/raid1/www/Hosts/bankrupt/TCREUR_Public/240912.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 12, 2024, Vol. 25, No. 184
Headlines
B E L G I U M
AZELIS FINANCE: S&P Rates EUR600MM Senior Unsecured Notes 'BB+'
D E N M A R K
SUSTAINABLE PROJECTS: Posts $577,299 Net Loss in Fiscal Q2
F R A N C E
ACCOR SA: Fitch Puts 'BB' Final Rating to EUR500M Subordinated Bond
FNAC DARTY: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
G E R M A N Y
BAYER AG: S&P Puts 'BB+' LT Issue Rating to Jr. Subordinated Notes
I R E L A N D
CIFC EUROPEAN VI: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
FIDELITY GRAND 2024-1: Fitch Assigns 'B-sf' Final Rating to F Notes
PERRIGO CO: S&P Affirms 'BB-' Issuer Credit Rating, Outlook Stable
RRE 22: S&P Assigns Prelim BB- (sf) Rating to Class D Notes
SOUND POINT 11: Fitch Assigns 'B-sf' Final Rating to Class F Notes
L U X E M B O U R G
CONNECT FINCO: Moody's Rates New Senior Secured Notes 'B1'
CONNECT FINCO: S&P Rates Proposed $1.25BB Secured Notes 'B+'
N E T H E R L A N D S
IGT LOTTERY: S&P Rates New EUR500MM Senior Secured Notes 'BB+'
P O R T U G A L
EDP S.A.: Moody's Rates New Hybrid Instrument 'Ba1'
EDP S.A.: S&P Assigns 'BB+' Rating to Proposed Hybrid Instruments
S W E D E N
POLESTAR AUTOMOTIVE: Deloitte AB Raises Going Concern Doubt
ROAR BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
U K R A I N E
UKRAINE: Fitch Hikes LongTerm Local-Currency IDR to 'CCC+'
U N I T E D K I N G D O M
AJ GALAXY: FRP Advisory Named as Administrators
ANGUS PRINT: FRP Advisory Named as Administrators
ATLAS COMMODITIES: Parker Andrews Named as Administrators
CANARY WHARF: Fitch Cuts LT IDR to 'B', Still on Watch Negative
CHESHIRE 2021-1: S&P Affirms 'CCC (sf)' Rating on Cl. F-Dfrd Notes
JUPITER FUND: Fitch Cuts Subordinated Debt Rating to 'BB+'
MIND HALTON: Kirks Named as Administrators
PATAGONIA HOLDCO 3: S&P Lowers ICR to to 'CCC+', Outlook Stable
PECKHAM LEVEL: FRP Advisory Named as Administrators
PL TRANSPORT: SFP Named as Administrators
S.L. TRANSPORT: KBL Advisory Named as Joint Administrators
SAMPER INSTALLATION: Opus Restructuring Named as Administrators
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B E L G I U M
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AZELIS FINANCE: S&P Rates EUR600MM Senior Unsecured Notes 'BB+'
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S&P Global Ratings assigned its 'BB+' issue rating and '3' recovery
rating to the EUR600 million five-year senior unsecured notes to be
issued by Azelis Finance N.V., a subsidiary of specialty chemicals
distributor Azelis Group NV (BB+/Stable/--).
Azelis Finance plans to issue the proposed senior unsecured notes
alongside a new EUR600 million term loan. We understand Azelis
intends to use the proceeds to:
-- Redeem the group's existing EUR900 million and GBP128.8 million
term loans maturing in 2026;
-- Repay the group's 2025 outstanding Schuldschein maturities
(EUR29 million); and
-- Fund additional cash to the balance sheet (EUR113 million).
The like-for-like refinancing will therefore not affect leverage
metrics materially. S&P now expects S&P Global Ratings-adjusted
leverage to stand at 3.6x in 2024, versus the 3.5x we projected in
June 2024. The proposed issuance would extend the group's debt
maturity profile, with the bond and term loan maturing 2029, and
reduce interest expense.
The proposed notes and term loan would rank pari passu with all the
group's existing and future senior unsecured debt. The new senior
unsecured notes and term loan will be guaranteed only by Azelis
Finance and the parent, Azelis Group NV, but no longer by
subsidiaries. There will be a leverage limitation on the subsidiary
level within the bond and loan documentation of about 60% of
EBITDA.
S&P said, "Our 'BB+' issuer credit rating on Azelis Group NV and
'BB+' issue and '3' recovery ratings on Azelis Finance's EUR400
million bond, due February 2028, are unchanged. We continue to
expect meaningful recovery of 50%-70% (rounded estimate: 65%) in
the event of a payment default. The recovery rating captures our
view of the senior secured credit facilities' successful
refinancing with the new unsecured credit facilities.
"Although the market environment was challenging in first-half
2024, Azelis' revenues grew 0.2% year on year to EUR2.1 billion
(1.5% at constant currency) thanks to the additional revenue
contribution from acquisitions. This offset organic revenue
contraction from ongoing pricing pressures across several products.
We continue to anticipate a gradual recovery in the second half of
2024, supported by increased sales volumes and improving chemical
market conditions, will help Azelis return to modest organic growth
in 2024, while maintaining credit metrics within the thresholds of
our 'BB+' rating."
Azelis Group NV--Key Metrics*
MIL. EUR 2022A 2023A 2024E 2025E 2026E
Revenue 4,109 4,152 4,358 4,648 4,950
Revenue Growth % 45% 1% 5% 7% 7%
EBITDA 472 488 520 560 598
EBITDA Margin % 11% 12% 12% 12% 12%
Change in
Working Capital -16 125 -50 -25 -25
Capex 16 15 22 23 25
Cash interest
Expenses 43 107 112 108 111
FOCF 273 379 277 335 360
Debt** 1,809 2,254 1,893 1,900 1,899
Debt/EBITDA (x) 3.8 4.6 3.6 3.4 3.2
*All figures are adjusted by S&P Global Ratings.
a--Actual.
e--Estimate.
f--Forecast.
**Debt figures are gross in 2022 and 2023, and net from 2024
onward.
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D E N M A R K
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SUSTAINABLE PROJECTS: Posts $577,299 Net Loss in Fiscal Q2
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Sustainable Projects Group Inc. filed with the U.S. Securities and
Exchange Commission its Quarterly Report on Form 10-Q reporting a
net loss of $577,299 for the three months ended June 30, 2024,
compared to a net loss of $770,693 for the three months ended June
30, 2023.
For the six months ended June 30, 2024, the Company reported a net
loss of $1,449,907, compared to a net loss of $1,162,725 for the
same period in 2023.
The Company has accumulated a deficit of $4,809,664 since inception
and has yet to achieve profitable operations and further losses are
anticipated in the development of its business. The Company's
ability to continue as a going concern is in substantial doubt and
is dependent upon obtaining additional financing and/or achieving a
sustainable profitable level of operations.
As of June 30, 2024, the Company had $1,943,187 in total assets,
$3,118,576 in total liabilities, and $1,175,389 in total
stockholders' deficit.
A full-text copy of the Company's Form 10-Q is available at:
https://tinyurl.com/bdd4kfdx
About Sustainable Projects
Aalborg, Denmark-based Sustainable Projects Group Inc. is a
pure-play lithium company focused on supplying high-performance
lithium compounds to the fast-growing electric vehicle and broader
battery markets.
Going Concern
The Company cautioned in its Form 10-Q Report the quarter ended
March 31, 2024, that there is substantial doubt about its ability
to continue as a going concern. According to the Company, it has
limited revenue and has sustained operating losses, resulting in a
deficit. The Company said the realization of a major portion of its
assets is dependent on its continued operations, which in turn is
dependent upon its ability to meet financing requirements and the
successful completion of the Company's planned lithium production
facility.
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F R A N C E
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ACCOR SA: Fitch Puts 'BB' Final Rating to EUR500M Subordinated Bond
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Fitch Ratings has assigned Accor SA's (BBB-/Positive) EUR500
million undated deeply subordinated bond a final rating of 'BB',
following its placement and the receipt of final documents. The
securities qualify for 50% equity credit and rank equally with
existing hybrid instruments.
The 'BB' rating is two notches below Accor's Issuer Default Rating
(IDR) of 'BBB-', reflecting the bond's higher loss severity and
risk of non-performance relative to senior obligations. The bond
proceeds were used to finance the tender offer for Accor's existing
hybrids for a total amount of EUR352.3 million, out of EUR500
million.
The company intends to maintain around EUR1 billion of hybrid debt
in its capital structure and Fitch has reduced equity credit to
zero for its outstanding EUR147.7 million existing hybrid, which
will be repaid in future. The change in treatment is immaterial for
Accor's leverage and credit profile.
Key Rating Drivers
50% Equity Credit: The securities qualify for 50% equity credit as
they meet Fitch's criteria for subordination, including a remaining
effective maturity of more than five years, full discretion to
defer coupons and no events of default. Deferrals of coupon
payments are cumulative and there are no look-back provisions.
Effective Maturity Date of Hybrid: The deeply subordinated
perpetual notes have no legal maturity date. They have a first
step-up date six years after the issue date and are callable on any
day during the three-month period preceding and including the first
step-up date and on any interest payment date thereafter. Fitch
deems the second coupon step-up date, 26 years from the issue date,
as an effective maturity date. This is because the cumulative
coupon step-up would exceed 100bp, the threshold defined by its
criteria.
Change-of-Control Clause: The terms of the hybrids include call
rights in the event of a change of control. If this event triggers
a downgrade of Accor's IDR to non-investment grade, the company has
the option to redeem all of the securities. If Accor elects not to
redeem the hybrid securities, the then prevailing interest rate and
each subsequent interest rate on the securities will increase by
5%. Change-of-control clauses with call options that result in a
coupon step-up of up to 500bp, if the hybrid is not called, do not
negate equity credit, as per its criteria.
'BBB-' IDR: Accor's 'BBB-' IDR reflects its leading position in the
global hospitality market, strong geographic and price-segment
diversification and financial flexibility. The Positive Outlook on
the IDR reflects its expectation that Accor will maintain its
conservative financial structure over the medium term as it is
committed to targeting leverage below 3x. This target is consistent
with a 'BBB' rating based on its leverage sensitivities. Fitch also
anticipates that Accor will achieve its medium-term earnings
guidance, which would drive an increase in cash flow generation.
Derivation Summary
Accor is an asset-light hotel operator, which Fitch views as more
stable than an asset-heavy business model that is fully reliant on
hotel ownership or leasing. However, in contrast to other
asset-light peers, such as Wyndham Hotels & Resorts Inc.
(BB+/Stable) and Hilton Worldwide Holdings Inc, Accor is more
reliant on management fees than franchising fees and is therefore
more exposed to volatility in revenue per available room (RevPAR)
during economic cycles.
Accor compares well with Hyatt Hotels Corporation (BBB-/Stable) as
they have both recently transitioned to asset-light business models
with most of their revenue driven by management fees from hotel
owners. Accor has a larger room system size than Hyatt but only
slightly higher EBITDAR as Hyatt benefits from its focus on the
luxury and upscale segments that generate higher management and
franchising fees per room.
At the same time, Accor's greater diversification by price segments
and substantial presence in the economy segment make it more
resilient to economic cycles than Hyatt. Accor is also more
geographically diversified than Hyatt as it has a lower
concentration on a single region (Europe for Accor and North
America for Hyatt) and has a wider footprint in Asia-Pacific. Fitch
believes that Accor's stronger business profile results in greater
debt capacity than Hyatt. This is reflected in the Positive Outlook
on Accor's rating, despite similar leverage.
Accor is rated one notch below Whitbread PLC (BBB/Stable), an
asset-heavy hotel operator, but their ratings are likely to
converge given the Positive Outlook on Accor's rating. Whitbread's
room system size is significantly smaller than Accor's and its
hotel portfolio is concentrated in the UK market, with some growing
presence in Germany. Accor is also more diversified by price
segment as Whitbread is focused on the economy segment. However,
Whitbread's rating benefits from resilient performance during
cycles, its strong market position in UK, limited financial debt
and a large unencumbered portfolio of freehold properties.
Key Assumptions
Fitch's Key Assumptions Within its Rating Case for the Issuer
- RevPAR 3% CAGR over 2023-2027
- Net unit 3% CAGR over 2023-2027
- Management- and franchising-fee revenue 6% CAGR over 2023-2027
- Consistent EBITDA margin improvements, with 8% EBITDA CAGR over
2023-2027
- Capex of EUR275 million-EUR300 million a year over 2024-2027
- Dividends of EUR295 million in 2024 and at 50% of free cash flow
(FCF) calculated in accordance with Accor's approach for 2025-2027
- Equity credit of 50% for EUR1 billion hybrids
- Bolt-on M&A, including acquisition of subsidiaries and minority
stakes, of around EUR200 million a year over 2024-2027
- Share buybacks of EUR400 million a year
- No divestment of Accor's 30% stake in AccorInvest; no cash
support in addition to EUR67 million preferred stock investment in
2024
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Room system expansion, accompanied by system-wide RevPAR growth
and an improving EBITDA margin
- EBITDAR net leverage (adjusted for variable leases) below 3.5x on
a sustained basis, supported by a consistent financial policy
- EBITDAR fixed-charge coverage above 3x on a sustained basis
- Low to mid-single-digit FCF margin after dividends
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Weakening operating performance, as reflected in slower revenue
growth to low single digits and an EBITDA margin below 18% on a
sustained basis
- EBITDAR net leverage (adjusted for variable leases) above 4x on a
sustained basis due to operating underperformance or
higher-than-expected shareholder remuneration
- EBITDAR fixed-charge coverage below 2.5x on a sustained basis
- Neutral or volatile FCF margin after dividends
Liquidity and Debt Structure
Strong Liquidity: At end-June 2024, Accor's EUR857 million of
Fitch-adjusted readily available cash and undrawn revolving credit
facility of EUR1 billion - maturing in December 2028 but with two
one-year extension options exercisable in 2024 and 2025 - were
sufficient to cover short-term debt of EUR582 million.
Issuer Profile
Accor is one of the largest hotel operators globally with a
predominantly asset-light business model.
Date of Relevant Committee
27 March 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
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Accor SA
Subordinated LT BB New Rating BB(EXP)
FNAC DARTY: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed FNAC Darty SA's (FNAC) Long-Term Issue
Default Rating (IDR) and senior unsecured rating at 'BB+'. The
Outlook on the IDR is Stable.
The affirmation of FNAC Darty SA's ratings reflects the company's
leading market position in its core French market, with a
diversified product and format offering and a large,
well-recognised national store network, creating effective barriers
to competition. Fitch's expectation of moderate but positive free
cash flow (FCF) supports the rating and the prospects for
de-leveraging from 2025.
The group's maintenance of a prudent financial policy, flexibility
around management of operating leases and low execution risk of its
expansion strategy also support the rating. This is balanced by
geographical concentration, modest scale, a low profit margin
compared with many other omnichannel non-food retailers and weak
interest cover for the rating.
The Stable Outlook is supported by Fitch's view of gradual top-line
recovery in consumer electronics and household appliances demand
from 2025 in France, which Fitch expects will contribute to a mild
recovery of profit margin and a slightly improved leverage
headroom.
Key Rating Drivers
Resilient Business Model: Despite a tough market in 2023 and 1H24,
FNAC showed continued resilience by having a like-for-like revenue
decline of 1.1% against a 4.3% decline for the overall French
market in 2023, and a stabilising performance (+0.1% like-for-like)
in 1H24. Fitch sees scope for a recovery in sales of appliances and
electronics from 2025 as innovation in the electronics market spurs
purchases while lower interest rates should support house
renovations. However, its view is tempered by the uncertain
political environment and the possibility of higher taxes.
Adequate Profitability Despite Headwinds: FNAC is focused on less
commoditised premium retailing, which allows it to protect gross
margins from inflation with moderate price increases. Inflation has
put pressure on disposable income and on the company's operating
expenses (mostly wages and energy costs). Fitch-calculated EBITDAR
margin decreased to 6.8% in 2023 from 7.2% in 2022 and 7.7% in
2021, and remained stable in 1H24. This profitability is lower
compared to broader non-food retailers, but better than Ceconomy's,
FNAC's closest peer.
Fitch expects a stabilization of profitability from further
cost-savings from 2024, together with an increase of revenue from
higher-margin services along with effective use of points of sale
as pickup locations for online orders.
FCF Drives Deleveraging: Fitch expects a gradual recovery in
trading from 2025 to translate into stable FCF margins of about 1%
from 2024. Fitch projects that together with EBITDA recovery, this
will gradually bring lease-adjusted EBITDAR net leverage to below
3.5x by 2025 (2023: 3.7x) although 2024 leverage is likely to
remain at 2023's level as a result of weak trading and the small
disbursement for the Unieuro acquisition. Fitch then projects a
reduction to 3.5x in 2025 and towards 3.0x by 2027, in line with
net leverage for the 'BB' category, according to Fitch's Non-Food
Retail Navigator.
Geographic Concentration; Strong Position: FNAC has a presence
throughout Europe with operations in Iberia, Switzerland, Belgium
and France. However, it still has strong concentration in France,
which Fitch estimates contributes about 80% of revenue and EBITDA.
This is offset by FNAC's strong position as the leading retailer in
consumer electronics, household appliances, and editorial products
in the country, as well as its business-model leading to effective
barriers to entry from rivals. Should the acquisition and
integration of UniEuro be successful, this will reduce dependency
on sales in France to around 60%.
Its strong product offering is complemented by a well-established
online platform and a range of repair and care service bundles
available under a membership subscription at a monthly fee. FNAC
has been able to maintain its market share in its core markets,
despite the disruptive entry of Amazon.
Prudent, Capital-Light Acquisitions: FNAC has taken advantage of
the low point of cycle valuations of peers to enter the Portuguese
market with the acquisition of Ceconomy's operations in 2023 and is
now making an offer for 51% of Italian UniEuro. The maximum cash
outlay by FNAC for UniEuro is expected to be EUR56 million, since
the rest of the EUR250 million value of the offer will consist of
FNAC equity and of cash contributed by VESA, one of FNAC's
shareholders.
Contained Execution Risk on Expansion: FNAC is also continuing its
organic expansion but mostly through an asset-light strategy,
relying on the growth of its network of franchisees. These
represent over 43% of its network and provide a footprint in
smaller cities in its core market of France, thus reducing
implementation risk in its expansion, both domestically and
internationally.
Neutral Leverage Impact from UniEuro: Fitch calculates that, due to
the limited debt of UniEuro and a similar profile of lease
liabilities, the acquisition has no effect on FNAC's 2024-2026
leverage, whether treating UniEuro as consolidated or not
consolidating it. Given the joint ownership with VESA if the offer
is successful, the fact that the offerors will not guarantee
UniEuro's debt and dividend upstreaming may initially be limited,
Fitch is likely to decide to initially not consolidate UniEuro in
its calculations.
Sufficient Financial Flexibility: FNAC's liquidity profile is
appropriate for the rating. Fitch views FNAC's property portfolio
and lease structure as a competitive advantage versus peers. Fitch
recognises the financial flexibility operating leases provide to
the group, with contract provisions to shorten renewal terms from
the nine-year average under the original contract to four-to-five
years. However, contracts do not usually include exit clauses
linked to store-based profitability metrics. Fitch expects the
EBITDAR fixed-charge cover to remain at 2.0x-2.1x over the next
three years, which remains weak for the rating.
Derivation Summary
FNAC's rating reflects its leading market position, product
offering and adequate cash-flow generation prospects, constrained
by its low operating profitability and currently weak leverage and
coverage metrics. FNAC's exposure to the relatively volatile
product categories of consumer electronics and household appliances
markets is somewhat mitigated by editorial products and other
services.
Compared with Ceconomy AG (BB/Stable), and El Corte Ingles S.A.
(ECI, BBB-/Stable) FNAC has smaller scale. ECI has high geographic
concentration like FNAC and exposure to premium sectors, but it has
larger product diversification through its department store model,
complemented by its food retail formats, as well as larger exposure
to services including its travel agency business.
FNAC has superior profitability than Ceconomy, driven by its
stronger focus on premium sectors and a demonstrated ability to
pass through price increases protecting margins, which remain lower
than ECI due to lower volumes and product mix. However, FNAC's
profitability remains weaker than other non-food retail peers like
Pepco Group N.V. (BB/Stable), Kingfisher plc (BBB/Stable) and
Mobilux Group SCA (B+/Stable).
Additionally, similar to Ceconomy, Kingfisher and ECI, FNAC has a
conservative financial policy and a well-managed leased property
portfolio.
Key Assumptions
- Revenue rise of -0.9% in 2024, followed by normalisation at about
1.8%-2.1% a year between 2025 and 2027.
- EBITDA margin flat at around 4% in 2024 and moderately increasing
towards 4.3% by 2027.
- Annual lease expenses about EUR240 million-EUR250 million.
- Stable capex at about 1.7% of total sales.
- Working capital broadly neutral to slightly negative over
2024-2027.
- Dividends of about 30% of the prior year's net income over
2024-2027, in line with managements' guidance.
- M&A spending of EUR56 million in 2024 for a 51% stake in UniEuro,
which Fitch treats as not consolidated in its projections.
RATING SENSITIVITIES
- Greatly improving scale and geographical diversification without
materially hampering profitability, with EBITDAR margin
(Fitch-defined) sustained above 9% and FFO margin above 6.0%.
- EBITDAR net leverage below 2.5x on a sustained basis, supported
by a consistent conservative financial policy.
- EBITDAR fixed-charge cover above 3x.
- Decline in profitability and like-for-like sales, due to
increased competition or poor weakened business product mix, with
EBITDAR (Fitch-defined) and FFO margins remaining below 5% and 2%
respectively.
- EBITDAR fixed-charge cover below 1.6x.
- EBITDAR net leverage remaining above 3.5x on a sustained basis.
- Neutral to negative FCF generation eroding liquidity.
Liquidity and Debt Structure
Satisfactory Liquidity: The group's readily available unrestricted
cash balance was EUR808.8 million at end-December 2023, after Fitch
restricts EUR312.5 million of cash in connection to seasonal
working capital swings, which record a peak-to-trough difference of
about EUR500 million. Fitch calculates the EUR312.5 million value
as the difference between the year-end cash balance and the
weighted average net working capital during the year.
The group also has access to an undrawn, delayed drawn term loan of
EUR100 million with agreed maturity of March 2028 (with a potential
two-year extension). The company also has a EUR500 million
revolving credit facility maturing in March 2028 (extendible by two
years), which was fully undrawn at the end of June 2024.
Improved Maturities Post-Refinancing: The EUR550 million notes
issued in April 2024 have pushed short- and medium-term bond
maturities out to 2029, after the repayment of the EUR300 million
bonds due in May 2024 and the EUR350 million bonds due in 2026.
Issuer Profile
FNAC is the leading retailer in consumer electronics, domestic
appliances and editorial products such as music, books and videos
in France, and has strong market positions in Benelux, Iberia and
Switzerland.
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
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FNAC Darty SA LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed RR4 BB+
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G E R M A N Y
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BAYER AG: S&P Puts 'BB+' LT Issue Rating to Jr. Subordinated Notes
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S&P Global Ratings assigned its 'BB+' long-term issue rating to the
junior subordinated notes to be issued by Bayer AG
(BBB/Stable/A-2). The new notes have a maturity of 30 years.
Bayer plans to use the cash proceeds to refinance EUR412 million of
outstanding 2.375% hybrid notes issued in 2019, which have a first
call date on Feb. 12, 2025. S&P understands that the company plans
to launch a tender offer to redeem these outstanding notes, with
those not tendered to be redeemed afterward.
S&P said, "We understand that Bayer remains committed to
maintaining a hybrid capital stock of EUR4.550 billion over time to
absorb losses or conserve cash when needed. This accounts for about
10% of capitalization, below our 15% maximum criteria threshold.
If, after the transaction, the stock of hybrid increases above
EUR4.550 billion, any amount beyond this threshold will receive no
equity content. We will assess as having no equity content the
share of existing hybrid notes that will be tendered. However, we
will maintain our intermediate equity content on the tranches not
affected by this transaction: EUR750 million, 3.125%, due 2079;
EUR500 million, 4.50%, due 2082; EUR800 million, 5.375%, due 2082;
EUR750 million 6.75% due 2083; and EUR1 billion 7.125% due 2083.
"We consider the new notes to have intermediate equity content
until their first reset date, because they meet our criteria in
terms of subordination, permanence, and deferability during this
period. To reflect our view of intermediate equity content, we will
treat 50% of the principal amount as equity rather than debt and
50% of the related payments as equivalent to common dividends
rather than interest."
S&P arrives at its 'BB+' issue rating on the instruments by
notching down from its 'BBB' issuer credit rating on Bayer. The
two-notch difference reflects its notching methodology, which calls
for deducting:
-- One notch for subordination because S&P's long-term issuer
credit rating on Bayer is investment grade (higher than 'BB+'). S&P
does not deduct additional notches for a different degree of
subordination between the new subordinated notes and the existing
notes which are deeply subordinated; and
-- An additional notch for payment flexibility, to reflect that
the deferral of interest is optional.
The notching to rate the securities reflects our view that there is
a relatively low likelihood that the issuer will defer interest.
Should S&P's view change, it may increase the number of downward
notches that we apply to the issue rating.
Key factors in S&P's assessment of the instruments' permanence
Bayer can redeem the instruments for cash at any time in the 90
days before the first interest reset dates (December 2029), on the
first interest reset dates, and at every coupon payment date
thereafter. S&P understands that Bayer intends to replace the
instruments in case of such a redemption, although it is not
obliged to. In its view, this statement of intent and the group's
track record mitigates the likelihood that it will repurchase the
instruments without replacement.
This intention is also expressed in respect of the issuer's ability
to repurchase the instruments on the open market. Although the
instrument is long dated (30 years' maturity), Bayer can call it at
any time: for loss of tax deductibility; a requirement to gross-up
for withholding tax; loss of rating agency equity assessment; or
when less than 25% of the principal amount is outstanding.
The interest to be paid on the instruments will increase by 25
basis points (bps) not earlier than the 10th anniversary of the
issuance date and by a further 75 bps 20 years after the first
reset date. S&P considers the cumulative 100-bps interest increase
to be a material step-up, providing Bayer with an incentive to
redeem the instruments at the latest in 25.25 years.
Consequently, S&P will no longer recognize the instrument as having
intermediate equity content after its first reset date: December
2029. This is because the remaining period until economic maturity
would, by then, be less than 20 years.
Key factors in S&P's assessment of the instruments' subordination
The notes and coupons are direct, unsecured, and subordinated
obligations of Bayer. They rank senior to all other outstanding
hybrid notes and to common shares, pari passu among themselves, and
junior to all other debt instruments.
Key factors in S&P's assessment of the instruments' deferability
In S&P's view, Bayer's option to defer payment on the notes is
discretionary. This means that the issuer may elect not to pay
accrued interest on an interest payment date because it has no
obligation to do so.
However, Bayer will have to settle in cash any outstanding deferred
interest payment if the company declares or pays an equity dividend
or interest on equally or junior ranking securities, and if it
redeems or repurchases shares or equally or junior ranking
securities. In addition, documentation provides that, in case of
deferral, all arrears of interest on the proposed hybrid instrument
must be settled five years after the initial decision to defer.
This meets the minimum requirements for intermediate equity content
under our hybrid criteria.
S&P sees this as a negative factor, but it remains acceptable under
our methodology because once Bayer has settled the deferred amount,
it can still choose to defer on the next interest payment date.
=============
I R E L A N D
=============
CIFC EUROPEAN VI: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
------------------------------------------------------------------
Fitch Ratings has assigned CIFC European Funding VI DAC final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
CIFC European
Funding VI DAC
A XS2863281726 LT AAAsf New Rating AAA(EXP)sf
B XS2863282021 LT AAsf New Rating AA(EXP)sf
C XS2863282534 LT Asf New Rating A(EXP)sf
D XS2863282880 LT BBB-sf New Rating BBB-(EXP)sf
E XS2863283003 LT BB-sf New Rating BB-(EXP)sf
F XS2863283268 LT B-sf New Rating B-(EXP)sf
Subordinated XS2863283425 LT NRsf New Rating NR(EXP)sf
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 were used to fund a portfolio with a target par of EUR400
million. The portfolio is actively managed by CIFC Asset Management
LLC. The CLO has 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 24.7.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 61.4%.
Diversified Asset Portfolio (Positive): The closing matrices and
forward matrices are based on a 10 largest obligors limit of 20% of
the portfolio balance and fixed-rate asset limit of 5% and 12.5%.
The manager can elect the forward matrices at any time one year
after closing if the aggregate collateral balance is at least above
the target par.
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 ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has 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 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 lead to downgrades of one notch on
the class D notes, to below 'B-sf' for the class F notes and would
have no impact on the rest.
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, all notes have a rating cushion of
two notches, except for the class A notes, which 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.
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
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 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 any ESG factor
that is a key rating driver in the key rating drivers section of
the relevant rating action commentary.
FIDELITY GRAND 2024-1: Fitch Assigns 'B-sf' Final Rating to F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Fidelity Grand Harbour CLO 2024-1 DAC
notes final ratings, as detailed below.
Entity/Debt Rating
----------- ------
Fidelity Grand Harbour
CLO 2024-1 DAC
A-Loan LT AAAsf New Rating
A-Note XS2854942492 LT AAAsf New Rating
B-1 XS2854942906 LT AAsf New Rating
B-2 XS2854942732 LT AAsf New Rating
C XS2854943110 LT Asf New Rating
D XS2854943540 LT BBB-sf New Rating
E XS2854943383 LT BB-sf New Rating
F XS2854943896 LT B-sf New Rating
Subordinated Notes XS2854943979 LT NRsf New Rating
Transaction Summary
Fidelity Grand Harbour CLO 2024-1 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 EUR400 million. The portfolio is actively managed by
FIL Investments International (FIL). The collateralised loan
obligation (CLO) has a 4.6-year reinvestment period and a 7.5-year
weighted average life test (WAL) at closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors at 'B'. The Fitch-weighted
average rating factor (WARF) of the identified portfolio is 24.5.
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 (WARR) of the identified portfolio is 62.0%.
Diversified Asset Portfolio (Positive): The transaction includes
various concentration limits in the portfolio, including the top 10
obligor concentration limit at 22.5% and a maximum exposure to the
three-largest Fitch-defined industries at 40%. These covenants
ensure 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 subject to conditions including satisfaction
of all the collateral-quality, portfolio-profile, and the coverage
tests, plus the aggregate collateral balance (defaults at
collateral value) being at least equal to the reinvestment target
par.
Portfolio Management (Neutral): The transaction has two matrices
effective at closing and two forward matrices with fixed-rate
limits of 5% and 15%, and corresponding to a 7.5-year and
seven-year WAL test, respectively. The switch to the forward
matrices is possible after one year from closing (or 18 months from
closing if the transaction has stepped up) but is subject to the
aggregate collateral balance (defaults at Fitch-calculated
collateral value) being at least at the reinvestment target par
balance.
The transaction includes reinvestment criteria similar to those of
other European transactions. Fitch's analysis is based on a
stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL Fitch modelled 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. These include passing both the coverage tests
and the Fitch 'CCC' maximum limit, as well as a 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 lead to a downgrade of two notches
on the class B-1, B-2 and C notes, one notch on the class D and E
notes, to below 'B-sf' for the class F notes, and have no impact on
the class A note and class A loan.
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 C and D notes have a
one-notch cushion, the class E and F notes have a two-notch cushion
and the class A & B notes and class A loan 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 five notches, except for
the 'AAAsf' notes.
During the reinvestment period, upgrades, 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
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
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 Fidelity Grand
Harbour CLO 2024-1 DAC. In cases where Fitch does not provide ESG
relevance scores in connection with the credit rating of a
transaction, programme, instrument or issuer, Fitch will disclose
in the key rating drivers any ESG factor which has a significant
impact on the rating on an individual basis.
PERRIGO CO: S&P Affirms 'BB-' Issuer Credit Rating, Outlook Stable
------------------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' issuer credit rating on
Dublin-based Perrigo Co. PLC and assigned its 'B+' issue-level
rating to the proposed senior unsecured notes. S&P also affirmed
its 'B+' rating on the existing senior unsecured notes and 'BB'
rating on the senior secured credit facility.
The recovery ratings are '2' (70%-90%; rounded estimate revised to
85% from 75%) on the senior secured notes and '5' (10%-30%; rounded
estimate: 25%) on the senior unsecured debt.
S&P said, "The stable outlook reflects our expectation for material
profit and credit measure improvement in the second half of 2024
and 2025, including S&P Global Ratings-adjusted leverage declining
to 5.5x-6x at year-end 2024 and 4.5x at year-end 2025, compared to
6.8x as of June 29, 2024.
"Excluding unusual items, Perrigo hit our S&P Global
Ratings-adjusted EBITDA expectation for the first half while sales
fell short. Net sales missed our first-half forecast by about 5%
and S&P Global Ratings-adjusted EBITDA (for which we do not add
back unusual expenses and restructuring) by about 30%. In addition,
S&P Global Ratings-adjusted EBITDA was down 50% compared to the
first half of 2023. This weakened trailing-12-months S&P Global
Ratings-adjusted leverage to 6.8x as of June 29, 2024 from 4.8x as
of Dec. 31, 2023. However, excluding unusual litigation and higher
than expected restructuring expenses, underlying business EBITDA
performance met our expectations."
Perrigo reported lower than expected revenues because of reduced
cold, cough, and flu/allergy (CC&F, 18% of 2023 sales) incidents,
retailer CC&F inventory destocking, and the exit of certain
low-margin business with a large retailer. The underlying business
nevertheless offset most of these sales headwinds by expanding its
branded portfolio (including Opill and ellaOne in women's health
and Compeed and Jungle Formula in skin care) and realizing
productivity improvements from the HRA integration, its Supply
Chain Renovation Program (SCRP), and Project Energize, demonstrated
by 100 basis points of gross margin improvement in the second
quarter compared to last year.
S&P Global Ratings expects material earnings uplift. S&P said, "We
anticipate a rebound in S&P Global Ratings-adjusted EBITDA
beginning in the second half of 2024 and into 2025. Average weekly
production of infant formula, which in 2023 accounted for about 12%
of Perrigo total net sales and carries a higher margin under normal
conditions than the company average, was nonetheless half the 2023
weekly average during the first four months of 2024. Production
improved to 90% during May-June 2024, and the latest data from July
indicates production returning fully to prior-year levels. While
the company needs to build finished goods safety stock, we believe
demand for Perrigo's infant formula products will be robust since
industry supply remains constrained while rivals also operate under
stringent product safety protocols."
Moreover, while Perrigo continues to spend heavily on its various
restructuring/remediation initiatives ($92 million in charges in
the first half of 2024, compared to only $9 million in the first
half of 2023), the company realized $76 million gross savings from
SCRP/Energize and anticipates $25 million in incremental HRA
distribution integration benefits in 2024. As such, S&P anticipates
a 10% second-half improvement in S&P Global Ratings-adjusted EBITDA
compared to the first half of 2023 and a 25% rebound in 2025, on
par with 2023.
S&P said, "We believe management is attempting to reposition the
company by driving margins higher through improving the cost
structure and expanding portfolio price points. The Energize
restructuring plan is focused on brand building (including
Perrigo's blended-branded approach, which will seek to expand
portfolio price points by selectively introducing mid-priced
branded offerings) and reductions in selling, general, and
administrative expenses. This includes consolidation of certain
European functions, including potentially the expansion of Perrigo
Business Services, and optimization of U.S. operations. The SCRP
continues to focus on cost of goods sold and distribution
operations, including optimizing both sourcing and manufacturing
and improving planning. The company has completed the Americas
stock-keeping unit prioritization actions under SCRP."
There are likely substantial expenses to be reduced in Europe,
which primarily sells branded products. However, the region
generates modest margins relative to other large, branded self-care
companies. This is largely due to operating in more fragmented
European markets (particularly the Omega business, which has
relatively low market shares), which also tend to have effective
private-label competition. However, it can be difficult to reduce
operations in Europe, particularly given strong labor unions.
S&P said, "We also believe Perrigo will need to closely manage its
retailer relationship in the U.S., where it will selectively
introduce moderately priced branded products without cannibalizing
store brands.
"The stable outlook reflects our expectation for material profit
and credit measure improvement in the second half of 2024 and 2025,
including S&P adjusted leverage improving to around 5.5x-6X at year
end 2024 and 4.5x at year end 2025, compared to 6.8x as of June 29,
2024.
"We could lower our rating over the next 6-12 months if we believe
profitability will not rebound in 2025, resulting in forecasted S&P
Global Ratings-adjusted leverage sustained well above 5x or cushion
declining further under the already tight interest coverage
covenant. If Perrigo does not restore profitability, we could also
lower our business risk assessment."
Potential downgrade triggers include:
-- An inability to successfully implement its supply chain
reinvention, infant formula remediation, and energize restructuring
program, which could prove more costly than expected or cause
unanticipated disruptions;
-- Escalating competition from branded rivals, including recently
formed pure-play consumer health companies, or if the infant
formula business cannot recover customers and restore
profitability;
-- Demands from retailers to significantly reduce pricing on
Perrigo's store brand products.
Unfavorable resolutions to industrywide litigation, Perrigo
securities litigation, or any remaining uncertain tax positions.
S&P could raise the ratings if we believe Perrigo will:
-- Implement its multiple restructuring programs and ramp up the
infant formula business without significant disruption;
-- Increase the top line, potentially by gaining traction on its
blended-branded portfolio approach; and
-- Sustain S&P Global Ratings-adjusted leverage comfortably below
5x.
S&P would also need to believe Perrigo's aggressive financial
policies, as demonstrated by its high leverage at the time of the
HRA acquisition and subsequent use of operating cash flow for
restructuring as opposed to greater debt reduction, will moderate.
RRE 22: S&P Assigns Prelim BB- (sf) Rating to Class D Notes
-----------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to RRE
22 Loan Management DAC's class A-1 to D notes. At closing, the
issuer will also issue 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 will be managed by Redding Ridge Asset Management
(UK) LLP.
The preliminary ratings assigned to the notes reflect our
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 S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its 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 4.46
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 2,749.05
Default rate dispersion 443.84
Weighted-average life (years) 5.07
Obligor diversity measure 93.92
Industry diversity measure 17.92
Regional diversity measure 1.41
Transaction key metrics
Total par amount (mil. EUR) 400
Defaulted assets (mil. EUR) 0
Number of performing obligors 111
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Target 'AAA' weighted-average recovery (%) 37.57
Target portfolio weighted-average spread (%) 4.05
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 (5.40%). We assumed weighted-average recovery rates in line
with those of the identified portfolio presented to us, except for
the 'AAA' level where we have assumed covenanted recoveries at
37.00%. 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-2, 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
preliminary ratings.
"At closing, we expect the transaction's documented counterparty
replacement and remedy mechanisms to 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 preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we expect the transaction's legal structure to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our assigned
preliminary ratings are commensurate with the available credit
enhancement for the class A-1, A-2, B, C-1, C-2, and D notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A-1 to D notes to four
hypothetical scenarios."
Environmental, social, and governance factors
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain industries, including, but not limited:
thermal-coal-based power generation, mining or extraction; Arctic
oil or gas production, and unconventional oil or gas production
from shale, tight reservoirs, or oil sands; production of civilian
weapons; development of nuclear weapon programs and production of
controversial weapons; management of private for-profit prisons;
tobacco or tobacco products; opioids; adult entertainment;
speculative transactions of soft commodities; predatory lending
practices; non-sustainable palm oil productions; animal testing for
non-pharmaceutical products; endangered species; and banned
pesticides or chemicals.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities."
Preliminary ratings
PRELIM. PRELIM. AMOUNT CREDIT
CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§
A-1 AAA (sf) 244.00 39.00 Three/six-month EURIBOR
plus TBD
A-2 AA (sf) 49.00 26.75 Three/six-month EURIBOR
plus TBD
B A (sf) 23.00 21.00 Three/six-month EURIBOR
plus TBD
C-1 BBB (sf) 24.00 15.00 Three/six-month EURIBOR
plus TBD
C-2 BBB- (sf) 4.00 14.00 Three/six-month EURIBOR
plus TBD
D BB- (sf) 18.00 9.50 Three/six-month EURIBOR
plus TBD
Performance
Notes NR 1.00 N/A N/A
Preferred
return
notes NR 0.25 N/A N/A
Sub notes NR 43.65 N/A N/A
*The preliminary ratings assigned to the class A-1 and A-2 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.
TBD--To be determined.
SOUND POINT 11: Fitch Assigns 'B-sf' Final Rating to Class F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Sound Point Euro CLO 11 Funding DAC
final ratings as detailed below.
Entity/Debt Rating
----------- ------
Sound Point Euro
CLO 11 Funding DAC
A-1 Loan LT AAAsf New Rating
A-2 Loan LT AAAsf New Rating
A-Note XS2859421286 LT AAAsf New Rating
B XS2859421443 LT AAsf New Rating
C XS2859421955 LT Asf New Rating
D XS2859422177 LT BBB-sf New Rating
E XS2859422334 LT BB-sf New Rating
F XS2859422508 LT B-sf New Rating
Subordinated XS2859422763 LT NRsf New Rating
Transaction Summary
Sound Point Euro CLO 11 Funding 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 are being used to fund a portfolio with a
target par of EUR450 million. The portfolio is actively managed by
Sound Point CLO C-MOA, LLC. The collateralised loan obligation
(CLO) has a five-year reinvestment period and an eight-year
weighted average life test (WAL) at closing, which can be extended
by one year, on the date one year after closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors at 'B'/'B-' category. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 24.9.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate (WARR) of the identified portfolio
is 63.0%.
Diversified Asset Portfolio (Positive): The transaction has a
concentration limit for the 10 largest obligors at 20% 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 ensure 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 subject to conditions including the
collateral- quality tests and the reinvestment target par, with
defaulted assets calculated at their collateral value.
Portfolio Management (Neutral): The transaction has a five-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 includes four Fitch matrices, all
effective at closing, with two corresponding to an eight-year WAL,
and two corresponding to a nine-year WAL. For each WAL there can be
two different fixed-rate asset limits (7.5% and 12.5%).
Cash Flow Modelling (Neutral): The WAL used for the Fitch-stressed
portfolio analysis is 12 months less than the WAL covenant at the
issue date, to account for the strict reinvestment conditions
envisaged by the transaction after its reinvestment period. These
include, among others, passing the coverage tests, the Fitch 'CCC'
bucket limitation test post-reinvestment, as well as a WAL
covenants 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 and
class F notes and would lead to a downgrade of no more than one
notch for the class B to E notes.
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 default and portfolio deterioration.
Owing to the better metrics and shorter life of the identified
portfolio than the Fitch-stressed portfolio, the class B to E notes
show a rating cushion of up to two notches, and the class F notes
display a cushion of four notches. The class A notes display no
rating cushion.
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 in the mean RDR
across all ratings and a 25% decrease in the RRR across all the
ratings of the Fitch-stressed portfolio, would lead to a downgrade
of up to four notches for the class A to D notes and to below
'B-sf' for the class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction in the mean RDR across all ratings and a 25%
increase in the RRR across all the ratings of the Fitch-stressed
portfolio would lead to an upgrade of up to five notches for the
rated notes, except for the 'AAAsf' rated notes.
During the reinvestment period, upgrades, 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 may result from stable portfolio
credit quality and deleveraging, leading to higher credit
enhancement and excess spread to cover losses in the remaining
portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Sound Point Euro
CLO 11 Funding 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
===================
CONNECT FINCO: Moody's Rates New Senior Secured Notes 'B1'
----------------------------------------------------------
Moody's Ratings assigned a B1 rating to Connect Finco Sarl's
proposed backed senior secured notes, with Connect US Finco LLC as
a co-issuer. Both entities are in the Inmarsat restricted group,
with Viasat, Inc. (Viasat) as the parent. Proceeds will be used to
redeem a portion of Connect Finco Sarl's existing backed senior
secured notes due 2026. Viasat's B2 corporate family rating, B2-PD
probability of default rating, Ba3 senior secured bank credit
facilities and senior secured notes ratings and Caa1 senior
unsecured notes ratings remain unchanged. Connect Finco Sarl's B1
backed senior secured bank credit facilities and backed senior
secured notes ratings also remain unchanged. The outlook remains
unchanged at stable for Viasat and Connect Finco Sarl.
RATINGS RATIONALE
Viasat's B2 CFR is constrained by: (1) ongoing negative free cash
flow due to periodic satellite construction; (2) lost capacity with
the operational failure of its Viasat-3 F1 satellite, which has
pressured its consumer broadband business while the Viasat-3 F2 and
F3 satellites are not expected to enter service until mid-to-late
2025; and (3) increasing competition in its aviation and maritime
businesses. The rating benefits from: (1) enhanced business profile
following the Inmarsat acquisition; (2) good long term growth
prospects due to rising demand for voice and data connectivity
globally; (3) Debt/EBITDA that should be sustained below 5.5x
through the end of calendar 2025 despite competitive pressures and
satellite capacity constraints; and (4) very good liquidity.
Viasat standalone has three classes of debt - (1) unrated Ex-Im
credit facility ($29.5 million remaining) that expires in October
2025; (2) Ba3-rated $600 million secured notes due in 2027, $700
million secured term loan B due in 2029 and $616.7 million secured
term loan B due in 2030, and unrated $647.5 million revolving
credit facility that expires in 2028; and (3) Caa1-rated unsecured
notes ($700 million due in 2025, $400 million due in 2028 and
$733.4 million due in 2031). The Ex-Im facility is secured by
first-priority lien on the ViaSat-2 satellite. The secured term
loans, notes and revolving credit facility benefit from a security
package that provides first access to realization proceeds other
than those coming from the ViaSat-2 satellite, but with secondary
claims on the satellite. Moody's rate the secured term loans and
notes Ba3, two notches above the CFR due to their preferential
access to realization proceeds and loss absorption cushion provided
by the unsecured notes. In turn, Moody's rate the unsecured notes
Caa1, two notches below the CFR, to reflect their junior ranking
and the size of secured debt ranking above them in the capital
structure.
There is no cross guarantee or cross default between Viasat and
Inmarsat debt. Inmarsat is ring-fenced, with no upstream
distribution of cash flow to Viasat. In the Inmarsat restricted
group, Connect Finco Sarl is the borrower/issuer of the $300
million secured term loan B due in 2026, $550 secured revolving
credit facility that expires in 2027 and $1.3 billion secured term
loan B due in 2029, with Connect US Finco LLC as a co-borrower.
Connect Finco Sarl is also the issuer of the new secured notes and
existing $2.075 billion secured notes due 2026 (to be reduced with
the proceeds from the transaction), with Connect US Finco LLC as a
co-issuer. Inmarsat's debt does not benefit from loss absorption
cushion provided by Viasat's unsecured notes and that allows
Connect Finco Sarl's secured credit facilities and notes to be
rated B1.
Viasat has very good liquidity (SGL-1) through August 31, 2025 with
sources approximating $2.95 billion versus uses of about $460
million. Sources of liquidity include cash and cash equivalents of
$1.8 billion at June 30, 2024, $588.3 million of availability under
Viasat's $647.5 million revolving credit facility that expires in
August 2028 and full availability under Inmarsat's $550 million
revolving credit facility that expires in March 2027. Cash uses
comprise Moody's consumptive free cash flow estimate of about $400
million through the next twelve months, mainly due to capital
spending on new satellite construction and about $60 million
amortization payment on its Export-Import (Ex-Im) facility and term
loans. Viasat is subject to financial leverage and coverage
covenants and Moody's expect cushion to exceed 30% through the next
four quarters. Inmarsat's revolver is subject to a leverage
covenant when drawings exceed 40% of the commitment and Moody's do
not expect the covenant to be applicable through the next four
quarters. The company has limited flexibility to generate liquidity
from asset sales.
The outlook is stable because Moody's expect the company to
demonstrate good operating performance despite the lack of
satellite capacity for the consumer broadband business and
competitive pressures, maintain at least adequate liquidity as its
constructs and launches the remaining two Viasat-3 satellites while
sustaining Debt/EBITDA below 5.5x through the end of calendar
2025.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Viasat's ratings could be upgraded if it successfully constructs,
launches and obtains normal operation of its Viasat-3 F2 and F3
satellites, and sustains FCF/Debt towards 5%, Debt/EBITDA below 5x
and EBITDA-Capex/Interest towards 2x.
Viasat's ratings could be downgraded if there is significant
deterioration in the Inmarsat or Viasat businesses, characterized
by mid-to-high single digit percentage decline in revenue or
EBITDA, or if it sustains Debt/EBITDA above 6.5x,
EBITDA-Capex/Interest below 1x or FCF/Debt below 0%.
The principal methodology used in this rating was Communications
Infrastructure published in February 2022.
Viasat, headquartered in Carlsbad, California, operates a consumer
satellite broadband internet business, an in-flight connectivity
(IFC) business, a maritime business, and provides satellite and
related communications, networking systems and services to
government and commercial customers. Inmarsat operates a satellite
communications network using L-band, Ka-band and S-band spectrum,
and provides voice and data services to customers on land, at sea
and in the air.
CONNECT FINCO: S&P Rates Proposed $1.25BB Secured Notes 'B+'
------------------------------------------------------------
S&P Global Ratings assigned its 'B+' issue-level rating and '3'
recovery rating to Connect Finco S.a.r.l.'s and Connect U.S. Finco
LLC's proposed $1.25 billion secured notes. The '3' recovery rating
indicates S&P's expectation for meaningful (50%-70%; rounded
estimate: 65%) recovery in a simulated default scenario. The
coborrowers are financing subsidiaries of Inmarsat, which is a
subsidiary of Viasat Inc. The company will use proceeds to fund the
partial redemption of its $2.075 billion notes due 2026, which we
view favorably as it would reduce refinancing risk in 2026.
S&P said, "Our 'B+' issuer credit rating (ICR) on ultimate parent
Viasat is unaffected by this leverage-neutral transaction. The ICR
reflects a consolidated view of creditworthiness. We consider
Inmarsat to be a core subsidiary of Viasat and rate them the same
because we consider Inmarsat's business as integral to Viasat's
long-term strategy. We believe there are operational incentives to
provide support in both directions despite a lack of cross-default
provisions between the two entities.
"We forecast Viasat can generate meaningful free operating cash
flow (FOCF) in 2026 and beyond from a combination of rising
earnings combined with lower capital spending once Viasat-3 F-2 and
F-3 satellites are placed in service (late 2025). Still, we
recognize Viasat faces intensifying competition. We incorporste
this, combined with execution risk associated with placing F2 and
F3 in service into our negative rating outlook.
"Separately, we perform an individual recovery analysis for debt
issued at Viasat and Inmarsat, which has implications for
issue-level ratings and is where ratings may differ between the
different silos. We base our recovery analysis for the proposed
debt solely on our estimate of Inmarsat's enterprise value in a
simulated default. This debt is structurally and contractually
senior to debt issued at Viasat with respect to value from
Inmarsat's assets. Conversely, there is no downstream guarantee
from Viasat that would benefit lenders at the Inmarsat level with
respect to asset value from Viasat."
RECOVERY ANALYSIS
Key analytical factors
-- S&P's simulated default scenario contemplates heightened
competitive pressures from terrestrial network providers, satellite
operators, and satellite service providers, which leads to
increased churn and pricing pressure. This, in conjunction with the
high operating costs associated with its near-term satellite
launches, erodes profitability. This would cause the company's cash
flow to decline to the point it cannot cover its fixed charges
(i.e., interest expense, required amortization, and minimum
maintenance capital expenditures), eventually leading to a default
in 2027.
-- Other default assumptions include an 85% draw on the revolving
credit facility, the spread on the revolving credit facility rises
to 5% as covenant amendments are obtained, 5% administrative
expenses in bankruptcy, and all debt includes six months of
prepetition interest.
-- S&P has valued the company on a going-concern basis using a 6x
multiple of our projected emergence EBITDA to reflect the company's
satellite assets and customer relationships.
Simulated default assumptions (Inmarsat)
-- Default year: 2027
-- EBITDA at emergence: $500 million
-- EBITDA multiple: 6x
Simplified waterfall (Inmarsat)
-- Net enterprise value at default: $2.8 billion
-- Senior secured debt claims: about $4.25 billion
--Recovery expectation: 50%-70% (rounded estimate: 65
=====================
N E T H E R L A N D S
=====================
IGT LOTTERY: S&P Rates New EUR500MM Senior Secured Notes 'BB+'
--------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' issue-level rating and '3'
recovery rating to IGT Lottery Holdings B.V.'s (IGT Lottery)
proposed EUR500 million senior secured notes due 2030 and placed
the issue-level rating on CreditWatch with positive implications.
The '3' recovery rating indicates its expectation for meaningful
(50%-70%; rounded estimate: 65%) recovery in the event of a payment
default. IGT Lottery is a subsidiary of global lottery operator and
gaming technology provider International Game Technology PLC
(IGT).
The company intends to use the proceeds from these notes to redeem
the existing $500 million senior secured notes due 2025 issued by
IGT, pay fees and expenses, and for general corporate purposes. The
proposed issuance does not affect its 'BB+' issuer credit rating
because the transaction is largely debt for debt, although it will
modestly improve IGT's maturity profile.
S&P said, "Our ratings on IGT remain on CreditWatch, where we
placed them with positive implications on Feb. 29, 2024. We believe
the expected $2 billion of debt repayment from the company's
planned sale of its gaming and digital business and leverage
reduction will offset its modestly reduced scale and product
diversity and potentially support an upgrade.
"We expect to address the CreditWatch placement once we are more
certain the proposed separation and sale of IGT's Gaming & Digital
business will receive regulatory, shareholder, and other necessary
approvals prior to its expected close by the end of the third
quarter of 2025. We will reassess IGT Lottery's business position,
pro forma capital structure, and long-term financial policy as more
information becomes available. While we would likely raise our
rating on the company by at least one notch following the
transaction, we could raise our rating by two notches if we expect
it will sustain leverage of below 3x after incorporating its large,
periodic upfront payments and capital investments to extend its
lottery contracts, dividends, share repurchases, and operating
volatility. We would also need to believe that management's
financial policy is aligned with sustaining S&P Global
Ratings-adjusted leverage of below 3x. If the deal does not close,
we will likely affirm our ratings on IGT and remove them from
CreditWatch."
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- IGT's capital structure comprises $820 million and EUR1 billion
of total revolving commitments, a EUR1.0 billion term loan, several
secured notes tranches issued by parent IGT, and the proposed
EUR500 million IGT Lottery secured notes. All of its debt issues
have the same guarantors and IGT also guarantees the proposed IGT
Lottery notes.
-- The collateral for the proposed notes is a pledge of stock in
IGT US HoldCo and IGT Lottery SpA as well as any intercompany loans
over $10 million. The same collateral also secures the outstanding
debt at parent IGT on a pari passu basis.
-- S&P therefore assumes the recovery prospects for all of the
debt in the company's capital structure are aligned.
Simulated default assumptions
-- S&P's simulated default scenario contemplates a default in 2029
because the loss of one or more major lottery contracts or a
significant decline in the installed base of the company's gaming
machines. This would likely stem from a significant loss in market
share or a severe and sustained economic decline that leads to a
substantial drop in gaming machine yield and purchases of new
machines.
-- S&P assumes the total revolving credit facility commitment is
85% drawn at default.
Simplified waterfall
-- Emergence EBITDA: $708 million
-- EBITDA multiple: 6.5x
-- Gross recovery value: $4.6 billion
-- Net recovery (after 5% administrative expenses): $4.4 billion
-- Value available for secured debt: $4.4 billion
-- Secured debt: $6.5 billion
--Recovery expectation: 50%-70% (rounded estimate: 65%)
Note: All debt amounts include six months of prepetition interest
===============
P O R T U G A L
===============
EDP S.A.: Moody's Rates New Hybrid Instrument 'Ba1'
---------------------------------------------------
Moody's Ratings has assigned a Ba1 long term rating to the proposed
Fixed to Reset rate Junior Subordinated Instrument (the junior
subordinated "Hybrid") to be issued by EDP, S.A. The size and
completion of the Hybrid are subject to market conditions. The
outlook is stable.
RATINGS RATIONALE
The Ba1 rating assigned to the Hybrid is two notches below EDP's
issuer rating of Baa2, reflecting the features of the Hybrid. It is
deeply subordinated, ranking senior only to ordinary shares, and
pari passu with the company's existing hybrids.
In Moody's view, the Hybrid has equity-like features that allow it
to receive basket 'M' treatment (please refer to Moody's Hybrid
Equity Credit methodology published in February 2024), i.e. 50%
equity and 50% debt for financial leverage purposes. The features
of the Hybrid include (1) a contractual maturity of 30 years; (2)
the optional coupon deferral on a cumulative basis; and (3) no
step-up in coupon prior to year 10, with the step-up not exceeding
a total of 100 basis points thereafter.
As the Hybrid's rating is positioned relative to another rating of
EDP, a change in either (1) Moody's relative notching practice; or
(2) the Baa2 issuer rating of EDP, could affect the rating of the
Hybrid.
EDP's ratings are underpinned by (1) its commitment to maintain
robust financial metrics; (2) its diversified business and
geographical mix, which helps moderate earnings volatility; (3) the
stable earnings coming from contracted generation and regulated
networks, which account for about 70% of group EBITDA; and (4) the
low carbon intensity of its power generation fleet and the strategy
to exit coal-fired power generation by 2025, which positions it
well in the context of energy transition.
EDP's ratings are constrained by (1) the earnings volatility
stemming from variations in hydro output in Iberia and, to a lesser
extent, wind resources globally; (2) the residual exposure of EDP's
merchant generation to volatile wholesale power prices; (3) the
execution risks associated with the group's significant capital
spending over 2024-26; (4) the exposure to political and regulatory
risks in Portugal (A3 stable), Spain (Baa1 positive) and Brazil
(Ba2 positive); and (5) the minority holdings in the group, which
add to complexity.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that, in the
context of its capital investment plan and dividend policy, EDP
will maintain financial metrics consistent with guidance for a Baa2
rating, including funds from operations (FFO)/net debt at least in
the upper teens, and retained cash flow (RCF)/net debt at least in
the low teens, in percentage terms.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The rating could be upgraded if the company makes progress on its
strategy and investments while reducing leverage. A sustainable and
solid financial profile, including FFO/net debt above 22%, and
RCF/net debt at least in the mid-teens (in percentage terms), would
support an upgrade to Baa1.
The rating could be downgraded if (1) EDP's financial profile were
to weaken because of a downturn in the company's
operating/regulatory environment and performance, or because cash
flow generation was not to keep pace with debt-funded investment,
such that FFO/net debt and RCF/net debt appeared likely to fall
persistently below guidance for the current rating; or (2) credit
negative changes occur in EDP's corporate structure, such as a
significant increase in minority shareholdings, which could prompt
a tightening of guidance, or if subordination were to increase and
weaken the position of parent company senior unsecured creditors.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Unregulated
Utilities and Unregulated Power Companies published in December
2023.
EDP is a vertically integrated utility company, with consolidated
revenue of EUR16.2 billion and EBITDA of EUR5 billion in 2023. It
is the largest electric utility in Portugal.
EDP S.A.: S&P Assigns 'BB+' Rating to Proposed Hybrid Instruments
-----------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' issue rating to the dated,
optionally deferrable, and subordinated hybrid capital securities
to be issued by EDP S.A. (BBB/Stable/A-2). The hybrid amount
remains subject to market conditions, but S&P understands it will
be of benchmark size.
S&P said, "We also anticipate that the overall amount of hybrids
with intermediate equity content may equal up to about 11%-13% of
the company's capitalization (about EUR40 billion estimated at
year-end 2024).
"The proposed securities will have intermediate equity content
until their first reset date, which we understand will fall no
sooner than five years and three months from issuance (meaning the
first call date is no sooner than five years). During this period,
the securities meet our criteria in terms of ability to absorb
losses or conserve cash if needed.
"We derive our 'BB+' issue rating on the proposed securities by
applying two downward notches from our 'BBB' long-term issuer
credit rating on EDP." These notches comprise:
-- A one-notch deduction for subordination because the rating on
EDP is at 'BBB' or above; and
-- A one-notch deduction to reflect payment flexibility--the
deferral of interest is optional.
The number of downward notches applied to the issue rating reflects
its view that the issuer is unlikely to defer interest. Should
S&P's view change, it could increase the number of downward
notches.
S&P said, "In addition, to reflect our view of the proposed
securities' intermediate equity content, we allocate 50% of the
related payments on these securities as a fixed charge, and 50% as
equivalent to a common dividend, in line with our hybrid capital
criteria. The 50% treatment of principal and accrued interest also
applies to our adjustment of debt."
EDP can redeem the securities for cash on any date in the three
months before their reset date, then on every interest payment
date. Although the proposed securities are long-dated, the company
can call them at any time for events that are external or remote
(such as a change in tax treatment, tax gross-up, rating agency
treatment, or change of control; or a clean-up call). S&P said, "In
our view, the statement of intent, combined with EDP's commitment
to reduce leverage, mitigates the group's ability to repurchase the
notes on the open market. In addition, EDP has the ability to call
the instrument any time before the first call date at a make-whole
premium. It has stated its intention not to redeem the instrument
during this make-whole period, and we do not think this type of
clause makes it any more likely that EDP will do so. Accordingly,
we do not view it as a call feature in our hybrid analysis,
although it is referred to as a make-whole call clause in the
hybrid documentation."
S&P said, "We understand that the interest on the proposed
securities will increase by 25 basis points (bps) five years after
the first reset date. It will then increase by an additional 75 bps
at the second step-up, 20 years after the first reset date,
independently of the issuer credit rating level. We view any
step-up above 25 bps as presenting an incentive to redeem the
instrument, and therefore treat the date of the second step-up as
the instrument's effective maturity."
Key Factors In S&P's Assessment Of The Instruments' Deferability
S&P said, "In our view, the issuer's option to defer payment on the
proposed securities is discretionary. This means it may elect not
to pay accrued interest on an interest payment date because doing
so is not an event of default. However, EDP will have to settle any
deferred interest payment outstanding in cash if it declares or
pays an equity dividend or interest on equally ranking securities
and it redeems or repurchases shares or equally ranking securities.
We see this as a negative factor. Still, this condition remains
acceptable under our methodology because once the issuer has
settled the deferred amount, it can still choose to defer on the
next interest payment date."
Key Factors In S&P's Assessment Of The Instruments' Subordination
The proposed securities (and coupons) constitute direct, unsecured,
and subordinated obligations of EDP, ranking senior to its common
shares.
===========
S W E D E N
===========
POLESTAR AUTOMOTIVE: Deloitte AB Raises Going Concern Doubt
-----------------------------------------------------------
Polestar Automotive Holding UK PLC disclosed in a Form 20-F Report
filed with the U.S. Securities and Exchange Commission for the
fiscal year ended December 31, 2023, that its auditor has expressed
substantial doubt about the Company's ability to continue as a
going concern.
Gothenburg, Sweden-based Deloitte AB, the Company's auditor since
2021, issued a 'going concern' qualification in its report dated
August 14, 2024, citing that the Company requires additional
financing to support operating and development activities that
raise substantial doubt about its ability to continue as a going
concern.
Polestar Group's financial statements have been prepared on a basis
that assumes Polestar Group will continue as a going concern and
the ordinary course of business will continue in alignment with
management's 2024-2028 business plan.
Management assessed Polestar Group's ability to continue as a going
concern and evaluated whether there are certain events or
conditions, considered in the aggregate, that may cast substantial
doubt about Polestar's ability to continue as a going concern. All
information available to management, including cash flow forecasts,
liquidity forecasts, and internal risk assessments, pertaining to
the twelve-month period after the issuance date of these
Consolidated Financial Statements was used in performing this
assessment.
As a result of scaling up commercialization and continued capital
expenditures related to the PS2, PS3, PS4, PS5, and PS6, managing
the Company's liquidity profile and funding needs remains one of
management's key priorities. If Polestar is not able to raise the
necessary funds through operations, equity raises, debt financing,
or other means, the Group may be required to delay, limit, reduce,
or, in the worst case, terminate research and development and
commercialization efforts. Since inception, Polestar Group has
generated recurring net losses and negative operating and investing
cash flows. Net losses for the years ended December 31, 2023, 2022,
and 2021, amounted to $1.2 billion, $477.5 million, and $969.3
million, respectively. Negative operating and investing cash flows
for the years ended December 31, 2023, 2022, and 2021, amounted to
$2.3 billion, $1.8 billion, and $441.5 million, respectively.
Management's 2024-2028 business plan indicates that Polestar will
generate negative operating cash flows in the near future and
positive operating cash flows starting the second half of 2025;
investing cash flows of Polestar will continue to be negative in
the near and long-term future due to the nature of Polestar's
business. Securing financing to support operating and development
activities represents an ongoing challenge for Polestar Group.
Polestar Group primarily finances its operations through short-term
working capital loan arrangements with credit institutions (i.e.,
12 months or less), contributions from shareholders, extended trade
credit from related parties, and long-term financing arrangements
with related parties. Management's 2024-2028 business plan
indicates that Polestar Group depends on additional financing that
is expected to be funded via a combination of new short-term
working capital loan arrangements, long-term loan arrangements,
shareholder loans with related parties, and executing capital
market transactions through offerings of debt and/or equity. The
timely realization of these financing endeavors is crucial for
Polestar Group's ability to continue as a going concern. If
Polestar is unable to obtain financing from these sources or if
such financing is not sufficient to cover forecasted operating and
investing cash flow needs, Polestar Group will need to seek
additional funding through other means (e.g., issuing new shares of
equity or issuing bonds). Management has no certainty that Polestar
Group will be successful in securing the funds necessary to
continue operating and development activities as planned.
During the year ended December 31, 2023, Polestar demonstrated
efforts towards achieving liquidity targets in management's
2024-2028 business plan by:
* Renegotiating the terms of its convertible credit facility
with Volvo Cars to extend the principal repayment date to June 30,
2027, and achieve an additional borrowing capacity;
* Securing long-term financing support from Geely in the form
of various facilities; and
* Entering into multiple short-term working capital loan
arrangements with banking partners in China.
Polestar is party to financing instruments during the 12 months
following the reporting period that contain financial covenants
with which Polestar must comply. A failure to comply with such
covenants may result in an event of default that could have
material adverse effects on the business. Due to the factors
discussed, there is material uncertainty as to whether Polestar
will be able to comply with all covenants in future periods.
Remedies to an event of default include proactively applying for a
covenant waiver prior to such event of default occurring.
Based on these circumstances, management reasonably expects there
to be sufficient liquidity in the twelve-month period after the
issuance date of these Consolidated Financial Statements in order
for Polestar to meet its cash flow requirements, but there is
substantial doubt about Polestar's ability to continue as a going
concern. There are ongoing efforts in place to mitigate the
uncertainty.
A full-text copy of the Company's Form 20-F is available at:
https://tinyurl.com/29wca46w
About Polestar Automotive
Polestar Automotive Holding UK PLC manufactures and sells premium
electric vehicles. The company was founded in 2017 and is
headquartered in Gothenburg, Sweden.
As of December 31, 2023, the Company had $4.1 billion in total
assets, $5.4 billion in total liabilities, and $1.3 billion in
total deficit.
ROAR BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed Roar BidCo AB's (Recipharm) Long-Term
Issuer Default Rating (IDR) at 'B'. The Outlook is Stable. Fitch
has also affirmed Recipharm's term loan B's (TLB) senior secured
rating at 'B+' with a Recovery Rating of 'RR3'.
Recipharm's 'B' rating reflects its strong position in the
non-cyclical and structurally growing contract development and
manufacturing organisation (CDMO) market, where it is well-placed
to capture growth opportunities due to its geographically
diversified production facilities and established and sticky
customer base with high barriers to entry. However, the rating is
constrained by temporarily high leverage due to inflation headwinds
and the challenging operating environment in its biologics business
divisions.
The Stable Outlook is supported by Fitch's expectation that
Recipharm will be able to grow organically in 2024-2026, with
EBITDA leverage gradually reducing to below 6.5x after 2024. Fitch
also believes that profitability will continue to improve over the
rating horizon, on the back of steady organic top-line growth as
well as the delivery of targeted cost savings.
Key Rating Drivers
Improving Earnings Base: Fitch projects Recipharm will perform
strongly in 2024 with Fitch-adjusted EBITDA margins growing to
16.9% in 2024 from 14% in 2023. The improvement in profitability
will mainly derive from steady organic top-line growth alongside
low-single digit cost inflation, the successful delivery of a
targeted EUR30 million of cost savings, primarily from headcount
reduction, and the expected divestment of seven production sites,
which were previously a drag on profitability.
High Execution Risks: Fitch continues to see execution risk as
high, given the broad number of issues being addressed by
management, including the development of the biologics division,
the successful delivery of cost-cutting initiatives and
streamlining of production sites. The 'B' rating reflects the
ongoing sector recovery and management's ability to deliver cost
efficiencies. Fitch projects the biologics division will become
profitable during 2025, and a moderate improvement in its EBITDA
margins towards 10% by 2028.
Improving Albeit Low Rating Headroom: Its rating case reflects that
Recipharm's credit metrics have improved over the past 12-18 months
due to the higher earnings base. Fitch projects EBITDA leverage at
6.7x at end-2024 and 6.4x in 2025, just within its 'B'
sensitivities, versus 8.5x in 2023, and indicating limited rating
headroom during the repositioning of the business.
However, Fitch continues to view Recipharm's underlying business as
robust, evidenced by high capacity utilisation and deleveraging
potential, reflected in the Stable Outlook. Fitch expects EBITDA
leverage to fall well below 6.5x after 2025, as the top-line
continues to grow and the group addresses its cost base.
Investments in Growth: Management plans to spend around EUR70
million-EUR80 million annually on capex over 2024-2027 for
replacements and to expand capacity to meet long-term demand. Fitch
projects this will be funded mostly with internal cash flow and
some balance sheet cash. In 2022, Recipharm invested equity to
expand biologics production capacity (Recibiopharm). This
investment was significant and the biologics division has remained
loss-making over 2023-2024, but Fitch believes it will position
Recipharm for growth in areas with anticipated long-term demand
driven by cell- and gene-therapies.
Defensive Operations, Established Market Position: The rating
remains supported by Recipharm's defensive business model,
especially in solids and Bespak, and high barriers to entry,
particularly in more complex product areas where the manufacturing
process is harder to replicate. Setting up a contract manufacturer
requires significant capex, as well as technological knowledge,
regulatory approvals and time to build reputation.
CDMO reliability is key for pharma companies as switching suppliers
can be high-risk and time-consuming. Combined with the long
life-cycle of pharma products (typically over 10 years), these
factors translate into robust underlying demand for Recipharm with
a record of maintaining its customer base.
Positive Long-Term Structural Drivers: Fitch forecasts that overall
market demand will continue to grow by mid single-digit
percentages, with higher pricing in more technologically complex
product areas, which will support Recipharm's deleveraging. The
global CDMO market, estimated at around EUR90 billion, is supported
by a growing trend of pharmaceutical companies outsourcing
production (opting for more asset-light business models to focus on
core activities, R&D, marketing and sales), as well as long-term
macro drivers of an ageing population, growing healthcare demand
and new drug development.
Fragmented Market, Large-Scale Customers: The CDMO market is
fragmented, with the 10 largest manufacturers accounting for less
than 20% of the overall market. Recipharm is the fourth-largest
CDMO globally in sales, but it still represents only 1%-2% of the
total global market. Large global pharma customers typically have
strong bargaining power in new contract negotiations, especially in
high-volume generics.
Derivation Summary
Fitch rates Recipharm according to its global Generic Rating
Navigator. Under this framework, Recipharm's rating is supported by
resilient outsourcing demand and high entry barriers, with high
switching costs and stable demand dynamics. The rating is
constrained by its overall limited scale in the fragmented and
competitive CDMO market with high financial leverage.
Fitch regards capital-and asset-intensive businesses - such as
European Medco Development 3 S.a.r.l. (Axplora; B-/Stable),
Financiere Top Mendel SAS (Ceva Sante; B+/Stable), F.I.S. Fabbrica
Italiana Sintetici S.p.A. (FIS; B/Positive) and privately-rated
CDMOs - as Recipharm's closest peers as they all rely on ongoing
investments to grow at or above the market and to maintain
operating margins. However, Recipharm has stronger profitability
and scale than most privately-rated CDMO peers. It also has a
stronger business profile, focused on prescription-drug
manufacturing, steriles and delivery systems with intellectual
property rights.
Recipharm's and Ceva Sante's scale and diversification support
higher debt capacity than the more specialised Axplora, which has
similar levels of financial leverage but with a lower rating.
Recipharm has lower free cash flow (FCF) generation than Ceva Sante
(partly owing to historically higher capex) and higher financial
leverage in combination with a tighter liquidity position,
warranting the one-notch difference between the two.
Recipharm has larger scale and better outlook for profitability
than FIS. Nevertheless, the latter's modest leverage with estimated
EBITDA leverage of about 3.6x in 2024 versus 6.7x in 2024 at
Recipharm warrants the same rating.
Key Assumptions
- Mid-single digit organic revenue growth in 2024-2025 (reported
sales growth of +0.9% in 2024 and -2.4% in 2025 after accounting
for disposal of production sites); mid-to-high single digit sales
growth in 2026-2028
- Fitch-adjusted EBITDA margin of 16.9% in 2024 (+290bp vs 2023)
followed by 18%-19% thereafter
- Annual capex intensity at 5.5% of sales
- Annual working-capital outflows of EUR10 million-EUR20 million a
year
- No large debt-funded M&A or shareholder distributions to 2028
Recovery Analysis
Its recovery analysis assumes that Recipharm would be reorganised
as a going concern (GC) in bankruptcy rather than liquidated. The
EUR164 million (unchanged from last review) GC EBITDA reflects
stress assumptions from weak operating performance with regulatory
issues or increased competition leading to deteriorating margins.
The assumption also reflects corrective measures taken in
reorganisation to offset the adverse conditions that trigger the
default.
Fitch continues to apply an enterprise value (EV) multiple of 6.0x
to the GC EBITDA to calculate a post-reorganisation EV. The choice
of this multiple is based on positive market fundamentals,
defensive business model with long-term customer contracts and high
switching costs, but also some traits of commoditisation within
solids.
Recipharm's SEK3 billion (EUR265 million equivalent) revolving
credit facility (RCF) is assumed to be fully drawn upon default. It
has a EUR100 million non-recourse factoring facility, of which
Fitch estimates 50% would remain available at distress. The RCF and
EUR1,115 million first-lien TLB rank pari passu between themselves,
and senior to a GBP228 million second-lien term loan in the debt
waterfall.
Assuming a 10% administrative claim, the allocation of value in the
liability waterfall results in recoveries corresponding to 'RR3'
for the first-lien RCF and TLB. This indicates a 'B+' instrument
rating for the first-lien TLB with a waterfall-generated recovery
computation of 61% (previously 59%) based on current metrics and
assumptions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Larger scale, increased high-tech offering or increased
geographical diversification while maintaining EBITDA margin above
20% on a sustained basis
- EBITDA leverage below 5.0x on a sustained basis, supported by
commitment to conservative financial policies
- Mid-single digit FCF margin
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Weak operating performance, product or regulatory issues or
change in M&A or investment discipline leading to weaker EBITDA
margin
- Prospects of EBITDA leverage remaining above 6.5x
- EBITDA interest coverage below 2.0x on a sustained basis
- Neutral to negative FCF margin, reducing liquidity headroom
Liquidity and Debt Structure
Liquidity Remains Satisfactory: As of end-June 2024, cash on
balance sheet of EUR82 million (including EUR23 million that Fitch
treats as not readily available) was complemented by about EUR105
million funds available under its SEK3 billion RCF and EUR100
million non-recourse factoring facility. Fitch believes the group's
liquidity position is adequate to cover interest costs as well as
its ambitious investment plans, which include capacity-enhancement
investments.
Although its assessment of liquidity is satisfactory, Fitch expects
weak cash flow in 2024 due to higher restructuring costs, before
FCF turns positive in 2025 as restructuring costs reduce and capex
intensity eases. The group has a manageable debt maturity profile
with its first-lien TLB maturing in February 2028.
Issuer Profile
Recipharm, headquartered in Stockholm and founded via a management
buy-out from Pharmacia in 1995, is one of the five largest
pharmaceutical CDMO globally.
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
----------- ------ -------- -----
Roar BidCo AB LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
=============
U K R A I N E
=============
UKRAINE: Fitch Hikes LongTerm Local-Currency IDR to 'CCC+'
----------------------------------------------------------
Fitch Ratings has upgraded Ukraine's Long-Term Local-Currency
(LTLC) Issuer Default Rating (IDR) to 'CCC+' from 'CCC-', and
affirmed the Long-Term Foreign-Currency IDR at 'RD' (Restricted
Default). Fitch typically does not assign Outlooks to sovereigns
with a rating of 'CCC+' or below.
Fitch has also assigned 'CCC' foreign-currency issue ratings to the
Bond A series (2029, 2034, 2035 and 2036) and Bond B series (2030,
2034, 2035 and 2036).
Under applicable credit rating agency (CRA) regulations, the
publication of sovereign reviews is subject to restrictions and
must take place according to a published schedule, except where it
is necessary for CRAs to deviate from this schedule in order to
comply with the CRAs' obligation to issue credit ratings based on
all available and relevant information and disclose credit ratings
in a timely manner. Fitch interprets these provisions as allowing
us to publish a rating review in situations where there is a
material change in the creditworthiness of the issuer that Fitch
believes makes it inappropriate for us to wait until the next
scheduled review date to update the rating or Outlook/Watch status.
The next scheduled review date for Fitch's rating on Ukraine is 6
December 2024, but Fitch believes that developments in the country
warrant such a deviation from the calendar and its rationale for
this is set out in the first part (High weight factors) of the Key
Rating Drivers section below.
Key Rating Drivers
High
The assignment of 'CCC' ratings to the new foreign-currency bonds
and the upgrade of the LTLC IDR reflects the following key rating
drivers and their relative weights:
Completion of Eurobond debt exchange: On 30 August, Ukraine
completed the restructuring of outstanding sovereign Eurobonds
(USD19.7 billion) and state-guaranteed Ukravtodor debt (USD0.7
billion) totalling USD20.5 billion (USD24.3 billion including
accrued interest during the August 2022 two-year standstill on
Eurobond payments) into eight Eurobonds with USD15.2 billion
principal.
New Eurobonds Rated 'CCC': Fitch has assigned the newly-issued FC
bonds a 'CCC' rating, in line with the sovereign's expected
post-restructuring LTFC IDR. This reflects Ukraine's reduced
external bond debt service with no principal payment until 2029 and
manageable coupon payments of USD165 million (0.1% of projected
GDP) in 2025 and USD423 million (0.2% of projected GDP) in 2026.
Lower Government Debt, Payments: The restructuring, supported by
97% of bondholders, results in a nominal haircut of 37% and a
significant debt service reduction over the long term (estimated
savings of USD22.8 billion until 2033). Fitch forecasts that
general government debt will be 89.6% of GDP in 2024 (not taking
into account the restructuring of other commercial liabilities),
down from its projection of 92.5% at the review in June, as a
result of the debt exchange operation.
LTLC IDR Upgrade: The LTLC IDR upgrade reflects the successful
completion of Ukraine's Eurobond debt restructuring while
continuing to service its LC debt obligations, affirming its
expectation of preferential treatment of LC debt. This is because
only a small portion of LC debt is held by non-residents, with the
majority held by National Bank of Ukraine and domestic banks
(mostly state-owned banks).
In its view, this ownership structure would limit the benefits to
Ukraine from any LC debt restructuring by creating potential fiscal
costs (including bank re-capitalisation). Such a restructuring
could also create risks for financial sector stability and impair
development of the domestic debt market.
War and Support Uncertainty: Nevertheless, the 'CCC' new issue
ratings and Ukraine's 'CCC+' LTLC IDR reflect the still substantial
credit risk given the protracted nature of the war (possibly
extending into 2025), leading to continued large fiscal deficits
(projected at 17.5% of GDP in 2024 and 15.3% in 2025), and
financing uncertainty from 2025, partly due to the US electoral
cycle, potential donor fatigue, residual risks over EU financing
plans, and limitations in local banks' capacity to significantly
increase their government debt holdings.
Ukraine's ratings also reflect the following rating drivers:
Restricted Default Affirmation: Fitch considers that the successful
completion of Ukraine's Eurobond debt restructuring constitutes
only a part of a single broader restructuring episode that is
ongoing, as the government has announced payment suspensions on
additional non-bond commercial creditors (so-called 'Additional
Perimeter Claims'). Therefore, Ukraine's LTFC IDR will remain 'RD'
until Fitch judges the exchanges have been completed and relations
with a significant majority of external commercial creditors are
normalised.
Further Restructuring Negotiations: Ukraine is still in the process
of restructuring non-bond external commercial debt and in late
August the government ordered temporary suspensions of payments on
the instruments involved. These include an external commercial loan
(Cargill USD0.7 billion, payments suspended from 3 September 2024),
Ukrenergo's state-guaranteed Eurobond (USD825 million, payments
suspended from 9 November 2024) and GDP warrants (payments
suspended from 31 May 2025). The debt service suspension is
expected to last until the end of the debt restructuring process.
Reduced Near-Term Macro-Financial Risks: International reserves
reached USD37.2 billion at end-July, and Ukraine's credible policy
mix and continued official support in line with the IMF's 2023
four-year USD15.6 billion Extended Fund Facility reduce risks to
macroeconomic and financial stability in the near term. This
further supports Ukraine's capacity to meet the new Eurobond
commitments, despite the obvious exceptional uncertainty related to
the war with Russia.
ESG - Governance: Ukraine has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in its proprietary Sovereign
Rating Model. Ukraine has a low WBGI ranking at the 29th
percentile, reflecting the Russian-Ukrainian conflict, weak
institutional capacity, uneven application of the rule of law and a
high level of corruption.
ESG - Creditors Rights: Ukraine has an ESG Relevance Score of '5'
for creditor rights given Ukraine's 2022 deferral of external debt
payments and the renewed default this year.
ESG - International Relations and Trade: Ukraine has an ESG
Relevance Score of '5' given the impact of the war with Russia on
all aspects of Ukraine's sovereign credit profile.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The LTLC IDR would be downgraded if there are increased signs
that the recent preferential treatment of LC debt will not be
carried forward.
- The issue rating on the newly-issued Eurobonds would be
downgraded in the event of increased probability of further
restructuring or default, for example, due to reduced foreign
support and a deterioration of the military conflict.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Completion of the external commercial debt restructuring that
Fitch judges to have normalised relations with the significant
majority of external commercial debt creditors. Fitch would then
upgrade Ukraine's LTFC IDR to a level appropriate for its debt
service payment prospects on a forward-looking basis.
- The LTLC IDR would be upgraded on reduced risk of liquidity
stress, potentially due to reduced sovereign financing needs, more
predictable sources of official financing, greater confidence in
the ability of the domestic market to roll over government debt,
and/or lower expenditure needs.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
Fitch's proprietary SRM assigns Ukraine a score equivalent to a
rating of 'CCC+' on the Long-Term Foreign-Currency (LT FC) IDR
scale. However, in accordance with its rating criteria, Fitch's
sovereign rating committee has not utilised the SRM and QO to
explain the ratings in this instance. Ratings of 'CCC+' and below
are instead guided by the rating definitions.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
Country Ceiling
The Country Ceiling for Ukraine is 'B-'. For sovereigns rated
'CCC+' and below, Fitch assumes a starting point of 'CCC+' for
determining the Country Ceiling. Fitch's Country Ceiling Model
produced a starting point uplift of zero notches. Fitch's rating
committee applied a +1 notch qualitative adjustment to this, under
the Balance of Payments Restrictions pillar, reflecting that the
imposition of capital and exchange controls since Russia's invasion
of Ukraine has not prevented some private sector entities from
converting local currency into foreign currency and transferring
the proceeds to non-resident creditors to service debt payments.
Fitch does not assign Country Ceilings below 'CCC+', and only
assigns a Country Ceiling of 'CCC+' in the event that transfer and
convertibility risk has materialised and is affecting the vast
majority of economic sectors and asset classes.
ESG Considerations
Ukraine has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Ukraine has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight. As Ukraine has a percentile rank
below 50 for the respective Governance Indicators, this has a
negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a key rating driver for Ukraine. As Ukraine deferred external
debt payments in 2022, which Fitch deemed as a distressed debt
exchange, and as Ukraine has missed a Eurobond coupon payment in
August 2024, this has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for International
Relations and Trade, reflecting the detrimental impact of the
conflict with Russia on all aspects of its creditworthiness with a
negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Ukraine has a percentile rank below 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
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
----------- ------ -----
Ukraine LT IDR RD Affirmed RD
ST IDR C Affirmed C
LC LT IDR CCC+ Upgrade CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
senior
unsecured LT CCC New Rating
Senior
Unsecured-Local
currency LT CCC+ Upgrade CCC-
===========================
U N I T E D K I N G D O M
===========================
AJ GALAXY: FRP Advisory Named as Administrators
-----------------------------------------------
AJ Galaxy Limited, trading as Sunspeed, was placed into
administration proceedings in the High Court of Justice Business,
Court Number: CR-2024-005015, and Miles Needham and Andy John of
FRP Advisory Trading Limited were appointed as administrators on
August 23, 2024.
AJ Galaxy, f/k/a Sunspeed Transport Services Limited, provides
freight transport by road; operation of warehousing and storage
facilities for land transport activities; computer facilities
management activities; and other business support services.
Its registered office is at Sunspeed House, 18 Hercules Way,
Farnborough, GU14 6UU in process of being changed to C/O FRP, 4
Beaconsfield Road, St Albans, Hertfordshire, AL1 3RD. Its
principal trading address is at Sunspeed House, 18 Hercules Way,
Farnborough, GU14 6UU.
The administrators can be reached at:
Miles Needham
Andy John
FRP Advisory Trading Limited
4 Beaconsfield Road, St Albans
Hertfordshire, AL1 3RD
For further details, contact:
The Joint Administrators
Tel No: 01727 811111
Alternative Contact:
Daniel Brooks
E-mail: cp.stalbans@frpadvisory.com
ANGUS PRINT: FRP Advisory Named as Administrators
-------------------------------------------------
Angus Print Limited was placed into administration proceedings in
in the High Court of Justice Leeds Insolvency & Companies List
(ChD), Court Number: CR-2024-000861, and Mark Hodgett and David
Antony Willis of FRP Advisory Trading Limited were appointed as
administrators on Aug. 28, 2024.
Angus Print is a printing company.
Its registered office is at Unit 2b2 Seacroft Industrial Estate,
Coal Road, Leeds, West Yorkshire, LS14 2AQ in the process of being
changed to Minerva, 29 East Parade, Leeds, Yorkshire, LS1 5PS. Its
principal trading address is at Unit 3, Silver Royd Business Park,
Silver Royd Hill, Leeds, LS12 4QQ.
The administrators can be reached at:
Mark Hodgett
David Antony Willis
FRP Advisory Trading Limited
Minerva, 29 East Parade
Leeds, LS1 5PS
For further details, contact:
The Joint Administrators
Tel No: 0113 831 3555
Alternative contact:
Mikoe Joannou
E-mail: Mikoe.Joannou@frpadvisory.com
ATLAS COMMODITIES: Parker Andrews Named as Administrators
---------------------------------------------------------
Atlas Commodities Ltd was placed into administration proceedings in
the High Court of Justice, Court Number: CR-2024-001093, and Grace
Jones and Rishi Karia of Parker Andrews Limited were appointed as
administrators on Sept. 2, 2024.
Atlas Commodities offers metal recycling services.
Its registered office is at 2 Hertford House, Farm Close, Shenley,
Radlett, WD7 9AB. Will shortly be changed to c/o Parker Andrews
Limited, 5th Floor, The Union Building, 51-59 Rose Lane, Norwich,
NR1 1BY. Its principal trading address is at ABP Newport South
Dock, Alexandra Docks, Newport, NP20 2UW.
The administrators can be reached at:
Grace Jones
Rishi Karia
Parker Andrews Limited
5th Floor, The Union Building
51-59 Rose Lane, Norwich
NR1 1BY
For further details, contact:
Laura Alfs
E-mail: laura.alfs@parkerandrews.co.uk
Tel No: 01603 284284
CANARY WHARF: Fitch Cuts LT IDR to 'B', Still on Watch Negative
---------------------------------------------------------------
Fitch Ratings has downgraded Canary Wharf Group Investment Holdings
plc's (CWGIH) Long-Term Issuer Default Rating (IDR) to 'B' from
'BB' and its senior secured rating to 'BB-' from 'BB+'. All ratings
remain on Rating Watch Negative (RWN). The RWNs reflect the
continuing short-term refinance risk of CWGIH's GBP350 million
bonds due April 2025 and prospective cash flow constraints.
The ratings reflect a subset of rent-producing properties within
the group's wider Canary Wharf portfolio, valued at about GBP1.155
billion. This subset, also known as the pooled portfolio, secures
CWGIH's GBP900 million bonds and mainly includes the Canary Wharf
campus's retail and car park assets plus selected income-producing
offices. Fitch's analysis focuses on the rental income CWGIH
receives from this portfolio and subordinated post-debt service
rental income from other property-financing vehicles including its
CMBS and residential assets. Net of central costs, the
rental-derived income services the CWGIH bonds.
While the group has successfully refinanced its 2024
property-specific secured bank financings, CWGIH still faces
significant maturities of GBP350 million for its secured bond in
April 2025 and GBP250 million equivalent secured bond in April
2026. Fitch expects to resolve the RWN by end-2024 when CWGIH
concludes tangible actions to repay its April 2025 bond, while
providing visibility on cash flows to meet the April 2026
maturity.
Key Rating Drivers
April 2025 Bond Refinance Risk: Following the refinancing of 2024
group maturities, CWGIH's April 2025 low-coupon GBP350 million bond
is the next maturity, for which Fitch expects CWGIH to have
tangible options in place by end-2024. Failure to do so would
result in a further downgrade of its IDR. The 2025 bond, together
with CWGIH's April 2026 and April 2028 bonds, totals GBP900 million
with a blended 2.5% cost of debt.
CWGIH has stated that it is exploring funding to refinance part of
these bonds as secured bank debt by pledging some or all of the
pooled portfolio's GBP900 million retail assets. This funding may
be drawn down closer to bond maturity rather than prepaying
low-coupon debt. At present such funding has not been arranged but
is expected to be finalised by end-2024.
Refinancing Achieved for 2024: During the year CWGIH has refinanced
funding for 1 Churchill Place, 25 Churchill Place and 1/5 Bank
Street with bank debt. It continues to have strong access to bank
debt, which it has used together with its centralised cash for
refinancing, including some loan paydowns, in its various secured
funding vehicles in 9M24. The group also continues to secure
property development funding for its ongoing residential and
upcoming life-science projects.
Fitch's Rating Approach: CWGIH's total GBP900 million secured bonds
have recourse to the campus' retail assets, certain smaller offices
and other assets, and are further supported by CWGIH's cash flows.
At end-1H24 this property portfolio totaled GBP1.155 billion. Fitch
does not include the currently void 10 Cabot Square within this
value and related metrics. Some 70% of the pooled portfolio's cash
flows before central costs are generated directly from retail and
office assets, with the remainder from recurring subordinated
post-debt service income including cash flows from the CMBS
financing.
CWGIH's Debt Service Capacity: CWGIH's subordinated post-debt
service income has reduced considerably, following its 2024 debt
refinancing and given the trapping of some CMBS's cash flows within
the financing tranches and its impending 2026 Citi office lease
expiry. This leads to lower 'EBITDA', thereby worsening its
leverage and interest cover. The latter is around 2x, reflecting
the average blended cost of debt at 2.5%. Assuming the 2025 and
2026 bonds are refinanced at contemporary interest rates, CWGIH's
interest cover deteriorates to below 1.0x by end-2024 and
thereafter. This has contributed to the IDR downgrade to 'B'.
CWGIH's Fungible Cash: At end-2023, CWGIH's cash, which included
shareholder equity injection, was allocated towards the
refurbishment of the Morgan Stanley office building related to its
lease extension to 2038 as well as the 2024 bank debt refinancing.
If end-2024 estimated cash is also being diverted to support other
parts of the group, CWGIH's ratings may be further downgraded.
Conversely, planned asset disposal proceeds from other group
companies may be collected by CWGIH. Fitch forecasts the pooled
portfolio's debt/EBITDA at above 25.0x in 2024 -2026.
Retail Portfolio Growth Continues: Continued growth in footfall -
to 67 million in 2023 versus 55 million in 2022 - has driven
further growth in CWGIH's retail portfolio. The addition of
residential to the campus post-2020 has notably boosted the food &
beverages segment within retail, which forms about 41% of the
retail portfolio at end-1H24. Retail mall occupancy remained high
at 95.7% at end-1H24, versus 95.6% at end-2023.
Evolving Canary Wharf Campus: The evolution of the campus from pure
offices to mixed-use is continuing with more than 3,500 people now
living on the Wharf. This shift has driven growth in its retail and
leisure offering to meet the needs of both residents and office
commuters. For its office tenants, occupancy costs remain cheaper
than in central London. The office portfolio is attracting more
prospective life science tenants, thereby diversifying the tenant
mix away from financial services, the latter at 51% of office
tenants at end-2023.
Some existing space and towers require capex to accommodate hybrid
working, enhance green credentials, and to meet evolving tenant
expectations for modern offices. While this capex requirement
burdens the group's leverage, it helps support the transition of
these buildings to mixed-use.
Derivation Summary
The wider Canary Wharf group's GBP6.8 billion (end-1H24) property
portfolio is comparable in size and quality with that of rated
peers including The British Land Company PLC's (BL; IDR: A-/Stable)
GBP8.7 billion (at share), Land Securities PLC's (Short-Term IDR:
F1) GBP10.2 billion and Derwent London plc's (IDR: BBB+/Stable)
GBP4.6 billion. All these entities' office portfolios are central
London-focused whereas CWGIH's portfolio is concentrated in the
established east London campus. The IDR reflects a sub-segment of
the group (the pooled portfolio) and its associated financing.
At a time when the UK office market is split between prime and
less-attractive secondary offices, all four entities have quality
office properties in good business locations with essential ESG
credentials to ensure re-letting and newbuilds to attract future
tenants. BL's four London campus clusters and Land Securities'
Victoria portfolio, like the Canary Wharf campus, benefit from a
central landlord who coordinates and invests in amenities,
including green credentials. This strategy enhances the
attractiveness of the location by creating complimentary adjacent
rental evidence, and allows for a gradual development or
refurbishment of the area in a phased approach.
In contrast investors like Derwent, which operates in districts
with multiple competing landlords, each with their different
agendas and investment time-horizon. In these locations
reinvestments are less coordinated.
Fitch's analytical approach for CWGIH's pooled portfolio is similar
to peers', assessing debt/recurring rental-derived EBITDA and
interest cover. This analysis incudes subordinated rental income
streams from debt-free or debt-funded JVs or equivalent CMBS-type
financings. CWGIH's pooled portfolio's EBITDA-equivalent has a
higher proportion of subordinated income streams - subject to
potential lock-ups - than peers'. CWGIH also faces the risk of the
wider group's debt refinance requirements or prospective property
development activities, such as residential and life sciences
projects at North Quay, which could place demands on its central
liquidity.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Pooled portfolio retail net rents to remain around GBP52 million
as leases are renewed, optimising the portfolio's occupancy rate.
Subordinated post-debt service income has reduced considerably
following some additional cash trapped in CMBS structures and
recent secured debt refinancings.
- Central admin costs - at GBP62 million at end-2023 - are deducted
to arrive at the EBITDA for the pooled portfolio
- Assuming a vanilla refinancing and no switch of collateral to
prospective bank financing, Fitch assumes the 2025 and 2026 bonds
are refinanced at a 6% cost of debt. The 2028 bonds remain in
place.
Recovery Analysis
Its recovery analysis assumes that the CWGIH pooled portfolio would
be liquidated rather than restructured as a going-concern (GC) in a
default.
Recoveries are based on the end-1H24 GBP1.155 billion pooled
portfolio excluding the void 10 Cabot Square ex-Barclays office,
which needs additional investment for it to be re-let. Fitch
applies a standard 20% discount to these values.
Fitch assumes no cash is available for recoveries and that CWGIH's
GBP100 million super-senior revolving credit facility (RCF) is
fully drawn in a default. After deducting a standard 10% for
administrative claims, the total amount of value Fitch assumes
available to unsecured creditors is GBP832 million. After the RCF,
this compares with the three secured bonds totalling GBP903
million. This recovery estimate ascribes no value to the equity
stakes in Canary Wharf's property vehicles under CWGIH as the
timings for realising value from these assets is uncertain.
Fitch's principal waterfall analysis generates a ranked recovery
for CWGIH's senior secured debt of 'RR2' with a waterfall-generated
recovery computation output percentage of 81% based on current
metrics and assumptions. The 'RR2' indicates a 'BB-' secured debt
instrument rating. This recovery estimate will change when the
details of the prospective bank refinancing, which may have all or
some of the retail portfolio as collateral, as part of a plan to
refinance the 2025 bond and a portion of the 2026 bond, become
available.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to a Removal
of Rating Watch and Rating Affirmation
- Successful refinancing of CWGIH's April 2025 bond maturity and
tangible visibility on plans to meet the 2026 maturity, which may
include disposals, cash and committed undrawn RCFs
- Expectations of CWGIH returning to debt/EBITDA below 15x, and
interest coverage above 1.1x
- Twelve-month liquidity score above 1x
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Failure to substantially address CWGIH's April 2025 maturity
before end-2024
- Events causing CWGIH's liquidity resources and cash flows to be
diverted to support non-recourse secured financings, including debt
refinancings
- CWGIH's interest cover below 1.1x, indicating over-reliance on
non-recurring non-rental-derived cash flows to cover CWGIH's debt
service
- Eighteen-month liquidity score below 1x
Liquidity and Debt Structure
Upcoming Maturities: The pooled portfolio bond maturities of 2.625%
GBP350 million in April 2025 and adjacent 1.75% EUR300 million
(GBP250 million equivalent) bond in April 2026 are a near-term
refinance risk. Another 3.375% GBP300 million bond matures in April
2028. Fitch expects CWGIH to have options including access to bank
debt and/or potential shareholder support to meet these debt
maturities.
As at end-1H24 CWGIH benefitted from unrestricted cash of about
GBP150 million alongside its undrawn shareholder-provided RCF of
GBP100 million, plus CWGIH's GBP100 million super-senior RCF
maturing in 2027.
Currently, the pooled portfolio's assets and cash flows from the
CMBS office financing, adequately service the pooled portfolio's
total bonds of GBP900 million. However, Fitch expects considerably
lower subordinated post-debt service income, which has worsened
leverage and interest cover for the 2026 and 2028 bonds even if the
2025 is repaid.
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
----------- ------ -------- -----
Canary Wharf Group
Investment Holdings plc LT IDR B Downgrade BB
senior secured LT BB- Downgrade RR2 BB+
CHESHIRE 2021-1: S&P Affirms 'CCC (sf)' Rating on Cl. F-Dfrd Notes
------------------------------------------------------------------
S&P Global Ratings lowered to 'AA- (sf)' from 'AA (sf)', to 'BBB
(sf)' from 'A- (sf)', to 'BB- (sf)' from 'BBB- (sf)', and to 'CCC+
(sf)' from 'B- (sf)' its credit ratings on Cheshire 2021-1 PLC's
class B-Dfrd, C-Dfrd, D-Dfrd, and E-Dfrd notes, respectively. At
the same time, S&P affirmed its 'AAA (sf)' and 'CCC (sf)' ratings
on the class A and F-Dfrd notes, respectively.
The rating actions reflect the transaction's significant
deterioration in performance since S&P's previous review. Total
arrears currently stand at 41.9%, up from 33.4% at our previous
review. Arrears of greater than or equal to 90 days currently stand
at 31.5%, compared with 19.8% previously. Both metrics are above
our U.K. nonconforming RMBS index for pre-2014 originations, where
total arrears currently stand at 27.0% and severe arrears stand at
19.9%.
While credit enhancement for the asset-backed notes has increased
slightly, driven by prepayments and the fact that the transaction
is amortizing sequentially, the increase has not been significant
enough to offset the significant increase in arrears.
S&P said, "Since our previous review, the weighted-average
foreclosure frequency (WAFF) has increased at all rating levels,
reflecting the higher arrears. The elevated arrears also reduce the
seasoning benefit that the pool receives, which further increases
the WAFF.
"We reduced our originator adjustment on this transaction from the
originator adjustment that we applied at both closing and in our
previous reviews. The originator adjustment that we assigned at
closing in part reflected our view of a future deterioration in
arrears for the securitized assets. Because the arrears that we
previously projected have materialized, as evident from the
increase in arrears we have observed, we have reduced the
originator adjustment accordingly. The current originator
adjustment that we have assigned continues to reflect our
expectations of future collateral performance, but also reflects
the arrears that we previously projected materializing."
Considering the transaction's historical loss severity levels, the
data suggest that the portfolio's underlying properties may have
only partially benefited from rising house prices, and we have
therefore applied a valuation haircut to property valuations to
reflect this. Since S&P's previous review, the weighted-average
loss severity has remained stable at all rating levels.
The required credit coverage has increased at all rating levels.
Table 1
Portfolio WAFF and WALS
BASE FORECLOSURE
FREQUENCY COMPONENT
FOR AN ARCHETYPICAL
RATING CREDIT U.K. MORTGAGE LOAN
LEVEL WAFF (%) WALS (%) COVERAGE (%) POOL (%)
AAA 67.76 39.32 26.64 12.00
AA 61.92 31.73 19.65 8.00
A 58.29 19.86 11.58 6.00
BBB 53.93 13.25 7.14 4.00
BB 49.01 9.06 4.44 2.00
B 47.78 6.10 2.91 1.50
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
S&P's credit and cash flow results indicate that the available
credit enhancement for the class A notes continues to be
commensurate with the assigned rating. S&P therefore affirmed its
rating on this class of notes.
The downgrades of the class B-Dfrd to E-Dfrd notes reflect the
deterioration in cash flow results on these notes due to the
increased arrears.
S&P said, "The class E-Dfrd and F-Dfrd notes continue to face
shortfalls under our standard cash flow analysis at the 'B' rating
level.
"Therefore, we applied our 'CCC' criteria to assess if either a
rating of 'B-' or a rating in the 'CCC' category would be
appropriate. Our 'CCC' rating criteria specify the need to assess
whether there is any reliance on favorable business, financial, and
economic conditions to meet the payment of interest and principal.
"In our steady state scenario, we increased our prepayment
assumptions in our 'low' interest rate scenario based on the
observed prepayment level, stressed actual fees in our cash flow
analysis, and did not apply spread compression.
"In the steady state scenario, where the current stress level shows
little to no increase and collateral performance remains steady,
the class E-Dfrd and F-Dfrd notes do not pass our 'B' cash flow
stresses. In our previous review, the class E-Dfrd notes did not
face shortfalls at our 'B' rating scenario in the steady state,
while the class F-Dfrd notes did face shortfalls. This
deterioration for the class E-Dfrd notes is driven by the higher
WAFF.
"Therefore, in our view, payment of interest and principal on the
class E-Dfrd and F-Dfrd notes does depend on favorable business,
financial, and economic conditions. Therefore, a rating in the
'CCC' category is appropriate for both classes of notes.
"We therefore lowered to 'CCC+ (sf)' from 'B- (sf)' our rating on
the class E-Dfrd notes, and affirmed our 'CCC (sf)' rating on the
class F-Dfrd notes. The ratings we have assigned to both classes of
notes also reflect the fact that the class E-Dfrd notes are senior
to the class F-Dfrd notes in the capital structure and have more
credit enhancement than the class F-Dfrd notes. We therefore
believe that a one-notch differential within the 'CCC' category is
warranted between both classes of notes."
Macroeconomic forecasts and forward-looking analysis
S&P said, "We expect U.K. inflation to remain above the Bank of
England's 2% target in 2024 and forecast the year-on-year change in
house prices in fourth-quarter 2024 to be 1.4%.
"We consider the borrowers in this transaction to be nonconforming
and as such generally less resilient to inflationary pressure than
prime borrowers. At the same time, 99.9% of the borrowers are
currently paying a floating rate of interest and so have been
affected by rate rises.
"Given our current macroeconomic forecasts and forward-looking view
of the U.K. residential mortgage market, we have performed
additional sensitivities relating to higher levels of defaults due
to increased arrears. We have also performed additional
sensitivities with extended recovery timings due to the delays we
have observed in repossession owing to court backlogs in the U.K.
and the repossession grace period announced by the U.K. government
under the Mortgage Charter.
"We therefore ran eight scenarios with increased defaults and
higher loss severities of up to 30%. The results of the sensitivity
analysis indicate a deterioration that is in line with the credit
stability considerations in our rating definitions.
"While there are failures in the sensitivity to extended recovery
timings, these failures are limited in both size and the number of
failing scenarios. We do not expect the recovery timings to be
elevated for the transaction's life."
JUPITER FUND: Fitch Cuts Subordinated Debt Rating to 'BB+'
----------------------------------------------------------
Fitch Ratings has downgraded UK-domiciled and listed investment
manager (IM) Jupiter Fund Management PLC's (Jupiter) Long-Term
Issuer Default Rating (IDR) to 'BBB-' from 'BBB'. The Outlook is
Stable. Fitch has also downgraded Jupiter's subordinated debt
rating to 'BB+' from 'BBB-'.
The downgrades reflect a trend of net client money outflows
registered over the past five years, including in 1H24, which
weighed on Jupiter's assets under management (AuM) base and
represents a delay to Fitch's expected timeline for Jupiter
returning to sustained net client money inflows. While net outflows
were partly related to certain one-off factors, Fitch views that
Jupiter's still comparatively concentrated franchise and business
profile have proved less resilient than peers' in countering
challenges facing active traditional IM.
The rating action has been taken in conjunction with Fitch's
traditional IM sector review.
Key Rating Drivers
Business Profile Constrains IDR: Jupiter's IDR reflects its
well-established UK retail presence but more concentrated and
smaller-scale franchise than higher rated IM peers', which can
increase the vulnerability of AuM in volatile markets. The rating
is constrained by continued net AuM outflows, which weigh on
Fitch's assessment of Jupiter's franchise and business model.
Jupiter's low leverage supports its rating.
Limited Scale; Continued Net Outflows: Jupiter's AuM of GBP51.3
billion at end-1H24 (end-2023: GBP52.2 billion) is small compared
with Fitch-rated IM peers'. Jupiter's trend of net outflows of its
AuM continued into 1H24, due partly to management changes both to
its Value equity team and the Chrysalis Investment Trust. The net
flows/beginning-of-year AuM ratio stood at -6.5% on average over
2020-2023, the weakest among the rated peers'. The retail and
equities focus of Jupiter as well as its smaller scale can leave
the franchise more vulnerable than other IMs, especially in periods
of market volatility and risk aversion.
Diversification a Strategic Priority: Management aim to diversify
the franchise by growing the proportion of institutional AuM as
well as expanding outside of the UK, in particular, to Italy and
Germany. Additionally, bolt-on acquisitions are being considered.
Institutional AuM now comprises almost 20% of AuM (up from 8%
end-2021) and this should help AuM stability but could lead to
lumpy flows as investment sizes are larger, and mandates are also
typically lower-margin.
Sound Risk Controls: Fitch views Jupiter's risk controls as robust,
with good risk-management systems in place. Nevertheless, its fund
managers adopt a high-conviction approach, which can lead to both
fund performance and seed-investment performance volatility,
increasing Jupiter's risk profile relative to peers'. Individual
seed-investment exposure can be large but total exposure is managed
within a limit of GBP200 million and is partially hedged, which
mitigates its direct market-risk impact on the income statement.
Decreasing Profitability: Fitch expects Jupiter's profitability to
remain under pressure from its declining AuM, fee compression and
business-mix shift. Fitch-calculated fee-related EBITDA margin
remained robust at 27.9% at end-1H24 although it was down from
30.5% at end-2023. Jupiter's significant share of variable cost in
its cost structure and management's continued effort to reduce
operating cost should partly offset margin pressure.
Low Leverage: Jupiter's ratings benefit from its robust
capitalisation and limited debt issuance with a gross
debt/fee-related EBITDA of 0.5x at end-1H24 (2023: 0.4x). Fitch
expects Jupiter to maintain its strong capital surplus, which
increased to GBP199 million at end-1H24, 3.75x its regulatory
surplus requirement of GBP72 million.
Sound Liquidity: As a cash-generative business with little debt,
Jupiter has limited liquidity needs. Fee-related EBITDA/ interest
expense was healthy at 21.9x at end-1H24 (2023: 25.4x). Also, debt
maturities are long-dated with no significant near-term maturities
to manage and with a comfortable cash cushion exceeding debt.
Jupiter holds a GBP40 million revolving credit facility for back-up
liquidity, but this remained undrawn throughout 2023.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Limited downside risk due to Jupiter's robust capitalisation, low
leverage and acceptable funding and liquidity profile. However,
persistent net AuM outflows or substantial margin erosion or a
significant weakening of Jupiter's IM franchise, could result in
negative rating action
- Deviation from Jupiter's current strategy of avoiding leverage
within the business (excluding Tier 2 notes) or a major operational
loss challenging the robustness of Jupiter's risk-control framework
could also lead to a downgrade
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Sustainable net inflows, indicating a recovery of Jupiter's
business profile and leading to increased fee-earning AuM alongside
a fee-related EBITDA margin of 20% or higher could result in
positive rating action. Over the long term, a material increase in
scale and geographic and/or asset-class diversification would be
rating-positive
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Jupiter's GBP50 million fixed-rate 10-year subordinated notes
qualify as Tier 2 regulatory capital. They are rated one notch
below Jupiter's Long-Term IDR to reflect their greater loss
severity due to their subordinated nature. The notes have a call
option and interest reset in 2025.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The subordinated notes' rating is primarily sensitive to a change
in Jupiter's Long-Term IDR, from which it is notched.
ADJUSTMENTS
- The 'bbb-' Standalone Credit Profile (SCP) is below the 'bbb'
category implied SCP due to the following adjustment reason:
weakest link - business model (negative)
- The 'bbb' funding, liquidity & coverage score is below the 'aa &
above' category implied score due to the following adjustment
reason: funding flexibility (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
----------- ------ -----
Jupiter Fund
Management PLC LT IDR BBB- Downgrade BBB
Subordinated LT BB+ Downgrade BBB-
MIND HALTON: Kirks Named as Administrators
------------------------------------------
Mind Halton Association For Mental Health was placed into
administration proceedings in the High Court of Justice Business
and Property Courts of England and Wales, Insolvency & Companies
List (ChD), Court Number: CR-2024-005082, and David Gerard Kirk and
Daniel Robert Jeeves of Kirks were appointed as administrators on
Aug. 30, 2024.
Mind Halton is a mental health charity.
Its registered office and principal trading address is at Mind, 3
Wellington Street, Runcorn, WA7 1LB.
The administrators can be reached at:
David Gerard Kirk
Daniel Robert Jeeves
Kirks
5 Barnfield Crescent
Exeter, EX1 1QT
For further details, contact:
Daniel Jeeves
E-mail daniel@kirks.co.uk
Tel No: 01392 474303
PATAGONIA HOLDCO 3: S&P Lowers ICR to to 'CCC+', Outlook Stable
---------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on building
materials distributor Patagonia Holdco 3 Ltd. (operating as Huws
Gray) to 'CCC+' from 'B-', and its issue-level rating on its senior
secured debt to 'CCC+' from 'B-'. The '3' recovery rating on the
debt is unchanged, indicating S&P's expectation of meaningful
recovery (50%-70%; rounded estimate: 55%) in the event of a
default.
Huws Gray continues to face an industrywide challenging trading
environment with weak demand and high degree of competition in the
U.K. general builders' materials market, pressuring its earnings.
The stable outlook reflects S&P's expectation that while Huws Gray
will report negative FOCF in 2024 and 2025, it will maintain
sufficient liquidity to fund its operations and meet its interest
payment obligations over a 12-month period, supported by its lack
of near-term maturities.
S&P Global Ratings expects challenging market conditions to persist
in 2024, keeping Huws Gray's leverage elevated and turning FOCF
negative. Huws Gray delivered weaker results in the first half of
2024 than in the same period in 2023. Management-adjusted EBITDA
declined by about 29% to GBP36 million in first-half 2024, driven
by a challenging macroeconomic environment in the U.K., including
still-high interest rates that impact both the construction output
and consumers' purchasing power, and a high-degree of competition
in the fragmented U.K. building materials distribution market. S&P
said, "We forecast Huws Gray's EBITDA, as adjusted by S&P Global
Ratings, will remain broadly flat at about GBP85.0 million in 2024,
from GBP82.5 million in 2023, corresponding to adjusted debt to
EBITDA of 12.5x-13.0x and EBITDA interest coverage of about 1.0x.
This contrasts with our previous forecast of adjusted EBITDA of
about GBP90 million, adjusted leverage of 11.0x-11.5x, and EBITDA
interest coverage of over 1.0x."
S&P said, "Moreover, we now project FOCF after leases will drop to
negative GBP20 million-GBP25 million in 2024, from positive GBP3.5
million in 2023. This is despite our expectation of a modest
working capital inflow, no material cash tax payments, and
management's actions to preserve liquidity by limiting capex. This
is because the depressed level of EBITDA is insufficient to cover
the substantial cash interest expenses, which we estimate at about
GBP85 million in 2024, including the impact of hedges.
"We forecast FOCF will remain negative in 2025, despite our
expectation that market conditions will improve.After a weak 2023,
and our expectation that challenging trading conditions will
persist throughout 2024, we think that the key repair, maintenance,
and improvement (RMI) and DIY markets are showing early signs of
recovery that could support an improvement in volumes margins in
2025: in July and August, GfK's U.K. Consumer Confidence Index
improved to its highest level since September 2021, suggesting that
consumers are continuing to feel more confident than in the past
three years. At the same time, the Bank of England cut rates for
the first time in four years in August, which could--over
time--lead to lower borrowing costs and increase housing
transactions--a key driver for RMI and DIY spending. Finally, the
headline S&P Global U.K. Construction Purchasing Managers' Index
rose to 55.3 in July from 52.2 in June, indicating optimism that
activity could expand over the coming year. That said, we think
that there are still risks to the pace and magnitude of demand
recovery, including potential for higher taxes that could erode
consumers' confidence and lead households to further curtail or
postpone discretionary spending.
"To summarize, we forecast market conditions will improve only
modestly in 2025. Our base case factors in top-line growth of 3%-4%
in 2025, compared with our estimate of a 2.0%-2.5% decline in 2024,
and an increase in EBITDA to about GBP100 million, still below the
levels of profitability achieved in 2021-2022. Importantly, we
think that this level of profitability will not be sufficient to
cover the company's cash uses, including substantial cash interest
payments that we forecast at roughly GBP85 million in 2025,
investments in working capital, capex of GBP20 million-25 million,
and modest lease payments.
"The downgrade reflects our expectation that although Huws Gray
will maintain sufficient liquidity over the next 12 months, its
cash flows will remain under pressure.Huws Gray's liquidity
position amounted to GBP123 million as of June 30, 2024, including
available cash and the availability under its revolving credit
facility (RCF). The company is subject to a springing senior
secured net leverage covenant of 9.5x. The covenant applies in the
event the facility is 40% drawn. The RCF remains undrawn as of June
30, 2024. Since we do not expect Huws Gray to meet the senior
secured net leverage covenant, if it were to be tested, we only
assume GBP50 million available under these facilities.
"Given our forecast that FOCF after leases will deteriorate beyond
our previous estimates in 2024 and 2025 to negative GBP20
million-GBP25 million, we think that the company will maintain
sufficient liquidity to fund its operations beyond the next 12
months. However, we deem the capital structure as unstainable, with
adjusted debt to EBITDA of over 10.5x in 2024 and 2025 and
sustained negative FOCF and EBITDA interest coverage at about 1.0x
over the same period.
"The stable outlook reflects our expectation that while Huws Gray
will continue to post negative FOCF in 2024 and 2025, it will
maintain sufficient liquidity to fund its operations and meet its
interest payment obligations over a 12-month period, supported by
its lack of near-term maturities.
"We forecast the company's operating performance will continue to
point to an unsustainable capital structure, with S&P Global
Ratings-adjusted debt to EBITDA of over 10.5x in 2024 and 2025,
sustained negative FOCF and EBITDA interest coverage at about 1.0x
over the same period."
S&P could lower its rating on Huws Gray if it thinks it is likely
face liquidity issues over the next 12 months. This could occur
if:
-- Trading conditions remain subdued, leading to
weaker-than-anticipated recovery in earnings and a
greater-than-expected level of negative FOCF after leases resulting
in the company's liquidity position deteriorating materially, such
that S&P no longer assumes the company has sufficient liquidity to
fund its operations over a 12-month period; and
-- S&P expects heightened risk of default, including debt exchange
offers and similar restructurings that it may deem to be a
distressed exchange.
S&P could raise its rating on Huws Gray if it generates positive
FOCF after leases on a sustained basis, supported by revenue growth
and an improvement in its EBITDA margins, while EBITDA interest
coverage strengthens and remains well above 1x.
PECKHAM LEVEL: FRP Advisory Named as Administrators
---------------------------------------------------
Peckham Levels Limited was placed into administration proceedings
in the High Court of Justice, Court Number: CR-2024-004858, and
Simon Baggs and Geoffrey Rowley both of FRP Advisory Trading
Limited were appointed as administrators on Aug. 27, 2024.
Peckham Levels, trading as Peckham Levels, is in the business of
letting and operating own or leased real estate.
Its registered office address is at 95a Rye Lane, London, SE15 4ST
(to be changed to c/o FRP Advisory Trading Limited, 2nd Floor, 110
Cannon Street, London, EC4N 6EU). Its principal trading address is
at 95a Rye Lane, London, SE15 4ST.
The administrators can be reached at:
Simon Baggs
Geoffrey Rowley
FRP Advisory Trading Limited
2nd Floor, 110 Cannon Street
London, EC4N 6EU
For further details, contact:
The Joint Administrators
Tel No: 020 3005 4000
Alternative contact:
Jacob Kench
E-mail: cp.london@frpadvisory.com
PL TRANSPORT: SFP Named as Administrators
-----------------------------------------
PL Transport Logistics Limited was placed into administration
proceedings in the High Court of Justice Business & Property Courts
in Manchester, Insolvency & Companies List, Court Number:
CR-2024-000811, and David Kemp and Richard Hunt of SFP were
appointed as administrators on Sept. 4, 2024.
PL Transport provides non-hazardous waste collection services.
Its registered office is at SFP, 9 Ensign House, Admirals Way,
Marsh Wall, London, E14 9XQ. Its principal trading address is at
Unit 24 A&B Thorney Business Park, Thorney Lane North, Iver, SL0
9HF.
The administrators can be reached at:
David Kemp
Richard Hunt
SFP
9 Ensign House, Admirals Way
Marsh Wall, London
E14 9XQ
For further details, contact
David Kemp
Tel No: 0207 538 2222
S.L. TRANSPORT: KBL Advisory Named as Joint Administrators
----------------------------------------------------------
S.L. Transport (UK) Limited was placed into administration
proceedings in the High Court of Justice Business and Property
Court in Manchester, Company and Insolvency List, No
CR-2024-MAN-1119 of 2024, and Richard Cole and Steve Kenny of KBL
Advisory Limited were appointed as joint administrators on Aug. 30,
2024.
S.L. Transport, f/k/a Showindex Limited, offers haulage services.
Its principal trading address is at Unit 43-44, Whitehill
Industrial Estate, Swindon, Wiltshire, SN4 7DB.
The joint administrators can be reached at:
Steve Kenny
Richard Cole
KBL Advisory Limited
Stamford House, Northenden Road
Sale, Cheshire, M33 2DH
For further information, contact:
Cherry Yau
KBL Advisory Limited
E-mail: Cherry.Yau@kbl-advisory.com
Tel No: 0161 637 8100
SAMPER INSTALLATION: Opus Restructuring Named as Administrators
---------------------------------------------------------------
Samper Installation Limited was placed into administration
proceedings in the High Court of Justice Business and Property
Courts in Birmingham, Insolvency & Companies List (ChD), Court
Number: CR-2024-BHM-00516, and Frank Ofonagoro and Mark Ranson of
Opus Restructuring LLP were appointed as administrators on Aug. 28,
2024.
Samper Installation, trading as Samper Installation, specializes in
construction installation.
Its registered office and principal trading address is at Samper
House Unit 2, Shawclough Trading Estate, Rochdale, Lancashire, OL12
6ND.
The administrators can be reached at:
Frank Ofonagoro
Mark Ranson
Opus Restructuring LLP
2nd Floor, 3 Hardman Square
Spinningfields, Manchester
M3 3EB
For further details, contact:
Monika Olajcova
E-mail: Monika.olajcova@opusllp.com
*********
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,
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2024. All rights reserved. ISSN 1529-2754.
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