US AR Finance LLC's ABL Facility and first-out, first-lien loans and notes have outstanding recovery prospects in a reorganization scenario and are rated 'BB-'/'RR1', three notches above the IDR. The second-out, first-lien loans and notes have outstanding recovery prospects in a reorganization scenario and are rated 'BB-'/'RR1', three notches above the IDR as well. If the Therakos sale closes, Fitch expects a GCEV lower than the current $400 million. Assuming the transaction closes in line with its forecast and MNK uses the net proceeds to pay down debt, Fitch would not expect the transaction to affect the recovery ratings. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Most important would be an improving business profile and declining execution risk, which could result from some combination of stable/growing revenue for Acthar Gel and INOmax along with successful commercialization of Terlivaz; - Fitch's expectation of durably improving FCF; - Fitch's expectation of EBITDA leverage sustained below 5.0x; - Fitch's expectation of Operating EBITDA interest coverage sustained above 2.5x; - Fitch's expectation that the Therakos divestiture occurs for roughly $925 million and the net proceeds are used to pay down debt. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Most important- would be an inability to improve business profile and reduce execution risk, which could be evidenced by continued deterioration in Acthar Gel and INOmax revenue along with delayed or unsuccessful commercialization of Terlivaz; - Fitch's expectation of deteriorating EBITDA and FCF; - Fitch's expectation of Operating EBITDA interest coverage sustained below 1.75x. Liquidity and Debt Structure Fitch expects MNK will maintain adequate liquidity with a $200 million A/R Facility due 2027 and positive FCF. The company had $291 million cash on hand at June 30, 2024. The nearest other debt maturities occur in 2028. Issuer Profile Mallinckrodt Public Limited Company (Mallinckrodt/MNK) makes drugs used to treat pain and various disorders in neurology, rheumatology, nephrology, oncology and respiration. It operates with two business segments: Specialty Branded Pharmaceuticals and Specialty Generics Pharmaceuticals. Summary of Financial Adjustments Fitch adds back stock compensation expense to EBITDA. In addition, Fitch adds back fresh-start accounting adjustments and certain opioid settlement payments to EBITDA. Fitch deducts Achthar/CMS payments historically and prospectively to EBITDA. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations Mallinckrodt has an ESG Relevance Score of '4' for Exposure to Social Impacts due to pressure to contain healthcare spending growth, the highly sensitive political environment and social pressure to contain costs or restrict pricing. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Mallinckrodt CB LLC senior secured LT BB- Upgrade RR1 B senior secured LT BB- Affirmed RR1 BB- Mallinckrodt International Finance SA senior secured LT BB- Upgrade RR1 B senior secured LT BB- Affirmed RR1 BB- Mallinckrodt plc LT IDR B- Affirmed B- ST US AR Finance LLC senior secured LT BB- Affirmed RR1 BB- RRE 20: S&P Assigns BB- (sf) Rating to EUR18MM Class D Notes ------------------------------------------------------------ S&P Global Ratings assigned its credit ratings to RRE 20 Loan Management DAC's class A-1 to D notes. The issuer also issued unrated performance, preferred return, and subordinated notes. This is a European cash flow CLO transaction, securitizing a portfolio of primarily senior secured leveraged loans and bonds. The transaction is managed by Redding Ridge Asset Management (UK) LLP. The ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with our counterparty rating framework. -- Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event. Following this, the notes will permanently switch to semiannual payment. -- The portfolio's reinvestment period will end approximately 4.60 years after closing, and the portfolio's maximum average maturity date is approximately 8.5 years after closing. Portfolio benchmarks S&P Global Ratings' weighted-average rating factor 2,863.73 Default rate dispersion 351.51 Weighted-average life (years) 4.68 Obligor diversity measure 89.32 Industry diversity measure 17.91 Regional diversity measure 1.21 Transaction key metrics Total par amount (mil. EUR) 400 Defaulted assets (mil. EUR) 0 Number of performing obligors 107 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.00 Target 'AAA' weighted-average recovery (%) 36.95 Target portfolio weighted-average spread (%) 4.07 S&P said, "The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. As such, we have not applied any additional scenario and sensitivity analysis when assigning ratings to any class of notes in this transaction. "In our cash flow analysis, we used the EUR400 million target par amount, the covenanted weighted-average spread (3.70%), and the covenanted weighted-average coupon indicated by the collateral manager (5.50%). We assumed weighted-average recovery rates in line with those of the target portfolio presented to us. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Our credit and cash flow analysis indicates that the available credit enhancement for the class A-2A, A-2B, B, C-1, C-2, and D notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO will be in its reinvestment phase starting from closing, during which the transaction's credit risk profile could deteriorate, we have capped the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our assigned ratings are commensurate with the available credit enhancement for the class A-1, A-2A, A-2B, B, C-1, C-2, and D notes." In addition to our standard analysis, S&P has also included the sensitivity of the ratings on the class A-1 to D notes to four hypothetical scenarios. 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 industries, including, but not limited: thermal-coal-based power generation, mining or extraction; Arctic oil or gas production, and unconventional oil or gas production from shale, tight reservoirs, or oil sands; production of civilian weapons; development of nuclear weapon programs and production of controversial weapons; management of private for-profit prisons; tobacco or tobacco products; opioids; adult entertainment; speculative transactions of soft commodities; predatory lending practices; non-sustainable palm oil productions; animal testing for non-pharmaceutical products; endangered species; and banned pesticides or chemicals. "Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings AMOUNT CREDIT CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§ A-1 AAA (sf) 244.00 39.00 Three/six-month EURIBOR plus 1.31% A-2A AA (sf) 41.50 26.75 Three/six-month EURIBOR plus 1.90% A-2B AA (sf) 7.50 26.75 5.20% B A (sf) 23.00 21.00 Three/six-month EURIBOR plus 2.20% C-1 BBB (sf) 24.00 15.00 Three/six-month EURIBOR plus 3.00% C-2 BBB- (sf) 4.00 14.00 Three/six-month EURIBOR plus 4.05% D BB- (sf) 18.00 9.50 Three/six-month EURIBOR plus 6.00% Performance Notes NR 1.00 N/A N/A Preferred return notes NR 0.25 N/A N/A Sub notes NR 44.175 N/A N/A *The ratings assigned to the class A-1, A-2A, and A-2B notes address timely interest and ultimate principal payments. The ratings assigned to the class B, C-1, C-2, and D notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. EURIBOR--Euro Interbank Offered Rate. ========= I T A L Y ========= MUNDYS SPA: Moody's Affirms 'B1' CFR, Outlook Remains Stable ------------------------------------------------------------ Moody's Ratings has affirmed the Ba1 long-term corporate family rating, the Ba2 senior unsecured ratings and the (P)Ba2 rating of the senior unsecured euro medium-term note (EMTN) programme of Mundys S.p.A. (Mundys), one of the largest and diversified infrastructure groups in the world. At the same time, Moody's have affirmed the Baa2 senior unsecured and the (P)Baa2 senior unsecured EMTN programme ratings of Italian airport operator Aeroporti di Roma S.p.A. (ADR). The outlooks of both issuers remain stable. RATINGS RATIONALE The rating affirmation takes into account the strong operating performance of the group's main subsidiaries, which have experienced solid traffic growth in 2023 and H1 2024, surpassing pre-pandemic levels in all toll roads and airport concessions; as well as consistent tariff increases aligned with their respective regulatory frameworks, which in most cases are linked to inflation. This led to a reported EBITDA growth of approximately 12% in 2023, improving EBITDA margin to around 60% for the consolidated group. Moody's anticipate an EBITDA growth of about 8% in 2024, primarily supported by significant tariff increases at the beginning of the year, continued traffic growth, and the consolidation of recent acquisitions. Overall, Moody's expect the credit quality of Mundys group to continue to improve, given its commitment to gradually reduce the total amount of gross debt on balance sheet, which increased by around EUR4.2 billion to EUR41.5 billion (including hybrid issuances) in 2023, mainly due to M&A activities at Abertis group. In H1 2024, the group has already reduced its gross debt by around EUR1.5 billion. Total consolidated gross debt is expected to decrease further to close to EUR39 billion by year-end 2024, leading to an increase in Moody's adjusted funds from operations (FFO)/debt to around 9%. As Mundys continues to reduce its outstanding debt obligations and cash flow generation improves in line with main macroeconomic dynamics, such as economic activity and inflation, Moody's expect Mundys' consolidated FFO/debt ratio to increase to above 10% by year-end 2025. Moreover, Moody's anticipate that Moody's adjusted DSCR and CLCR metrics will also improve to 1.4x and 1.6x by year-end 2025, which is better than Moody's previous expectations. As a result, Moody's expect the group to be strongly positioned within the Ba1 rating category. More broadly, the Ba1 CFR of Mundys group is supported by (1) its scale and focus in regulated toll road and airport sectors; (2) the strong fundamentals of Abertis' toll road network, which is diversified and comprises essential assets across several countries; (3) the strong operating performance and cash flow generation of ADR, one of the largest airport groups in Europe; (4) the reasonably established regulatory framework for most of its infrastructure businesses, albeit with some instances of political interference; (5) an estimated average concession life close to 14 years for the entire infrastructure portfolio by year-end 2024; and (6) a track record and expectation of maintenance of prudent dividend distributions and financial policies. These positive factors are tempered by (1) the group's fairly complex structure, which involves minority shareholders and debt at intermediate holding companies, creating significant cash leakages; (2) the high financial leverage of Mundys group, with an estimated consolidated gross debt of around EUR39 billion and an FFO/debt ratio of approximately 9% by year-end 2024; and (3) increasing refinancing requirements starting from next year, although with sufficient liquidity available to cover expected debt maturities until year-end 2026. The Baa2 rating of ADR is supported by (1) the strong fundamentals of its airports, representing the largest airport group in Italy; (2) the strength of its service area and favourable competitive position, given Rome's status as one of Europe's major capital cities; (3) the supportiveness of the concession and regulatory framework; (4) the high proportion of origin and destination passengers; (5) a fairly diversified carrier base with no meaningful exposure to weak airlines; and (6) the company's moderate financial leverage and excellent liquidity position. In particular, ADR's rating is currently constrained by that of (1) the Government of Italy (Baa3 stable), and (2) Mundys; as its current standalone credit profile suggests a higher rating than Baa2. LIQUIDITY The liquidity position of the Mundys consolidated group is strong. As of June 2024, the group had approximately EUR5.2 billion of cash and cash equivalents, of which EUR240 million at Mundys S.p.A. level, EUR934 million at Abertis Infraestructuras S.A. level, and EUR3.9 billion at the subsidiaries' level. In addition, the Mundys group had around EUR5.9 billion in committed undrawn facilities in total. Overall, Moody's estimate that the group's liquidity position and sources of cash flows will be sufficient to cover its expenditures, debt service obligations, and dividend payments until at least year-end 2026. As of June 2024, around 77% of the consolidated debt was fixed-rate, and the weighted average cost of debt was close to 4.5%. ADR's liquidity position is excellent, underpinned by EUR855 million of cash and cash equivalents as of June 2024. In addition, ADR has EUR350 million of undrawn committed credit facility, with maturity in October 2029. Moody's expect that ADR's liquidity position and cash flow generation will be sufficient to cover its expenditures, debt service obligations, and dividend payments until at least year-end 2026. As of June 2024, 100% of its debt was fixed-rate, and the weighted average cost of debt was close to 2.2%. STRUCTURAL CONSIDERATIONS The Ba2 rating of the senior unsecured notes issued by Mundys is one notch below the Ba1 CFR, reflecting the structural subordination of the creditors at the holding company. As of June 2024, around 90% of the group's debt was raised at the subsidiary level, of which the majority is concentrated at Abertis group. RATIONALE FOR STABLE OUTLOOK The stable outlook on Mundys reflects Moody's expectation that the group's operating performance will remain strong. Moody's also expect that Mundys will maintain its current business risk profile, with a focus on expanding its regulated business in the toll roads and airport segments. The stable outlook also reflects Moody's expectation that Mundys' consolidated FFO/debt ratio will remain around 9%-11% in the coming 2-3 years. The stable outlook on ADR reflects Moody's expectation that the company's financial metrics will remain strong and comfortably above the guidance for the Baa2 rating level, such that FFO/debt ratio will be around 20%-22% in the coming 2-3 years. The stable outlook also reflects the stable outlook on the ratings of (1) the Government of Italy; and (2) Mundys, given that ADR's rating is constrained by that of its parent. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressure on Mundys' ratings could develop with a reduction in indebtedness that resulted in a sustainable improvement in key credit metrics, with FFO/debt at around 12%, in conjunction with the maintenance of a good liquidity position. This guidance might be adjusted as Mundys' business risk profile and average concession life evolve, as well as with additional track record of implementation of the group's business strategy and financial policy. Upward rating pressure on ADR's rating is unlikely in the near future. Positive rating pressure could develop following an upgrade of Mundys' and Italy's ratings, coupled with the maintenance of ADR's current financial performance. Downward pressure on Mundys' ratings could materialise following a substantial deterioration in the group's financial leverage or its business risk profile, not balanced by additional cash flow generation. Negative pressure on ADR's rating could arise following a downgrade of the Government of Italy's rating. In addition, negative pressures on Mundys' credit profile would put downward pressure on ADR's rating. Downward pressure on ADR's rating could also develop if (1) the company's financial profile weakens, so that FFO/debt drops below 13%; or (2) the company's liquidity profile deteriorates. PRINCIPAL METHODOLOGY The principal methodology used in rating Mundys S.p.A. was Privately Managed Toll Roads published in December 2022. COMPANY PROFILE Mundys S.p.A. is the holding company for a large group active in the infrastructure sector. Its main subsidiaries include Abertis Infraestructuras S.A., Grupo Costanera S.p.A, Aeroporti di Roma S.p.A. and Azzurra Aeroporti S.p.A. (holding company for Aeroports de la Cote d'Azur). In the 12 months to June 2024, the group reported EUR9 billion of consolidated revenue and EUR5.3 billion of consolidated EBITDA. Aeroporti di Roma S.p.A. is the concessionaire for the two airports serving the city of Rome (Fiumicino and Ciampino), which recorded 44.4 million passengers in 2023. In the 12 months to June 2024, the company reported EUR1.2 billion of revenue and EUR548 million of EBITDA. =================== K A Z A K H S T A N =================== FORTEBANK JSC: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed ForteBank JSC's (Forte) Long-Term Issuer Default Ratings (IDRs) at 'BB' with a Stable Outlook. Key Rating Drivers Forte's IDRs are driven by the bank's intrinsic credit strength. This factors in solid capital and liquidity buffers and robust operating profitability, providing a strong safety margin against potential credit losses. Nonetheless, the ratings are constrained by the bank's fairly narrow franchise in the highly concentrated Kazakh banking sector, and above-average credit costs in the unsecured retail segment, which weigh on the bank's asset quality and drag down its assessment of the risk profile. Healthy Economic Growth, High Inflation: Kazakhstan's economy has proved resilient to external shocks, and Fitch expects GDP to accelerate from 3.8% in 2024 to 5% in 2025, helped by higher oil production, solid investment and private consumption growth. However, inflation remains high, although Fitch forecasts it will fall to 7.5% in 2025. Other structural weaknesses include high commodities dependence, risks from rapid retail lending in a high-rate environment and certain governance and financial transparency deficiencies in the corporate sector. Medium-Sized Franchise: Forte is the fifth-largest bank in Kazakhstan, with a moderate 7% of sector assets at end-1H24. The bank has a universal franchise. Forte has good access to the largest Kazakh corporates, including export-oriented companies, in addition to its focus on consumer finance and SME lending. Higher Credit Costs in Retail: Forte has a fairly conservative risk appetite in corporate and SME lending, compared with many local peers. This is underlined by low cost of risk and moderate growth (except for 2022) in these segments. By contrast, total loan impairment charges (equal to a high 3.6%-3.7% of average loans in 2022-2023) were driven by high-risk/high-return retail cash loans and residual legacy exposures. A lower cost of risk of 2.1% in 1H24 may not be sustainable, in its view. Improved Reserve Coverage: Forte's asset quality is supported by an only moderate share of loans in total assets (end-1H24: 43%), while non-loan assets are mostly of investment-grade quality. The impaired loans ratio has declined to a moderate 5.4% at end-1H24 (end-2022: 8.7%). The bank has significantly increased coverage of impaired exposures by total loan loss allowance to a good 93% at end-1H24 (end-2021: a low 34%). Stage 2 loans added a limited 2.2%. Robust Performance: Forte has shown strong performance over the past four years, with operating profit averaging 5.3% of risk-weighted assets (RWAs). Wide margins, due to Forte's high-margin consumer finance segment, and adequate operating efficiency have resulted in robust pre-impairment profit at 12% of average loans in 2023. This is comfortably above the cost of risk and translates into a strong loss absorption capacity and a high return on average equity (above 30% in 2023-1H24). High Capital Ratios: Forte's Fitch Core Capital (FCC) was backed by strong profitability and made up a high 20.5% of RWAs at end-1H24. Fitch forecasts the FCC ratio to remain stable on high profit generation, net of sizeable dividend payouts, and on moderate growth plans. Ample Liquidity: Customer accounts made up a high 74% of total liabilities at end-1H24. Forte's liquid assets were large, at about half of total assets at end-1H24. Net of wholesale debt repayments scheduled until end-2024, liquidity covered 57% of customer accounts, which provides an ample liquidity cushion. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Forte's ratings could be downgraded on a material weakening of asset quality or capitalisation. In particular, the ratings could be downgraded if higher loan impairment charges consume most of the profit for several consecutive quarterly reporting periods. In addition, downward rating pressure may result from a combination of weaker profitability, faster loan growth and large dividend distributions reducing the FCC ratio to below 15% on a sustained basis. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A stronger risk profile and continued asset-quality improvement, as suggested by a substantially lower cost of risk, could justify an upgrade. This should be combined with an extended record of business-model stability. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Forte's senior unsecured debt ratings are in line with the bank's Long-Term IDRs, reflecting average recovery prospects in a default. Forte's Government Support Rating (GSR) of 'b-' reflects its view of possible state support without senior unsecured creditors' participation in loss-sharing, given the bank's moderate systemic importance. The significant gap between the 'BBB' sovereign rating and the GSR is due to a patchy record of state support for banks in Kazakhstan, which in some cases of bank resolution involved the bail-in of state-owned senior unsecured debt, which is the reference obligation for the IDRs. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES The bank's senior debt ratings are likely to move in tandem with the IDR. Forte's GSR is sensitive to changes in its assessment of sovereign support for Kazakhstan's banking sector. Evidence of weaker support or significant delays in support provision, resulting in medium-sized private banks' insolvency or failure and imposition of losses on senior unsecured creditors, could result in a downgrade of the GSR. An extended record of timely and sufficient capital support to privately-owned banks, including Forte, may result in an upgrade of the GSR. VR ADJUSTMENTS The asset quality score of 'bb' is above the 'b & below' category implied score because of the following adjustment reason: non-loan exposures (positive). The earnings & profitability score of 'bb+' is below the 'bbb' category implied score because of the following adjustment reason: revenue diversification (negative). The capitalisation & leverage score of 'bb+' is below the 'bbb' category implied score because of the following adjustment reason: risk profile and business model (negative). ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- ForteBank JSC LT IDR BB Affirmed BB ST IDR B Affirmed B LC LT IDR BB Affirmed BB Natl LT A(kaz)Affirmed A(kaz) Viability bb Affirmed bb Government Support b- Affirmed b- senior unsecured LT BB Affirmed BB senior unsecured Natl LT A(kaz)Affirmed A(kaz) =========== N O R W A Y =========== ERLING LUX: 90% Markdown for Sixth Street's NOK7.4MM Loan --------------------------------------------------------- Sixth Street Specialty Lending, Inc has marked its NOK7,427,000 loan extended to Erling Lux Bidco SARL to market at NOK 706,000 or 10% of the outstanding amount, according to a disclosure contained in Sixth Street's Form 10-Q for the quarterly period ended June 30, 2024, filed with the Securities and Exchange Commission. Sixth Street is a participant in a First Lien Loan to Erling Lux Bidco SARL. The loan accrues interest at a rate of 11.48% (N + 6.75%) per annum. The loan matures in September 2028. Sixth Street is a Delaware corporation formed on July 21, 2010. The Company was formed primarily to lend to, and selectively invest in, middle-market companies in the United States. The Company has elected to be regulated as a business development company under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Company is managed by Sixth Street Specialty Lending Advisers, LLC. On June 1, 2011, the Company formed a wholly-owned subsidiary, TC Lending, LLC, a Delaware limited liability company. On March 22, 2012, the Company formed a wholly-owned subsidiary, Sixth Street SL SPV, LLC, a Delaware limited liability company. On May 19, 2014, the Company formed a wholly-owned subsidiary, Sixth Street SL Holding, LLC, a Delaware limited liability company. On December 9, 2020, the Company formed a wholly-owned subsidiary, Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company. Sixth Street is led by Joshua Easterly, Chief Executive Officer; and Ian Simmonds, Chief Financial Officer. The fund can be reach through: Joshua Easterly Sixth Street Specialty Lending, Inc 2100 McKinney Avenue, Suite 1500 Dallas, TX 75201 Tel: (469) 621-3001 Erling Lux Bidco SARL does business as EcoOnline, which offers a comprehensive and configurable suite of software solutions, with expertise in Chemical Safety, Sustainability Reporting, and all aspects of Environmental, Health, and Safety (EHS) including Learning and Training.  =========== R U S S I A =========== REGIONAL ELECTRICAL: Fitch Affirms BB- LongTerm IDR, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has affirmed Uzbekistan-based electricity distribution and sales company Regional Electrical Power Networks JSC's (Regional Networks) Long-Term Issuer Default Rating (IDR) at 'BB-' with Stable Outlook. The rating is equalised with that of its sole parent Uzbekistan (BB-/Stable), reflecting that almost all of Regional Networks' debt is provided by the state or secured by government guarantees. Fitch has revised Regional Networks' Standalone Credit Profile (SCP) to 'ccc' from 'b-', due mainly to continuing poor standalone liquidity, a short-term debt maturity profile and its expectations of very weak funds from operations (FFO) generation and FFO leverage materially breaching its previous negative sensitivity of 7x in 2024-2026. The expected breach is due to the regulator's adverse tariff decisions squeezing the company's margins. Positively, the SCP incorporates the company's dominant position in the domestic electricity distribution market. Key Rating Drivers Rating Equalised with Uzbekistan: Over 90% of Regional Networks' debt at end-2023 was guaranteed by the state, leading to the rating being equalised with the state's under Fitch's Government-Related Entities (GRE) Rating Criteria. Fitch treats funds from international financial institutions, which the Ministry of Finance on-lends to the company, as equivalent to government guarantees. State-guaranteed debt falling below 75% of total debt would lead to the company's rating being notched down two levels from the sovereign rating under its GRE Criteria. 'ccc' SCP: Regional Networks' revised SCP reflects its continuing poor liquidity and its expectations that FFO leverage will materially exceed its previous negative sensitivity of 7.0x over 2024-2026 (5x in 2023 and 3.8x in 2022) on the back of weaker EBITDA, working-capital outflows and capex. The SCP is constrained by an opaque regulatory framework for electricity distribution in Uzbekistan, high counterparty risk, low and erratic profitability, and large foreign-exchange (FX) mismatch between cash flows and debt. Poor Standalone Liquidity: In 2023 Regional Networks agreed with the state that it would not make timely repayments under certain loan agreements to the Ministry of Finance and Uzbekistan's Fund for Reconstruction and Development of around UZS0.5 trillion (6% of total debt at end-2023). This triggered a cross default, causing all loans from those state creditors totalling UZS7.2 trillion (around 80% of debt) to be classified as payable on demand at end-2023. In 2024, Regional Networks received formal letters from both state creditors confirming that they will not take any action regarding the missed debt payment, and refinanced most debt maturities to 2025. Fitch does not view this as a distressed debt exchange (DDE) as it only involves related parties of the company. However, the liquidity profile remains poor and subject to refinancing with state creditors. Adverse Regulatory Decisions: Fitch expects sale tariff hike of 35% in 2024 following the regulator's decision to increase electricity tariffs for some legal entities and households. However, Fitch forecasts it to be more than offset by a 44% effective tariff growth for the purchase of electricity by Regional Networks in 2024, squeezing the company's margin. As a result, Fitch forecasts EBITDA in 2024 to almost halve from 2023 to around UZS0.9 trillion. The government plans to further increase tariffs in 2025, affecting both revenue and cost for the company but their scale and timing remain unclear. Opaque Regulation: The poor regulatory framework weighs on Regional Networks' business profile. It is characterised by low transparency, short-term tariffs and political risk as electricity tariffs are one of the government's tools for social stability. Working-Capital Volatility: Changes in working capital ranged between inflows and outflows of UZS0.9 trillion over 2021-2023, contributing to significant volatility of cash flows (average EBITDA for 2021-2023 was UZS1.3 trillion). Working-capital volatility is due to varying payment discipline of customers and the company's management of accounts payable for electricity, which is often driven by the government's guidance. Ambitious Capex Programme: Regional Networks' business plan incorporates an ambitious investment programme of around UZS3.2 trillion (USD246 million) annually over 2024-2026 for digital transformation and network renovation and maintenance. It expects to fund investments with international loans channelled through the Ministry of Finance, state-guaranteed loans and own funds. Fitch expects the company to post negative free cash flow (FCF) to 2026, as was the case in 2019-2023. The company has some flexibility to postpone capex according to availability of funds. High FX Risk: Regional Networks is exposed to foreign-currency risk, with 78% of its debt at end-2023 (versus 83% at end-2022) denominated mostly in US dollars, while most of its cash flows are in Uzbek soum. The company does not hedge its FX risk and plans to continue funding capex from debt raised in foreign currencies from international institutions. The Uzbek soum has been stable relative to the US dollar, with an average depreciation of around 5% over 2020-2024. Updated GRE Assessment: Under its updated GRE Criteria, Fitch assesses both decision-making and oversight and precedents of support as 'Very Strong'. The state has strong influence on Regional Networks' strategy and operations by approving its investment plans and setting tariffs. It directly provides or guarantees nearly all of the company's debt on top of equity injections. Fitch assesses preservation of government policy role as 'Strong' as a Regional Networks default may temporarily endanger the continued provision of services due to its social function, significant infrastructure renovation programme and large workforce. Contagion risk is 'Not Strong Enough' as most of debt is directly from the state or state banks. Derivation Summary Regional Networks' rating is equalised with that of Uzbekistan. Similar to Thermal Power Plants Joint Stock Company (BB-/Stable, SCP: ccc) and UzbekHydroEnergo JSC (BB-/Stable; SCP: b+), Regional Networks benefits from almost all its debt being provided or guaranteed by the state, which justifies the rating equalisation with the state. On a standalone basis, Regional Networks has a larger asset base and greater geographical and customer diversification than Kazakhstan-based Mangistau Regional Electricity Network Company JSC (BB-/Stable, SCP: b+). However, this is more than offset by Mangistau's more established regulatory framework, which features a longer record, multi-year tariffs, and a stronger operating environment in Kazakhstan. Regional Networks has a weaker business profile than Kazakhstan Electricity Grid Operating Company (KEGOC, BBB/Stable, SCP: bbb-), a transmission operator in Kazakhstan, as the latter benefits from stronger regulation and a less depreciated asset base. Moreover, both Mangistau and KEGOC have materially stronger financial profiles than Regional Networks due to stronger liquidity, higher profitability, lower leverage, a limited share of FX-denominated debt, and more established financial policies. Key Assumptions - Domestic GDP growth of around 6% on average per year over 2024-2026 - Average US dollar/Uzbek soum exchange rate at 12,900 over 2024-2026 - Electricity sale volume growth of around 3% annually to 2026 - Tariff growth of 35% for legal entities in 2024 and then in line with inflation to 2026 - Tariff growth of 35% for households in both 2024 and 2025, and then 2% in 2026 - Weighted-average purchase tariff to increase 44% in 2024, followed by slightly lower than average sale tariff growth to 2026 - Capex on average UZS2.5 trillion (USD200 million) per year over 2024-2026, below management forecast - No dividends RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - A sovereign upgrade - A more transparent and predictable operating and regulatory framework (including implementation of multi-year tariffs) together with a stronger financial profile (FFO leverage below 7x on a sustained basis) and improved liquidity position could be positive for the SCP Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A sovereign downgrade - Guaranteed debt falling below 75% of total debt would lead to a downgrade, assuming unchanged SCP and government links The following rating sensitivities are for Uzbekistan (23 February 2024): Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - External Finances: A marked worsening of external finances, for example, via a large and sustained drop in remittances, or a widening in the trade deficit, leading to a significant decline in FX reserves - Public Finances: A marked rise in the government debt-to-GDP ratio or an erosion of sovereign fiscal buffers, for example, due to an extended period of low growth, loose fiscal stance or crystallisation of contingent liabilities Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Macro: Consistent implementation of structural reforms that promote macroeconomic stability, sustain strong GDP growth prospects and support better fiscal outturns - Public Finances: Confidence in a durable fiscal consolidation that enhances medium-term public debt sustainability - Structural: A marked and sustained improvement in governance standards Liquidity and Debt Structure Poor Liquidity: At end-2023, Regional Networks had cash and cash equivalents of UZS0.3 trillion against short-term debt of UZS8.3 trillion as all its debt from the state (the Ministry of Finance and Uzbekistan Fund for Reconstruction and Development) was classified as payable on demand or short-term due to covenant breach. By mid-2024, the company managed to roll over most of the short-term maturities, with UZS0.3 trillion now due in 2H24 and UZS2.2 trillion in 2025. Fitch expects the company to continue refinancing or rolling over loans with the state and state banks. External Financing Key: Fitch expects the company to continue generating negative FCF over 2024-2026 on average at UZS2 trillion per year due to weak cash flow generation and large capex. Capex will continue to be financed with external funding, primarily from international development banks with state guarantees or loans directly from the state. State Funding Dominates: At end-2023, 94% of the company's debt were loans provided or guaranteed by the state, while the rest was from state-owned UzpromstroyBank. Issuer Profile Regional Networks is a distribution service operator (DSO) and electricity sales company in Uzbekistan, which purchases electricity from the single buyer, state-owned Uzenergosotish JSC and then distributes or sells to end-customers. It employs around 25,000 people and distributes an estimated 60 TWh annually. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations Regional Electrical Power Networks JSC has an ESG Relevance Score of '4' for Financial Transparency due to delays in the publication of IFRS accounts compared with international best practice and the absence of interim IFRS reporting. The lack of transparency limits its ability to assess the company's financial condition, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Regional Electrical Power Networks JSC LT IDR BB- Affirmed BB- ========= S P A I N ========= BBVA CONSUMER 2024-1: Fitch Puts 'BB+(EXP)sf' Rating to Cl. Z Notes ------------------------------------------------------------------- Fitch Ratings has assigned BBVA Consumer Auto 2024-1 FT expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already received. Entity/Debt Rating ----------- ------ BBVA Consumer Auto 2024-1 Class A LT AA(EXP)sf Expected Rating Class B LT A+(EXP)sf Expected Rating Class C LT BBB+(EXP)sf Expected Rating Class D LT BBB(EXP)sf Expected Rating Class Z LT BB+(EXP)sf Expected Rating Transaction Summary This transaction is a static securitisation of a portfolio of fully amortising auto loans originated in Spain by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA, also the seller and the originator, BBB+/Stable/F2) to purchase new and used passenger cars. KEY RATING DRIVERS Asset Assumptions Reflect Mixed Portfolio: Fitch has assigned portfolio base-case lifetime default and recovery rate assumptions of 4.0% and 50.0%, respectively, considering the historical data provided by BBVA, Spain's economic outlook and the originator's underwriting and servicing strategies. At the class A notes' 'AAsf' rating case, Fitch has assumed 14.4% and 32.0% default and recovery rates respectively. Static Pool and Pro-Rata Amortisation: The transaction does not have a revolving period. The class A to D notes will be repaid pro-rata from the first payment date, unless a sequential amortisation event occurs. Key performance triggers are cumulative defaults on the portfolio exceeding a certain dynamic threshold or a principal deficiency greater than zero on two consecutive payment dates. A switch to sequential amortisation is unlikely during the first years after closing, based on its expectations of portfolio performance versus defined triggers. Fitch views the tail risk posed by the pro- rata paydown as mitigated by a mandatory switch to sequential amortisation when the portfolio balance falls below 10% of its initial balance. Counterparty Rating Cap: The maximum achievable rating for the transaction is 'AA+sf' following the application of Fitch's counterparty criteria. The minimum eligibility rating thresholds defined for the transaction account bank (TAB) of 'A-' and for the hedge provider of 'A-' or 'F1' are insufficient to support 'AAAsf' ratings. Payment Interruption Risk Mitigated: Fitch views payment interruption risk (PiR) on the notes in a servicing disruption as mitigated by the combination of liquidity protection (for the class A to B notes) and the minimum rating of 'BBB' contractually defined for the portfolio servicer, which is classified as an operational continuity bank. As liquidity protection is not available for the class C and D notes, their maximum achievable rating is 'A+sf', in line with Fitch's criteria. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Long-term asset performance deterioration such as increased delinquencies or reduced portfolio yield, which could be driven by changes in portfolio characteristics, macroeconomic conditions, business practices or the legislative landscape This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in upside and downside environments. The results below should only be viewed as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of future performance. Sensitivity to Increased Defaults: Current ratings (class A/B/C/D/Z): 'AAsf' / 'A+sf' / 'BBB+sf' / 'BBBsf / 'BB+sf' Increase defaults by 10%: 'AAsf' / 'A+sf' / 'BBB+sf' / 'BBBsf / 'BB+sf' Increase defaults by 25%: 'AA-sf' / 'Asf' / 'BBB+sf' / 'BBBsf / 'BB+sf' Increase defaults by 50%: 'A+sf' / 'BBB+sf' / 'BBB-sf' / 'BB+sf / 'BB+sf' Sensitivity to Reduced Recoveries: Reduce recoveries by 10%: 'AAsf' / 'A+sf' / 'BBB+sf' / 'NRsf / 'BB+sf' Reduce recoveries by 25%: 'AA-sf' / 'Asf' / 'BBB+sf' / 'NRsf / 'BB+sf' Reduce recoveries by 50%: 'A+sf' / 'BBB+sf' / 'BBB-sf' / 'NRsf / 'BB+sf' Sensitivity to Increased Defaults and Reduced Recoveries: Increase defaults by 10%, reduce recoveries by 10%: 'AA-sf' / 'Asf' / 'BBB+sf' / 'BBBsf / 'BB+sf' Increase defaults by 25%, reduce recoveries by 25%: 'Asf' / 'BBB+sf' / 'BBB-sf' / 'NRsf / 'BB+sf' Increase defaults by 50%, reduce recoveries by 50%: 'BBBsf' / 'BB+sf' / 'BB-sf' / 'NRsf / 'BB+sf' Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - For the senior notes, modified TAB and derivative provider minimum eligibility rating thresholds compatible with 'AAAsf' ratings as per Fitch's Structured Finance and Covered Bonds Counterparty Rating Criteria - Increasing credit enhancement ratios as the transaction deleverages to fully compensate for the credit losses and cash flow stresses commensurate with higher ratings Sensitivity to Reduced Defaults and Increased Recoveries: Reduce defaults by 10%, increase recoveries by 10%: 'AA+sf' / 'AAsf' / 'A+sf' / 'Asf / 'BB+sf' 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 reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. =========================== U N I T E D K I N G D O M =========================== SALUS NO. 33: S&P Lowers Class C Notes Rating to 'BB (sf)' ---------------------------------------------------------- S&P Global Ratings lowered its credit ratings on Salus (European Loan Conduit No. 33) DAC's class A notes to 'AA- (sf)' from 'AA (sf)', class B notes to 'BBB+ (sf)' from 'A- (sf)', class C notes to 'BB (sf)' from 'BBB- (sf)', and class D notes to 'BB- (sf)' from 'BB (sf)'. Rating rationale S&P said, "The rating actions follow our review of the transaction's credit and cash flow characteristics. Our S&P Global Ratings net cash flow (NCF) is now 6.6% lower than at our previous review in October 2023 due to higher vacancy and non-recoverable expenses assumptions for the property. As a result, our S&P Global Ratings value is now 5.6% lower than at our previous review." Transaction overview The transaction is backed by a senior loan originated in November 2018 by Morgan Stanley Bank N.A. (Morgan Stanley). The loan had an initial term of three years with two one-year extension options available, subject to the satisfaction of certain conditions. All loan extension options available under the senior loan agreement were exercised and the loan was scheduled to mature in January 2024. A 12-month extension to the senior loan maturity date to Jan. 20, 2025, was granted, alongside amendments to the senior loan, to allow the borrower to recapitalize the property by way of sale or refinancing on or before the extended maturity date. The senior loan securing this transaction totals GBP367.5 million, split into a GBP354.0 million term loan facility and a GBP13.5 million capital expenditures (capex) facility. There is also GBP91.9 million in mezzanine debt, which is fully subordinated to the senior loan. This remains unchanged since S&P's previous review. There are cash trap mechanisms set at a 75.0% loan-to-value (LTV) ratio (year one to year three) and 72.5% (year four and year five), or minimum debt yields set at 6.75% (year one to year three), 7.50% (year four), and 8.00% (year five). These were extended to apply for an additional year until January 2025. The loan complies with the LTV ratio cash trap threshold, but it breached the 8% debt yield threshold in October 2023, January 2024, and April 2024. The debt yield was compliant with the cash trap threshold as of the July 2024 interest payment date (IPD). Funds held in the cash trap account will not be released to the borrower until the occurrence of two consecutive IPDs on which no cash trap event was continuing. The loan also provides for default financial covenants following a change in control of the property owner or sponsor. As of the July 2024 IPD, the property's vacancy (by area) decreased to 18.4% from 20.1% on the January 2024 IPD after a 10-year lease was completed with Simpson Thacher & Bartlett LLP (STB) in March 2024. S&P said, "However, the vacancy rate has increased from 17.6% at our previous review. The vacancy is concentrated on the lower floors of the building. 107,551 square feet out of 124,195 square feet of space over three floors (5, 6, and 7), remains vacant and has been available for lease since its completion in April 2021. An additional 26,543 square feet (3.8% by area) expires in 2025 and is not expected to be renewed, but terms have been agreed with STB for a lease from June 2025 to March 2034. We also understand that a new lease is expected to be signed for floor 7 with area covering 42,121 square feet, which accounts for 6.0% of the lease area." S&P said, "As of the July 2024 IPD, total contractual rent was reported as GBP31.5 million, down from GBP32.1 million at our previous review. There were approximately GBP4.6 million worth of rent-free incentives that expire in increments over the next two years until August 2026. In addition, 4.9% of the total contractual rent is up for renewal by the end of 2025 and another 14.7% by the end of 2026. The weighted-average lease term until break is 5.8 years, which is shorter than the 7.3 years at our previous review." The tenant profile remains primarily legal and professional firms, with the two largest tenants being law firms contributing 48% of the total contractual rent. The top five tenants contribute 84% of the total rental income for the property. Retail tenants, including restaurants, coffee shops, bars, and a gym, represent 3.5% of the total rental income for the property. S&P said, "Since our previous review, our S&P Global Ratings value has decreased by 5.6% to GBP431.4 million from GBP457.0 million. We have assumed 20% vacancy based on the current and historical property vacancy as well as lease rollover, up from 15% in our previous review. The London City submarket vacancy is improving and is approximately 8%, while the vacancy for the property is 18.4% and has ranged between 17% and 20% during the past two years. In addition, our nonrecoverable expenses assumption has increased to 10.6% from 8.0%, to account for higher nonrecoverable expenses at the property in line with our higher vacancy assumption. As a result, our S&P Global Ratings NCF has decreased to GBP27.5 million from GBP29.4 million. "We then applied a 6.0% capitalization (cap) rate against this S&P Global Ratings NCF, unchanged from our previous review. We also deducted approximately GBP3.5 million for rent-free periods as of August 2024 and 5% of purchase costs to arrive at our S&P Global Ratings value. Our S&P Global Ratings value represents a 35.6% haircut to the March 2023 market value of GBP670 million. We believe this market value is now likely lower given the current higher yields for office properties." Table 1 Loan And Collateral Summary REVIEW REVIEW REVIEW AT AS OF AS OF AS OF ISSUANCE AUGUST 2024 OCT 2023 OCT 2022 DEC 2018 Data as of July 2024 July 2023 July 2022 Dec 2018 Senior loan balance (mil. GBP) 367.5 367.5 367.5 367.5 Senior loan-to-value ratio (%) 54.9 54.9 49.7 61.3 Contractual rental income per year (mil. GBP) 31.5 32.1 30.3 30.6 Passing rent per year (mil. GBP)* 26.9 24.1 21.2 25.3 Debt Yield (%) 8.00 8.01 7.58 n/a Vacancy rate (%) 18.4 17.6 20.2 3.7 Market value (mil. GBP) 670.0 670.0 740.0 600.0 Date of market value March 2023 March 2023 Sep 2021 Oct 2018 *The difference in annual contractual rent and passing rent is due to rent-free periods. Table 2 S&P Global Ratings' Key Assumptions REVIEW REVIEW REVIEW AT AS OF AS OF AS OF ISSUANCE AUGUST 2024 OCT 2023 OCT 2022 DEC 2018 S&P Global Ratings vacancy (%) 20.0 15.0 15.0 5.0 S&P Global Ratings expenses (%) 10.6 8.0 8.0 5.0 S&P Global Ratings net cash flow (mil. GBP) 27.5 29.4 27.8 30.8 S&P Global ratings value (mil. GBP) 431.4 457.0 438.9 504.3 S&P Global Ratings cap rate (%) 6.0 6.0 6.0 5.8 Haircut-to-market value (%) 35.6 31.8 40.7 16.0 S&P Global Ratings loan-to-value ratio (before recovery rate adjustments; %) 85.2 80.3 83.7 72.9 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 asset would be sufficient, at the applicable rating, to make timely payments of interest and ultimate repayment of principal by the legal maturity date of the floating-rate notes, after considering available credit enhancement and allowing for transaction expenses and external liquidity support." As of the July 2024 IPD, the available liquidity facility is GBP20 million. There have been no drawings. 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 ratings." Rating actions S&P's ratings in this transaction address the timely payment of interest, payable quarterly, and the payment of principal no later than the legal final maturity date in January 2029. The transaction's credit quality has been affected by hybrid working, which has shifted demand dynamics in the London office sector. S&P said, "The property's vacancy rate has remained above our previous vacancy assumption and above the London City office market vacancy, and we have factored this into our analysis when we calculated our revised S&P Global Ratings recovery value." The loan's maturity date has been extended until January 2025, and the five-year tail period has now decreased to four years. The collateral is a well-located, good-quality office property in Central London. However, refinancing the loan has proven challenging due to higher interest rates and declining office property values. S&P said, "The S&P Global Ratings LTV ratio is 85.2%, compared with 80.3% at our previous review. After considering transaction-level adjustments and the results of our cash flow analysis, we lowered our ratings to 'AA- (sf)' from 'AA (sf)' on the class A notes, to 'BBB+ (sf)' from 'A- (sf)' on the class B notes, to 'BB (sf)' from 'BBB- (sf)' on the class C notes, and to 'BB- (sf)' from 'BB (sf)' on the class D notes." ZELLIS HOLDINGS: S&P Withdraws 'B-' Long-Term Credit Rating ----------------------------------------------------------- S&P Global Ratings withdrew its 'B-' long-term credit ratings on U.K.-based Zellis Holdings Ltd. and its GBP365 million term loan B at the company's request. S&P understands that Zellis has fully repaid the debt following its acquisition by private-equity firm Apax Funds. At the time of the withdrawal, the outlook was stable. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. 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