/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240905.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, September 5, 2024, Vol. 25, No. 179 Headlines G E R M A N Y BIRKENSTOCK HOLDING: Fitch Assigns 'BB' LongTerm IDR, Outlook Pos. I R E L A N D ADAGIO XII: Fitch Assigns 'B-sf' Final Rating to Class F Notes CIFC EUROPEAN VI: Fitch Assigns 'B-(EXP)sf' Rating to Class F Notes CVC CORDATUS XXXII: Fitch Assigns 'B-sf' Rating to Class F-2 Notes SONA FIOS III: Fitch Assigns 'B-(EXP)sf' Rating to Class F2 Notes L U X E M B O U R G FRONERI LUX: S&P Assigns 'BB-' Rating to New Euro-Denominated TLB N E T H E R L A N D S KONINKLIJKE KPN: Egan-Jones Hikes Senior Unsecured Ratings to BB+ PETROBRAS GLOBAL: S&P Rates Proposed Senior Unsecured Notes 'BB' R U S S I A ARTEL ELECTRONICS: Fitch Affirms 'B' LT IDR, Outlook Now Stable S P A I N TDA CAM 8: S&P Raises Class C Notes Rating to 'B (sf)' U N I T E D K I N G D O M DELTA TOPCO: S&P Affirms 'BB+' Long-term ICR, Outlook Stable EUROSAIL 2006-4NP: S&P Affirms 'B- (sf)' Rating to Class E1c Notes - - - - - ============= G E R M A N Y ============= BIRKENSTOCK HOLDING: Fitch Assigns 'BB' LongTerm IDR, Outlook Pos. ------------------------------------------------------------------ Fitch Ratings has assigned Birkenstock Holding PLC (Birkenstock) a Long-Term Issuer Default Rating (IDR) of 'BB' with a Positive Outlook. It has revised Birkenstock Financing S.a.r.l.'s Outlook to Positive from Stable while affirming its Long-Term IDR at 'BB' and withdrawn the IDR. The rating actions follow the listing of Birkenstock, which controls the rest of the group and is now the main reporting entity. The Positive Outlook reflects credibility in the company's plans for a conservative target of net debt/ EBITDA of under 1.0x. Following achievement so far in 2024 of already comfortable leverage of around 1.5x for its IDR, Fitch believes the company's target may be reached shortly after FY25 (year-end September). This will be supported by continued revenue and profit growth from a unique range of products, a consistent commercial strategic implementation of product variants and price increases plus optimised sales channels. While several brands of copycat products at lower price points are emerging, Fitch believes the company will continue to grow revenue and profit and generate strong free cash flow (FCF) from 2025, once the current capex plan is completed. These strengths are balanced by the company's product portfolio remaining reliant on a limited number of models. However, this rating constraint is becoming less significant due to growing geographic diversification, a gradually extended product range and declining net debt. Fitch has withdrawn the IDR of Birkenstock Financing S.a.r.l. since consolidated accounts are now reported by the company's parent, the listed entity Birkenstock. Key Rating Drivers Reducing Leverage: Birkenstock has applied the majority of its EUR449 million IPO cash proceeds to partly prepay its US dollar-denominated term loan B (TLB). Together with other debt repayments in 2023 and in August and September 2024, Fitch calculates that its net debt will fall to EUR750 million by FYE24, from around EUR1,240 million at FYE23. Fitch projects gross leverage will fall to 2.2x at FYE24 (net: 1.6x) from 3.5x at FYE23 (net: 2.8x). This leverage is more conservative than the 'BB' mid-point for Fitch-rated consumer companies but Fitch believes it is adequate for the 'BB' IDR due to Birkenstock's high product concentration, moderate scale and niche market position. Target Leverage Achievable: Fitch views Birkenstock's record of deleveraging since the L Catterton transaction in 2021 as credit-positive. This was achieved with debt repayment, increased EBITDA, and is now supported by a public commitment to further reduce net debt/EBITDA (IFRS 16 as calculated by the company) to below 1.0x, which due to strong FCF generation Fitch views as achievable by FY26. This could support an upgrade of the IDR, which Fitch has reflected in the Positive Outlook. Strong Brand; Effective Distribution: Birkenstock has demonstrated continued rapid revenue growth since 2012, with the brand gaining wide appeal and a loyal customer base in many regional markets, particularly in the US and Europe. This is driven by the product's unique and increasingly appreciated qualities of comfort, innovation, and by an effective distribution model, with careful allocation of products across markets and channels, including its growing direct-to-consumer (D2C) online sales channel. Strong Growth Should Continue: Birkenstock doubled its revenues to EUR1.5 billion in FY23 compared with FY19 levels, driven by consistent volume growth, price increases and product mix benefits, and despite subdued consumer spending in Europe. While several brands of copy-cat products of Birkenstock's main Summer collection, priced at discounts of around 30%-50%, are now appearing in stores in Europe, Fitch believes the company should be able to maintain most of its sales growth momentum, with expansion in other geographies and new product ranges. Top-End Sector Profitability: Its strategy to increase focus on the online channel, pricing power and product range extension supported revenue growth and has helped lift its Fitch-calculated EBITDA margin to 30% at FY23 (FY19: 26.1%). This is commensurate with the top end of the investment-grade category for the consumer sector. While the company expects margin erosion of up to 3% for FY24 due to high input costs, Fitch views overall profitability as remaining healthy, with scope for recovery. Capex to Boost Output: New investments in capacity have increased manufacturing capability by up to 50% from 2024, allowing Birkenstock to meet growing demand and to strengthen its market presence, particularly in Asia, where its footprint is currently limited. Based on the demonstrated effectiveness of its product profile and positioning and its commercial strategy, Fitch expects strong sales and profit growth in mid-to-high single digits or higher to FY28. Single-Product Concentration, Moderate Scale: Birkenstock's narrow product diversification and moderate scale for the sector are rating constraints. Its recent success is due to fashion appeal in its product offering, with various designs and colours, increasing its vulnerability to consumer preference changes. Around 70% of sales in FY23 came from its five core models, concentrated on sandals and the premium end. These operating risk factors are balanced by Birkenstock's strong profitability, healthy FCF margin and rapidly declining leverage. Gradual Diversification Within Products: Birkenstock is diversifying its products with a variety of styles under each model to meet regional appetites and evolving consumer trends and preferences, plus with expansion into both lower- and higher-priced items as well as into closed-toe products (17% of sales in FY22). Fitch believes its growth across a wide geographical footprint, the trend towards more casual clothing and increasing consumer health consciousness, could be beneficial for Birkenstock's orthopedic offering, and help reduce risks related to a narrow product portfolio. Strong Cashflow Generation: Higher interest charges eroded funds from operations (FFO) in FY23, but cash flow from operations (CFO) before capex and dividends continued to grow. Fitch projects FFO at around EUR350 million-EUR500 million a year from FY24, due to reduced debt supporting lower interest charges, which will enable Birkenstock to comfortably cover outflows from working capital and capex. Once capex reduces in FY25 following its large investment over 2022-2024, Fitch expects Birkenstock to generate annual pre-dividend FCF of up to EUR250million-EUR320 million a year from FY25, representing a healthy 14%-16% of revenue. This leaves ample headroom for dividend distributions, which Fitch expects to commence in 2026. Derivation Summary Birkenstock's rating is two notches above that of its closest peer, Golden Goose S.p.A. (B+/Stable), which also has a concentrated portfolio of product offering and similar profitability. Unlike Golden Goose, Birkenstock is only developing a small own retail store network, and Fitch therefore does not adjust its leverage for leases. The two-notch rating difference reflects Birkenstock's 3x larger scale and product positioning being less subject to fashion risk as well as its mildly lower leverage. Fitch views Birkenstock's credit profile as weaker than that of Levi Strauss & Co. (BB+/Stable), which also has a high concentration on one brand. Despite prospectively higher leverage at Levi Strauss of close to 3.5x (corresponding to the 'BB' median in its Non-Food Retail Navigator) after lease adjustments, and greater penetration into the D2C channel by Birkenstock, Fitch views Levi Strauss's much greater scale and diversification by product as warranting a one-notch rating differential. Birkenstock has lower revenue and a more concentrated product portfolio than Spectrum Brands, Inc. (BB/Stable), a well-diversified manufacturer of home and garden, personal care and pet care products. However, Birkenstock has significantly higher profitability than Spectrum, with an EBITDA margin of around 8%-9%, leading to EBITDA that is twice as large as Spectrum's. Birkenstock's expected FY24 gross leverage at 2.2x is comparable to Spectrum's around 2x that Fitch projects for 2024-2025. Compared with consumer products company ACCO Brands Corporation (BB/Stable) - one of the world's largest designers, distributors and manufacturers of branded academic, consumer and business products but which is constrained by secular challenges in the office products industry and channel shifts within its customer mix - Birkenstock is notably smaller but has materially higher profitability. Despite ACCO's larger revenue scale and diversification, Birkenstock's current and prospective lower leverage and larger EBITDA scale support a similar rating. Frozen foods company Nomad Foods Limited (BB/Stable) has higher leverage and a significantly lower EBITDA margin (around 15%) than Birkenstock. However, it operates in an essentials category so is less exposed to changing consumer preferences, which Fitch believes justifies a similar rating. Fitch views Birkenstock's credit profile as stronger than that of Italian furniture producer Flos B&B Italia S.p.A. (B/Stable), which has constrained its deleveraging capacity with several acquisitions. Birkenstock also benefits from a moderately larger scale and more resilient consumer demand, which, combined with high profitability, support greater visibility over its deleveraging prospects. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - Organic growth of 19% in FY24, followed by CAGR of 9% during FY25-FY27, driven by price and volume growth in Europe and the Americas - EBITDA margin of 27.1% in FY24, gradually improving toward 29% over FY25-FY27 - Working capital at approximately 35% of sales to FY27 - Capex of about EUR115million in FY24, followed by a normalisation towards around 4% of sales over FY25-FY27 - Dividends at 50% of net income annually from FY26 - No M&As RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Clarity and record of a financial policy, including the application of cash flow to dividends, which is consistent with EBITDA gross leverage at below 2.0x and/or EBITDA net leverage at below 1.5x - Maintaining its successful commercial strategy and strong brand appeal that support sustained organic revenue and EBITDA growth - Maintenance of EBITDA margin equal to or above 30%, translating into FCF margins in the high single digits - EBITDA interest coverage of above 5.0x Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Unsuccessful implementation of commercial strategy or a weakening brand appeal leading to inability to grow EBITDA above EUR500 million - EBITDA margin falling below 28% and failure to maintain FCF margins above 5% - Absorption of resources in connection to growth, or financial policy changes causing gross EBITDA gross leverage to rise above 3.0x and/or EBITDA net leverage to above 2.5x Liquidity and Debt Structure Comfortable Liquidity: Fitch expects Birkenstock to maintain comfortable liquidity for FY24-FY27. This comprises Fitch-calculated EUR300 million cash on balance sheet as of end-2023, strong FCF generation through to FY27 and availability of a EUR225 million revolving credit facility (RCF) facility. Birkenstock's IPO has improved its liquidity. However, the proceeds, together with EUR100 million of cash from its own balance sheet, have been fully used to part prepay its 2028 TLB and vendor loan. No Immediate Maturities: Birkenstock has no debt maturities before February 2029 (EUR375 million and USD280 million tranches of new TLB) or April 2029 (EUR428 million notes). The mandatory 5% amortisation of its US dollar-denominated, senior secured TLB is the only scheduled debt repayment over the rating horizon. Issuer Profile Birkenstock is a German-based manufacturer of branded casual footwear. 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 ----------- ------ -------- ----- Birkenstock Holding plc LT IDR BB New Rating Birkenstock Financing S.a.r.l. LT IDR BB Affirmed BB LT IDR WD Withdrawn BB senior unsecured LT BB Affirmed RR4 BB ============= I R E L A N D ============= ADAGIO XII: Fitch Assigns 'B-sf' Final Rating to Class F Notes -------------------------------------------------------------- Fitch Ratings has assigned Adagio XII EUR CLO DAC final ratings as detailed below. Entity/Debt Rating ----------- ------ Adagio XII EUR CLO DAC A XS2856128025 LT AAAsf New Rating B XS2856128298 LT AAsf New Rating C XS2856128454 LT Asf New Rating D XS2856128538 LT BBB-sf New Rating E XS2856128702 LT BB-sf New Rating F XS2856128967 LT B-sf New Rating Subordinated Notes XS2856129346 LT NRsf New Rating X XS2856127993 LT AAAsf New Rating Transaction Summary Adagio XII EUR CLO DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds were used to fund a portfolio with a target par of EUR350 million. The portfolio is actively managed by AXA Investment Managers, US Inc. The collateralised loan obligation (CLO) has a 4.6-year reinvestment period and a seven-year weighted average life (WAL). KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/ 'B-'. The Fitch weighted average rating factor of the identified portfolio is 24.1. High Recovery Expectations (Positive): At least 90% of the portfolio comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 60.7%. Diversified Portfolio (Positive): The transaction has two matrices effective at closing corresponding to the 10 largest obligors at 26.5% of the portfolio balance and fixed-rate asset limits at 5% and 10% of the portfolio. The transaction also includes various concentration limits, including a maximum exposure to the three- largest Fitch-defined industries in the portfolio at 40%. These covenants are intended to ensure the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has a 4.6-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 1.5 years 18 months after closing, subject to passing all tests the collateral principal amount (defaults at Fitch-calculated collateral value) being at least at the reinvestment target par balance. Cash Flow Modelling (Positive): The WAL used for the transaction's matrix and Fitch-stressed portfolio analysis is 12 months less than the WAL covenant at the issue date. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing both the coverage tests and the Fitch 'CCC' bucket limitation test as well the WAL covenant that progressively steps down over time, both before and after the end of the reinvestment period. Fitch believes these conditions would 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 would have no impact on the class A, B and C notes and would lead to downgrades of no more than one notch for the class D, E and F notes. Based on the identified portfolio, downgrades 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, C, D, E and F notes have a cushion of two notches. The class A notes, which are rated at 'AAAsf', 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 and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to three notches. 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 three notches, except for the 'AAAsf' notes. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur, except for the 'AAAsf' notes, on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Fitch does not provide ESG Relevance Scores for Adagio XII EUR CLO 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. CIFC EUROPEAN VI: Fitch Assigns 'B-(EXP)sf' Rating to Class F Notes ------------------------------------------------------------------- Fitch Ratings has assigned CIFC European Funding VI DAC expecting ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. Entity/Debt Rating ----------- ------ CIFC European Funding VI DAC A XS2863281726 LT AAA(EXP)sf Expected Rating B XS2863282021 LT AA(EXP)sf Expected Rating C XS2863282534 LT A(EXP)sf Expected Rating D XS2863282880 LT BBB-(EXP)sf Expected Rating E XS2863283003 LT BB-(EXP)sf Expected Rating F XS2863283268 LT B-(EXP)sf Expected Rating Subordinated XS2863283425 LT NR(EXP)sf Expected Rating Transaction Summary CIFC European Funding VI 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 will be used to fund a portfolio with a target par of EUR400 million. The portfolio will be actively managed by CIFC Asset Management LLC. The CLO will have a 4.6-year reinvestment period and an 8.5-year weighted average life (WAL) test at closing. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch places the average credit quality of obligors at 'B'/'B-'. The Fitch weighted average rating factor of the identified portfolio is 24.5. High Recovery Expectations (Positive): At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 62.7%. Diversified Asset Portfolio (Positive): The transaction will have a concentration limit for the 10 largest obligors of 20%. The transaction will also include various concentration limits, including the maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction will have a 4.6-year reinvestment period, which is governed by reinvestment criteria that are similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL used for the Fitch-stressed portfolio analysis was reduced by 12 months. This is to account for the strict reinvestment conditions envisaged after the reinvestment period. These include passing the coverage tests and the Fitch 'CCC' maximum limit after reinvestment and a WAL covenant that progressively steps down over time after the end of the reinvestment period. In Fitch's opinion, these conditions would reduce the effective risk horizon of the portfolio during the stress period. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would not lead to downgrades of the notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B, D and E notes have a rating cushion of two notches, the class C notes of three notches and the class F notes of four notches. The class A notes have no rating 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 four notches for the notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR across all ratings and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to three 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, meaning the notes are able to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur on 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 CIFC European Funding CLO VI DAC 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 CIFC European Funding VI 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. CVC CORDATUS XXXII: Fitch Assigns 'B-sf' Rating to Class F-2 Notes ------------------------------------------------------------------ Fitch Ratings has assigned CVC Cordatus Loan Fund XXXII DAC final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- CVC Cordatus Loan Fund XXXII DAC A Loan LT AAAsf New Rating AAA(EXP)sf A XS2857241470 LT AAAsf New Rating AAA(EXP)sf B-1 XS2857241637 LT AAsf New Rating AA(EXP)sf B-2 XS2857241553 LT AAsf New Rating AA(EXP)sf C XS2857241710 LT Asf New Rating A(EXP)sf D XS2857241983 LT BBB-sf New Rating BBB-(EXP)sf E XS2857241124 LT BB-sf New Rating BB-(EXP)sf F-1 XS2857242015 LT B+sf New Rating B+(EXP)sf F-2 XS2858075067 LT B-sf New Rating B-(EXP)sf Subordinated Notes XS2857242361 LT NRsf New Rating NR(EXP)sf Transaction Summary CVC Cordatus Loan Fund XXXII DAC is a securitisation of mainly (at least 90%) senior secured obligations 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 EUR400 million. The portfolio is actively managed by CVC Credit Partners Investment Management Limited and the CLO has an approximately 4.5-year reinvestment period and a 7.5-year weighted average life (WAL) test. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'. The Fitch weighted average rating factor (WARF) of the identified portfolio is 24.4. High Recovery Expectations (Positive): At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 59.3%. Diversified Portfolio (Positive): The transaction includes two matrices covenanted by a top 10 obligor concentration limit at 20% and fixed-rate asset limit of 10%; one effective at closing and another 1.5 years after closing. It has various concentration limits, including the maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year on the step-up date, which is one year after closing. The WAL extension is at the option of the manager but subject to conditions including passing the collateral-quality, portfolio-profile and coverage tests and the aggregate collateral balance (defaulted obligations at their Fitch-calculated collateral value) being at least at the target par. Portfolio Management (Neutral): The transaction will have a reinvestment period of about 4.5 years and include reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL for the Fitch-stressed portfolio analysis is 12 months less than the WAL covenant. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period, which include passing the coverage tests, the Fitch WARF test and the Fitch 'CCC' bucket limitation test after reinvestment as well as a WAL covenant that progressively steps down, before and after the end of the reinvestment period. Fitch believes these conditions would reduce the effective risk horizon of the portfolio during the stress period. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would lead to downgrades of no more than two notches for the class B-1, B-2 and F-1 notes, one notch for the class C, D, and E notes, to below 'B-sf' for the class F-2 notes and have no impact on the class A 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-1 notes display a rating cushion of three notches, the class B-1, B-2, D, E and F-2 notes two notches, the class C notes one notch and the class A notes have no rating cushion. 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 four notches, except for the 'AAAsf' 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 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 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 CVC Cordatus Loan Fund XXXII 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. SONA FIOS III: Fitch Assigns 'B-(EXP)sf' Rating to Class F2 Notes ----------------------------------------------------------------- Fitch Ratings has assigned Sona Fios CLO III DAC expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. Entity/Debt Rating ----------- ------ SONA FIOS CLO III DAC Class A LT AAA(EXP)sf Expected Rating Class B LT AA(EXP)sf Expected Rating Class C LT A(EXP)sf Expected Rating Class D LT BBB-(EXP)sf Expected Rating Class E LT BB-(EXP)sf Expected Rating Class F1 LT B+(EXP)sf Expected Rating Class F2 LT B-(EXP)sf Expected Rating Class X LT AAA(EXP)sf Expected Rating Subordinated Notes LT NR(EXP)sf Expected Rating Transaction Summary SONA FIOS CLO III 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 will be used to purchase a portfolio with a target par of EUR450 million. The portfolio will be actively managed by Sona Asset Management (UK) LLP. The CLO has a 4.5-year reinvestment period and a 7.5-year weighted average life test (WAL). KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors to be in the 'B+'/'B' category. The Fitch weighted average rating factor of the identified portfolio is 22.8. High Recovery Expectations (Positive): At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 61.7%. Diversified Portfolio (Positive): The transaction has various concentration limits, including maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%, and a top 10 obligor concentration limit at 20%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has a 4.5-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. The transaction can extend the WAL test by one year on or after the step-up date one year from closing if the aggregate collateral balance (defaulted obligations at Fitch collateral) is at least at the reinvestment target par amount and if the transaction is passing all its tests. Cash Flow Modelling (Positive): The WAL used for the transaction stress portfolio is reduced by 12 months from the WAL covenant. This reduction to the risk horizon accounts for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing both the coverage tests and the Fitch 'CCC' test post reinvestment as well as a WAL covenant that progressively steps down over time. Fitch believes these conditions would reduce the effective risk horizon of the portfolio during the stress period. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would not have a negative rating impact on any of the notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B to F2 notes have a rating cushion of up to three notches. The class 'AAAsf' rated notes have no rating cushion as they are at the highest level on Fitch's scale. 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 and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to three notches. 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 remaining life of the transaction. After the end of the reinvestment period, upgrades may occur on 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 SONA FIOS CLO III DAC 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 Sona Fios CLO III 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. =================== L U X E M B O U R G =================== FRONERI LUX: S&P Assigns 'BB-' Rating to New Euro-Denominated TLB ----------------------------------------------------------------- S&P Global Ratings assigned its 'BB-' ratings to the proposed euro-denominated term loan B (TLB) issued by Froneri Lux Finco S.a.r.l. and guaranteed by Froneri International Ltd., and the U.S. dollar-denominated TLB issued by operating subsidiary Froneri US, Inc and guaranteed by Froneri International Ltd. The proceeds of the two TLBs will be used to fully refinance the existing loan facilities. Specifically, Froneri International Ltd.'s existing facilities include: -- $2.67 billion first lien TLB maturing in January 2027; -- EUR2.18 billion first lien TLB maturing in January 2027; and -- EUR600 million revolving credit facility (RCF) maturing in June 2026. The new facilities are: -- Proposed euro-denominated TLB and U.S. dollar-denominated TLB, with combined amount equivalent to EUR4.5 billion maturing in September 2031; and -- Up to EUR650 million RCF maturing in June 2031. S&P said, "The recovery ratings on the new TLBs are '3', the same as the recovery ratings on the existing facilities, indicating our expectation of average recovery prospects (50%-70%; rounded estimate 55%) in the event of default. "Our 'BB-' issuer credit rating on Froneri International Ltd. remains unchanged and continues to factor in one notch of uplift for potential extraordinary support from joint shareholder Nestlé (AA-/Stable/A-1+) should Froneri International Ltd. run into financial difficulties. We believe Froneri International Ltd.'s business needs remain well funded, and there is significant rating headroom for increased discretionary spending, such as through a dividend or acquisitions. ===================== N E T H E R L A N D S ===================== KONINKLIJKE KPN: Egan-Jones Hikes Senior Unsecured Ratings to BB+ ----------------------------------------------------------------- Egan-Jones Ratings Company, on August 28, 2024, upgraded the foreign currency and local currency senior unsecured ratings on debt issued by Koninklijke KPN N.V. to BB+ from BB. EJR also downgraded the rating on commercial paper issued by the Company to B from A3. Headquartered in Rotterdam, Netherlands, Koninklijke KPN N.V. is a telecommunications and IT provider in the Netherlands, serving both consumer and business customers with its fixed and mobile networks for telephony, broadband and television. PETROBRAS GLOBAL: S&P Rates Proposed Senior Unsecured Notes 'BB' ---------------------------------------------------------------- S&P Global Ratings assigned its 'BB' issue rating to Petrobras Global Finance B.V.'s proposed senior unsecured notes due 2035. Petrobras Global Finance (PGF) is a wholly owned finance subsidiary of Brazilian oil and gas company Petroleo Brasileiro S.A. (Petrobras; BB/Stable/--), and Petrobras will unconditionally and irrevocably guarantee the notes. The company will use the new notes' proceeds for general corporate purposes and liability management, including the purchase of tender offers. S&P said, "We rate PGF's senior unsecured debt at the same level as our issuer credit rating on Petrobras, based on the guarantee of this debt and because the latter has limited secured debt collateralized by real assets. Even if the senior unsecured debt ranked behind the subsidiaries' debt in the capital structure, we believe the risk of subordination would be mitigated by a priority debt ratio far below 50% and the significant earnings generated at the parent level." S&P said, "We continue to forecast solid cash flow for Petrobras. S&P Global Ratings' price deck assumption for Brent is $80 per barrel through the next few years, and we expect PGF's fuel prices will remain mostly in line with international prices. We also expect limited risks to the company's credit metrics, given Petrobras' commitment to keep gross financial debt below $65 billion, which should keep leverage below 2.0x even with higher capital expenditure." =========== R U S S I A =========== ARTEL ELECTRONICS: Fitch Affirms 'B' LT IDR, Outlook Now Stable --------------------------------------------------------------- Fitch Ratings has revised Artel Electronics LLC's (AE) Outlook to Stable from Positive while affirming its Long-Term Issuer Default Rating (IDR) at 'B'. The revision of the Outlook to Stable reflects AE's consistently negative free cash flow (FCF) margins. This restricts the company's financial flexibility and places pressure on its liquidity headroom and heightens it exposure to inherent market fluctuations, constraining its margin resilience through economic cycles. AE's IDR continues to reflect its small scale, limited geographical diversification, exposure to intrinsic emerging-market risks and high foreign-currency (FX) risk. This is partly mitigated by the group's leading position in its domestic market and growing share of export sales. Key Rating Drivers Continuing Minimal Liquidity Headroom: Fitch expects AE's liquidity to remain under pressure until 2027, despite positive macroeconomic trends. This is due to moderate cash balances and its forecast of continuing negative, albeit improving relative to historical performance, FCF margins. The negative FCF margins are predominantly driven by increasing capex and exacerbated by an aggressive shareholder-friendly dividend policy. Fitch expects on average a negative FCF margin of 0.5% until 2027, which is considered weak for the 'B' rating category. Improved Corporate Governance Practices: Reduced related-party transactions and a simplified group structure implemented by AE management are positive for its credit profile. Eight subsidiaries were merged into two newly established legal entities. This has reduced some of the group's complexity and contributed to more transparent financial reporting. Improved transparency is underscored by a reduction in related-party transactions, with outstanding debt at less than 1% of AE's total debt at end-2023. Efforts to Reduce Geographic Concentration: AE has increased its efforts towards geographic diversification but its small scale and limited export outreach remain a key rating limitation. Its predominant exposure to Uzbekistan, which contributed 74% of revenue in 2023, increases the group's vulnerability to market shocks, inflationary pressures and FX risk. The latter is underscored by almost all of AE's debt (99%) being denominated in US dollars. This is especially relevant in comparison with many of its direct peers, which share a global presence, and poses additional challenges for AE in trying to achieve stable, healthy profitability. Ongoing Healthy Profitability Trend: AE's stable and strong EBITDA margins support its outlook and profitability visibility through economic cycles. Fitch expects this to continue, demonstrating resilience against cost inflation and a challenging macroeconomic environment as domestic GDP growth slows from its recent peak in 2021. This should allow AE's profitability to grow by double digits each year up to 2027 to levels in line with the 'BBB' rating category, despite high substitution risk and the low-cost nature of the industry. AE maintains its competitive edge over local peers both on price and innovation. Leading Market Position: AE is the leading household appliances producer in Uzbekistan with a market share of over 50% in six of its nine revenue streams. Its strong market position, successful long-term co-operation with well-recognised brands such as Samsung and Shivaki, its established production and logistical network all act as barriers to entry, reinforcing its negotiating power and protecting it from being a price taker. Improved Leverage; Concentrated Capital Structure: Fitch forecasts a steady improvement in leverage metrics until 2027 to under 2x, which is consistent with the 'BBB' rating category. This is supported by solid EBITDA and broadly stable debt levels. However, the short-term nature and concentration of its debt, with 86% of it being sourced from a single bank, increase AE's refinancing risk. This is somewhat offset by AE's supportive, long-term relationship with its local banks which enable it to refinance its short-term debt regularly, a common feature for issuers operating in emerging markets. Derivation Summary AE's business profile is considerably smaller than that of its direct peers Arcelik A.S. (Local Currency (LC) IDR: BB+/Stable, Foreign Currency (FC) IDR: BB/Positive) and Vestel Elektronik Sanayi Ve Ticaret A.S. (LC IDR: BB-/Stable, FC IDR: B+/Positive). Also, AE's limited geographic diversification, with 74% of sales derived from Uzbekistan, in comparison with Arcelik's 45% locally, is another contributing factor to the multi-notch difference in their ratings. Fitch views material exposure to emerging markets as a rating limitation as it makes cash flow generation susceptible to macro-economic, political and FX risks. AE's position as a low-cost manufacturer in Uzbekistan and other CIS markets underpins its through-the-cycle EBITDA and EBIT margins of about 13.1% and 9.8%, respectively. These are similar to other Diversified Industrial companies such as Ahlstrom Holding 3 Oy (B+/Stable) and ams-OSRAM AG (B+/Stable), but weaker than that of Innio Group Holding GmbH (B/Positive) and Ammega Group B.V. (B-/Stable). However, this strength is offset by AE's weaker FCF margins, which Fitch expects to remain negative until 2027. This is a key rating constraint driving the one-notch rating and outlook difference with Ahlstrom and INNIO respectively. AE's conservative capital structure continues to result in improved EBITDA leverage, which Fitch expects to reach 2.2x by end-2025. This is comparable to that of higher-rated peers, such as Arcelik and Vestel, and considerably lower than that of Ammega, Ahlstrom and ams-OSRAM. Key Assumptions Key Assumptions Within Its Rating Case for the Issuer - Average revenue growth of about 10.3% per year during 2024-2027 - EBITDA margin of about 13.4% during 2024-2027 - Capex at 3.8%-5.9% of sales over 2024-2027 - Sustained dividends payments of about UZS412 billion in 2024 and over UZS366 billion from 2024 - Regular refinancing of short-term debt - No M&A until 2026 RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to a Positive Rating Action/an Upgrade - Sustainable and continuous track record of improved corporate governance including greater financial transparency - Improved geographical diversification, with a materially lower reliance on the domestic market - FCF margin above 3% on a sustained basis - EBITDA leverage below 2x on a sustained basis and improved liquidity Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA leverage above 3x on a sustained basis - FCF margin below 1% - EBITDA margin below 11% - Deterioration in liquidity resulting in an inability to refinance short-term debt Liquidity and Debt Structure Minimal Liquidity: At end-2023, AE's liquidity was solely supported by cash, adjusted by Fitch for intra-year working-capital changes at 1% of sales, with no available committed credit facilities. This remains insufficient to cover short-term debt obligations of accounting 55.6% of total debt maturing in 2024. The low cash balance reflects AE's business seasonality, with the strongest cash-generative months at year-end, high capex and working-capital swings. Liquidity is further strained by AE's increased investments supporting its organic growth strategy, high interest payments and continuing dividend payments. This is partly mitigated by AE's supportive, long-term relationship with local banks enabling it to refinance its short-term debt regularly. Fitch expects a negative FCF margin of 0.9% in 2024 followed by an average of -0.4% per year until 2027. Concentrated Capital Structure: AE's capital structure is concentrated with 86% of total debt raised from a single source. Issuer Profile AE is Uzbekistan's (BB-/Stable) leading producer of household appliances and electronics. 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 Prior ----------- ------ ----- Artel Electronics LLC LT IDR B Affirmed B ========= S P A I N ========= TDA CAM 8: S&P Raises Class C Notes Rating to 'B (sf)' ------------------------------------------------------ S&P Global Ratings raised its credit rating to 'BB- (sf)' from 'CCC+ (sf)' and to 'B (sf)' from 'CCC (sf)' on TDA CAM 8, Fondo de Titulizacion de Activos' class B and C notes, respectively. At the same time, affirmed S&P's 'AAA (sf)' rating on the class A notes and its 'D (sf)' rating on the class D notes. The rating actions follow its full analysis of the most recent information that we have received and the transactions' current structural features. S&P said, "After applying our global RMBS criteria, expected losses decreased due to a decline in our weighted-average foreclosure frequency (WAFF) and weighted-average loss severity (WALS) assumptions. Our WAFF assumptions decreased due to the lower effective loan-to-value (LTV) ratio. In addition, our WALS assumptions have decreased, due to a lower current LTV ratio." WAFF And WALS Levels RATING LEVEL WAFF (%) WALS (%) CC (%) AAA 13.80 2.00 0.28 AA 9.38 2.00 0.19 A 7.25 2.00 0.14 BBB 5.02 2.00 0.10 BB 2.80 2.00 0.06 B 2.26 2.00 0.05 WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity. CC--Credit coverage. Loan-level arrears currently stand at 1.2%, and they have started stabilizing after increasing in April 2020. Overall delinquencies remain well below our Spanish RMBS index. The transaction has a high number of loans that defaulted during the financial crisis, and a portion of these still need to be worked out. In S&P's model, the WAFF is calculated based on the performing pool, while it assumed 50% on the defaulted assets. The transaction is amortizing on a pro rata basis given the stable recent credit performance, with a fully funded reserve fund and low level of total arrears. The class A, B, and C notes' credit enhancement has increased to 20.7%, 9.0%, and 4.2%, respectively, from 19.1%, 7.3%, and 2.6% since S&P's previous review. The class D notes are not asset-backed as they were used at closing to fund the reserve fund. S&P's operational, sovereign, and legal risk analysis remains unchanged since its previous review, and those rating pillars do not constrain the ratings on the notes. There are no rating caps due to counterparty risk. Banco de Sabadell S.A. is the servicer in this transaction and JP Morgan Securities PLC is the swap counterparty. The hedge agreement mitigates basis risk arising from the different indexes between the securitized assets and the notes. In addition, JP Morgan Securities pays a margin of 65 basis points. The application of S&P's criteria and related credit and cash flow analysis indicates that the available credit enhancement for the class A notes is still commensurate with a 'AAA (sf)' rating. S&P has therefore affirmed its rating on the class A notes. The class B and C notes experienced interest shortfalls following their interest deferral trigger breaches. Consequently, interest payments on the class B and C notes became subordinated in the priority of payments and defaulted between the May 2013 and the August 2017 and November 2017 payment dates, respectively. Due to recoveries and the negative interest rate environment, interest amounts due on these classes of notes have since fully repaid. Since then, interest payments on these classes of notes have continued, and will continue to be subordinated in the priority of payments until the amortization of their respective senior notes, but will remain senior to the reserve fund, which has been fully topped up. Due to the negative three-month Euro Interbank Offered Rate (EURIBOR; the index to which the notes are referenced) in the past, no interest is due for the class B and C notes. Given the transaction's stable performance, with incoming recoveries that have repaid all due amounts on the class B and C notes in 2017, and a replenishment of the reserve fund, we do not expect these tranches to default again in the short term. Since S&P's previous review, the reserve fund remains at its floor value, providing liquidity for the class A to C notes. The current reserve fund covers five years of senior fees in the transaction, which is higher than other Spanish transactions given the high level of defaults experienced historically. The upgrades of the class B and C notes to 'BB- (sf)' and 'B (sf)', respectively, follow the implementation of S&P's criteria and assumptions for assessing pools of Spanish residential loans. S&P said, "Under our cash flow analysis, the class B and C notes could withstand stresses at higher ratings than those currently assigned. However, we have limited our upgrades based on the position of timely interest payments in the waterfall, which are subordinated to the principal payments of the class A to C notes until the class B and C notes become the most senior. Increased defaults may result in reserve fund draws exposing classes B and C to liquidity risks. "In addition, the class C notes are subordinated to the class B notes and our ratings reflect the effect that a slowdown in recoveries and subsequent potential reserve fund depletion could have on these classes of notes. "The issuer used the class D notes at closing to fund the reserve fund. All the previous unpaid interest has been repaid. However, in line with our principles of credit rating criteria, we believe the class D notes are highly likely to miss timely interest payments as they fully depend on excess spread and do not benefit from a reserve fund. We have therefore affirmed our 'D (sf)' rating on the class D notes." TDA CAM 8 is a Spanish RMBS transaction, which closed in June 2007. Caja de Ahorros del Mediterráneo (CAM), now merged with Banco de Sabadell, originated the pool, which comprises loans granted to borrowers secured over vacation homes and owner-occupied residential properties in CAM's home market of Valencia. =========================== U N I T E D K I N G D O M =========================== DELTA TOPCO: S&P Affirms 'BB+' Long-term ICR, Outlook Stable ------------------------------------------------------------ S&P Global Ratings affirmed its long-term issuer credit rating on Delta Topco Ltd. at 'BB+' and the issue ratings on its existing revolving credit facility (RCF), amended term loan A (TLA; including add-on) and amended term loan B (TLB; including on the $850 million new incremental TLB due in 2031) at 'BB+'. Liberty Media Corporation's (LMC) acquisition of Dorna Sports S.L. (Dorna Sports), which is still subject to regulatory approval, will raise S&P Global Ratings-adjusted leverage at Formula One close to 4.0x. However, strong cash flow and EBITDA generation will lead to rapid deleveraging toward 2.0x by 2026. S&P said, "The stable outlook reflects our expectation that the S&P Global Ratings-adjusted leverage of Formula One will raise to close to 4.0x in 2024, but rapidly decrease toward 2.0x by 2026. We expect Formula One to continue to deliver on its business growth strategy. Also, we anticipate that the company will maintain adequate liquidity. "We expect S&P Global Ratings-adjusted leverage at Formula One to increase to close to 4.0x in 2024 on the back of the additional debt raised for the acquisition of Dorna Sports by LMC, however, leverage should fall rapidly thereafter. In April 2024, LMC announced that it had entered into an agreement to acquire an 86% stake in Dorna Sports for a total enterprise value of EUR4.2 billion, implying an equity value of EUR3.5 billion. The acquisition is still subject to regulatory approvals, and it is expected to close by end-2024. The intention is to partially pay for the acquisition by using cash resources from Formula One, in addition to the cash raised by LMC through the recent equity raise closed on Aug. 26, 2024. We expect this to result in an increase in net debt at Formula One of around $1.9 billion to $3.3 billion, from the proposed $150 million add-on to the existing TLA and the new incremental $850 million TLB, in addition to use of cash reserves. Formula One will not benefit from any EBITDA contribution from Dorna Sports, which will continue to be a separate entity. We forecast that this will result in S&P Global Ratings-adjusted leverage close to 4.0x in 2024 but will rapidly deleverage toward 3.0x in 2025 and 2.0x in 2026--thanks to the company's strong cash flow generation and EBITDA growth we anticipate over the next 24 months. "Year to date 2024 results support our base case, we expect EBITDA to surpass $840 million in 2024 and $900 million in 2025, resulting in strong free cash flow. During the first half of 2024, Formula One generated $1.4 billion of revenue and close to $400 million of EBITDA. With 13 races left in the second half of 2024, including in Las Vegas, we expect revenues of about $3.5 billion by end-2024 and EBITDA to expand to about $840 million-$860 million. This will be supported by the strong performance of the Paddock Club and the renegotiations of sponsorships and broadcasting agreements. This will translate to adjusted free operating cash flow (FOCF) for 2024 (ending Dec. 31) of around $400 million despite the negative working capital movements and higher than historical capital expenditure (capex) related still to the Las Vegas venue. In 2025, we anticipate that FOCF will return to levels above $500 million allowing for strong cash reserves and deleveraging on net basis. "Despite the large cash distributions from Formula One to LMC, liquidity remains adequate. Cash balances at Formula One as of June 30, 2024, were $1.25 billion with a $500 million fully undrawn RCF, allowing for a comfortable liquidity position. We expect the company to distribute an amount from cash reserves close to $1.4 billion by end-2024 (in addition to the newly issued debt of $1 billion in the form of add-on to the TLA and the new incremental TLB) to LMC. Despite this decrease in the liquidity headroom, we forecast liquidity to remain adequate thanks to the rapid, strong, and predictable cash flow generation of Formula One." LMC will complete the spin-off of Sirius XM and thus, its credit profile will largely mirror a combination of Formula One and Dorna Sports. LMC announced in December 2023 that it would spin off Sirius XM (and all its attributable debt) and that it will complete the transaction by Sept 09, 2024 following the recent shareholder approval. With this, LMC will now have two tracker stocks, Formula One Group tracking stock (FWON; which includes 100% ownership of Formula One), and one called Liberty Live Group tracking stock (which includes a 30% stake in LiveNation). Also, LMC confirmed that Dorna Sports will be attributable to the Formula One tracking stock. Following the acquisition of 86% stake on Dorna Sports and the spin-off of Sirius XM, about 85% of LMC's revenue will be derived from Formula One and 15% from Dorna Sports, as the equity stake in LiveNation is not consolidated on LMC's financial accounts. S&P said, "We factor the estimated credit quality of LMC and FWON into our rating assessment of Formula One. Our estimate of credit quality at FWON includes the additional cash and debt at that level, while at the consolidated LMC group level it also includes the broader operations, assets and liabilities associated with the consolidated LMC group, that is, Liberty Live tracker group. While it is not our current base case, the credit quality of the parent company and our rating on Formula One could deviate in principle. This presents a group financial policy risk to our rating on Formula One by capping the rating at our estimate of the group's credit quality. We note LMC acted to support Formula One during the COVID-19 period via a cash injection into FWON, in exchange for an asset reattribution. Although the cash support at the tracker was ultimately not required by Formula One.' S&P said, "We do not expect further distributions to LMC that could deteriorate the financial profile of the group. Formula One does not have a publicly or board sanctioned stated financial policy or leverage target and we consider that a key limitation for the rating at this stage. However, we do not expect any major distribution to LMC from Formula One for additional mergers and acquisitions or other purposes, other than the acquisition of Dorna Sports. Therefore, we do not anticipate further increases in leverage beyond 4.0x at this stage as per our base case. We also acknowledge the consistent track record of deleveraging prior to this transaction and therefore, we understand that the management's intention is to deleverage its balance sheet toward adjusted leverage of 2.0x by 2026. "The stable outlook reflects our expectation that the S&P Global Ratings-adjusted leverage of Formula One will raise toward 4.0x in 2024 but rapidly decrease toward 2.0x by 2026. Funds from operations (FFO) to debt will recover from below 20% in 2024 to 30% in 2026 as the strong and predictable profitability and cash flow generation allow for rapid deleveraging. We expect Formula One to continue to deliver on its business growth strategy and renew key broadcasting rights, race promotion fees, and sponsorships contracts. We also anticipate that the company will maintain adequate liquidity thanks to strong cash flow and despite lower cash reserves following the Dorna Sports transaction. "We could lower the rating on Formula One if the company underperforms our base case, resulting in S&P Global Ratings-adjusted debt to EBITDA remaining structurally above 3.0x beyond 2025. In our view, this would most likely occur due to an opportunistic additional releveraging event; suggesting a more aggressive financial policy than we currently expect. Other instances could feasibly result from a large-scale macroeconomic event, or a very substantial deterioration in relationships with key stakeholders, such as racing teams or the Fédération Internationale de l'Automobile (FIA). Furthermore, we could lower the ratings if the credit quality of LMC or FWON declines materially. "We consider any further rating upside unlikely absent public articulation and affirmation of a financial policy, which we would consider commensurate with a consistently stronger financial profile and investment-grade rating." A firm financial policy commitment evidenced by a track record would also need to be accompanied by S&P Global Ratings-adjusted leverage anchored below 2.0x at Formula One in the long term. In addition, further upgrades could rely on the estimated credit quality of Formula One's S&P Global Ratings-defined parent, LMC, and the FWON tracking stock group, being supportive of the upside. EUROSAIL 2006-4NP: S&P Affirms 'B- (sf)' Rating to Class E1c Notes ------------------------------------------------------------------ S&P Global Ratings raised to 'AA- (sf) from 'A+ (sf)' its credit ratings on Eurosail 2006-4NP PLC's class M1a, M1c, and B1a notes. At the same time, S&P affirmed its 'A+ (sf)' ratings on the class C1a and C1c notes, its 'BBB+ (sf)' ratings on the class D1a and D1c notes, and its 'B- (sf)' rating on the class E1c notes. S&P said, "Since our previous review in March 2023, the transaction's performance has deteriorated. According to the June 2024 investor report, arrears have increased to 25.31% from 17.33%. This mostly reflects the reduced pool size, rather than the actual increase in arrears. Cumulative losses have remained stable at 3.16% since our previous review. "Our weighted-average foreclosure frequency assumptions have increased at all rating levels, reflecting higher arrears. This has been partially offset by lower weighted-average loss severity assumptions, stemming from a decrease in the current loan-to-value ratio following house price index growth. However, considering the transaction's historical loss severity levels, the latest available data suggests that the portfolio's underlying properties may have only partially benefited from rising house prices, and we have therefore applied a haircut to property valuations to reflect this." Weighted-average foreclosure frequency and weighted-average loss severity WAFF (%) WALS (%) CREDIT COVERAGE (%) AAA 42.29 22.30 9.43% AA 38.14 15.28% 5.83% A 35.82 6.32 2.26% BBB 33.41 3.13 1.05% BB 30.85 2.00 0.62% B 30.21 2.00 0.60 WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity. The reserve fund has been drawn at various times throughout the transaction's life and has a shortfall of GBP247,674. This is mainly due to higher third-party fees. It is not amortizing, following breached 90+ days arrears and cumulative loss triggers. Given the transaction's sequential amortization, credit enhancement has increased since our previous review, which offsets the deterioration resulting from rising arrears. Like other nonconforming transactions, both fixed- and floating-rate fees for this transaction have exceeded their historical averages. These high expenses reflect legal complexities arising from the LIBOR transition. Consequently, S&P expects fees to decline, and have incorporated various fee scenarios into its cash flow analysis. Previously, the ratings in the transaction were capped at the 'A+ (sf)' long-term issuer credit rating on Danske Bank A/S as transaction account provider and guaranteed investment contract (GIC) provider, following failure to replace its counterparty role when the rating trigger was breached. However, in May 2024 Danske Bank was replaced by HSBC Bank PLC in its role and the ratings cap no longer applies. S&P said, "The currency swap agreement between the issuer and Barclays Bank PLC is not in line with our counterparty criteria Accordingly, our ratings are capped at 'AA-', the resolution counterparty rating (RCR) on Barclays Bank. "Our cash flow analysis indicates that the class M1a to B1a notes pay timely interest and repay principal at rating levels above 'A+'. However, our counterparty criteria cap the notes' maximum achievable rating at 'AA-' (the RCR on Barclays Bank). We therefore raised to 'AA- (sf)' our 'A+ (sf)' our ratings on these classes of notes. "Our cash flow modeling shows that the class C1a to D1c notes pay timely interest and repay principal at rating levels above their current ratings. However, given the sensitivity to rising arrears (resulting in higher defaults and longer recoveries), the profile of the borrowers, high interest rates, and tail-end risk associated with the small pool size, we affirmed our 'A+ (sf)' ratings on the class C1a and C1c notes, and our 'BBB+ (sf)' ratings on the class D1a and D1c notes. "The class E1c notes do not achieve any rating in our standard or steady state scenario (actual fees, expected prepayment, no spread compression, and no commingling stress) cash flow runs. However, given low credit enhancement and marginal principal shortfalls in our steady state scenario, we consider our 'B- (sf)' rating to still be appropriate. We therefore affirmed our 'B- (sf)' rating on this class of notes. "We consider the transaction's resilience to additional stresses by accounting for some key variables, in particular defaults and loss severity, to determine our forward-looking view. We assessed the sensitivity of the ratings to increased defaults, extended recoveries, and higher interest rates, and the ratings remain robust. Given its high seasoning (217 months), the transaction has a low pool factor (10.8%), which tends to amplify arrears movements. Our analysis reflects the tail-end risk associated with the low pool factor." Macroeconomic forecasts and forward-looking analysis S&P said, "We expect U.K. interest rates to be higher for longer than previously expected. "We consider the borrowers in this transaction to be nonconforming and as such generally less resilient to higher interest rates than prime borrowers as all the borrowers are currently paying a floating rate of interest and so will be affected by higher rates. "In our view, the ability of the borrowers to repay their mortgage loans will be highly correlated to macroeconomic conditions and the complex profile of nonconforming borrowers. Our forecast on policy interest rates for the U.K. is 4.5% in 2024 and our forecasts for unemployment for 2024 and 2025 are 4.4% and 4.6%, respectively. "Given our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market, we have performed additional sensitivities related to higher levels of defaults due to increased arrears and house price declines. We have also performed additional sensitivities with extended recovery timings due to observed repossession delays from court backlogs in the U.K. and the repossession grace period announced by the U.K. government under the Mortgage Charter." Eurosail 2006-4NP is a U.K. nonconforming RMBS transaction, which closed in 2006 and securitizes a pool of nonconforming loans secured on first-ranking U.K. mortgages. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *