/raid1/www/Hosts/bankrupt/TCREUR_Public/240919.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 19, 2024, Vol. 25, No. 189
Headlines
F R A N C E
EMERIA SASU: Fitch Lowers LongTerm IDR to 'B-', Outlook Stable
G E R M A N Y
DYNAMO MIDCO: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
XSYS GERMANY: S&P Affirms 'B-' Issuer Credit Rating, Outlook Stable
I R E L A N D
AURIUM CLO XII: Fitch Assigns 'B-sf' Final Rating on Class F Notes
AURIUM CLO XII: S&P Assigns B-(sf) Rating on Class F Notes
HARVEST CLO XXXIII: Fitch Assigns 'B-(EXP)sf' Rating on Cl. F Notes
HARVEST CLO XXXIII: S&P Assigns Prelim. B-(sf) Rating on F Notes
PENTA CLO 14: Fitch Assigns 'B-(EXP)sf' Rating on Class F-R Notes
PENTA CLO 14: S&P Assigns Prelim. B-(sf) Rating on Cl. F-R Notes
I T A L Y
BUBBLES BIDCO: S&P Assigns Prelim. 'B' ICR, Outlook Stable
CEME SPA: Fitch Assigns 'B(EXP)' First-Time IDR, Outlook Stable
CEME SPA: S&P Assigns Prelim. 'B' LongTerm Issuer Credit Rating
EMERALD ITALY 2019: Fitch Lowers Rating on Class B Notes to CCsf
L U X E M B O U R G
ACCORINVEST GROUP: Fitch Gives 'B' LongTerm IDR, Outlook Stable
ACCORINVEST GROUP: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
TSM II LUXCO 21: S&P Assigns 'B+' LongTerm ICR, Outlook Stable
N E T H E R L A N D S
NOBIAN HOLDING: S&P Rates New EUR974MM Term Loan B 'B'
OCI NV: Moody's Assigns 'Ba1' CFR, Placed on Review for Downgrade
S P A I N
CODERE FINANCE 2: Moody's Rates New EUR128MM Secured Notes 'Caa2'
U N I T E D K I N G D O M
BLUE CHYP: FRP Advisory Named as Administrators
BOPARAN HOLDINGS: Fitch Puts 'B-' LongTerm IDR on Watch Positive
CELLEN BIOTECH: Mercer & Hole Named as Administrators
CELLEN LIFE: Mercer & Hole Named as Administrators
CONTRACT FLOORING: Wilson Field Named as Administrators
ELECTROLYTIC PLATING: BDO Named as Joint Administrators
FINSBURY SQUARE 2021-2: Fitch Lowers Rating on Two Tranches to B-sf
HADDEN CONSTRUCTION: Alvarez & Marsal Named as Joint Administrators
LEVANTINA (UK): Interpath Advisory Named as Joint Administrators
LIFESTYLE LIVING: BDO Named as Joint Administrators
LONDON SLTS: FRP Advisory Named as Administrators
PLATFORM BIDCO: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
Q DELIVERY: KBL Advisory Named as Administrators
R&Q UK: Teneo Financial Named as Administrators
VEDANTA RESOURCES: Moody's Ups CFR to 'Caa1', Outlook Stable
WHEEL BIDCO: S&P Downgrades LT ICR to 'CCC+', Outlook Stable
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F R A N C E
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EMERIA SASU: Fitch Lowers LongTerm IDR to 'B-', Outlook Stable
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Fitch Ratings has downgraded Emeria SASU's Long-Term Issuer Default
Rating (IDR) to 'B-' from 'B'. Fitch has also downgraded Emeria's
senior secured debt rating to 'B' from 'B+' with a Recovery Rating
of 'RR3'. The Outlook is Stable.
The downgrades reflect Emeria's high leverage and low EBITDA
interest coverage, which are not commensurate with the previous 'B'
rating. Fitch forecasts that EBITDA leverage will not decline to
7.0x until 2027 and interest coverage will reach 2.5x only in 2027.
The improvement in Emeria's credit metrics is conditional on EBITDA
growth stemming from a conducive market environment and the
successful execution of efficiency gains from operations and
acquisitions.
The Stable Outlook is supported by the recurring nature of the
majority of Emeria's residential real estate services (RRES),
improving reported profit margins and its management's commitment
to reduce leverage.
Key Rating Drivers
Persistently High Leverage: Fitch forecasts Emeria's EBITDA gross
leverage will be a high 11.2x at end-2024. This is lower than the
15.5x at end-2023 due to the full-year impact of the acquisition of
Chestertons in the UK and a Fitch-expected decrease in integration
expenses to EUR50 million from EUR86 million. Fitch forecasts
substantial EBITDA improvement during 2025-2027, which should
further reduce leverage.
However, Fitch does not expect leverage to decrease below its
previous negative rating sensitivity of 7x until 2027. This is one
year later than in its previous forecast, reducing visibility on
its refinancing capacity in 2027-2028 when Emeria's revolving
credit facility and the bulk of its debt matures.
Low Interest Coverage Ratio: The increase in interest paid due to
debt incurred to finance acquisitions combined with the higher cost
of debt, was not offset by proportional EBITDA growth. This
resulted in an interest coverage ratio of 1.2x in 2023, down from
1.9x in 2022. At end-1H24, EUR1.2 billion of Emeria's floating rate
debt was capped at 1%. As this EURIBOR cap matures at end-2024
Fitch forecasts interest expenses in 2025 to increase further
despite cuts in policy rates. A return of interest coverage to
above 2x in 2026 is conditional on EBITDA growth.
EBITDA Improvement Execution Risk: Improvement in Fitch-calculated
EBITDA depends on several factors including the realisation of
efficiency gains from Emeria's new organisational structure
supported by a proprietary resource planning system and the
successful integration of bolt-on acquisitions, but both are
subject to execution risk. A recovery in Emeria's restructured
French brokerage division and higher EBITDA from its Swiss and
German operations are conditional on an improvement in market
conditions and the timing of the policy interest rates cuts.
Reiterated Deleveraging Commitment: Emeria reported an increase in
pro-forma net senior secured debt to company-adjusted EBITDA ratio
at end-1H24 to 6.94x (end-2023: 6.53x). This higher leverage was
due to the continued weak economic environment, intra-year working
capital requirements and expenses related to restructuring of
Emeria's German and Swiss operations. Management has reiterated its
commitment to cash-flow leverage reduction, although it did not
specify a target.
Brokerage Adversely Affected: The volume of residential property
transactions in France decreased by 22% in the last 12 months to
end-June 2024. Prices have also declined moderately. Interest rates
cuts this year should increase access to mortgage financing and
improve overall consumer sentiment. This should aid a gradual
recovery of Emeria's residential brokerage revenue, which in 1H24
decreased yoy by 20% to EUR78 million, including Efficity, an
online brokerage unit with revenues at EUR23 million (19% lower).
Stable RRES Business: About 78% of group revenue (RRES in France
and abroad) is recurring and largely independent of economic
cycles, which contributes to the stability and visibility of its
financial profile. However, a decrease in residential property
transactions resulted in less higher margin transfer fees while
income from letting-related services was also down.
Slower Acquisition-Driven Growth: While acquisitions remain the key
to Emeria's growth in its joint property management and lease
management businesses, M&A activity has slowed. In 1H24 Emeria
completed 18 bolt-on acquisitions, down from 30 in 1H23. Lower M&A
volumes were reflected in lower integration costs in 2Q24 (EUR16
million) compared to 1Q24 (EUR18 million) when these costs were
affected by integration of bigger targets acquired in 2023. Fitch
expects that integration costs, which Fitch includes in its EBITDA
calculation, will decrease to about EUR20 million annually during
2025-2027.
UK-Driven Revenue Growth: Emeria's revenue growth was 4.4% yoy in
1H24. This was mainly due to the Chestertons acquisition, which
contributed to 67% growth in Emeria's UK business. Total revenue in
France declined by 0.7% as increases in RRES (3.4%), including a 6%
increase in insurance brokerage, were offset by a drop in
residential brokerage. Combined revenue in Switzerland, Benelux and
Germany declined by 14%.
Concentration on France: France remains Emeria's key market with
74% of 1H24 revenue. Emeria does not quote updated figures for
dwellings under management, however its market share is estimated
at around 20%. This is more than the share held by Citya Immobilier
or Bridgepoint-owned Evoriel which took over Nexity's RRES business
in 2024.
Regulatory Risk: The RRES in France operates within various
regulatory frameworks. Any future changes in regulations, intended
to protect smaller market participants like private landlords,
tenants or apartment buyers, could adversely affect profit margins
of residential property-servicing companies. The increased
regulatory obligations also limit competition as smaller companies
lack the scale to cope with the regulatory burden while remaining
profitable.
Derivation Summary
Emeria's rating derivation versus peers is more a function of the
characteristics of a broad peer group than specific companies.
Fitch used peers from its business services market portfolio. The
key characteristics of the peer group include: (i) generally strong
recurring revenue streams or stable customer base; (ii) a focus on
a single geographical market; (iii) defensible market positions and
reputational value; (iv) exposure to regulatory risk; (v) growth
strategy dependent on bolt-on acquisitions; and (vi) high, but
sustainable, leverage supported by moderate cash flow.
Emeria commands higher margins and has strong competitive position.
However, its cash-flow generation is now weaker than in 2019-2021
and high EBITDA leverage combined with the uncertain deleveraging
path increases refinancing risk.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Group revenue totalling CAGR of 7% during 2024-2027, supported by
ongoing M&A
- RRES division in France to grow organically by over 2% per year
until 2027, supported by an increase in prices
- Revenue and EBITDA arising from acquisitions made in 2024 and the
following years are annualised
- Fitch deducts from EBITDA EUR50 million integration costs related
to acquisitions in 2024 and about EUR19-EUR24 million annually in
2025-2027
- About EUR375 million spent on acquisitions during 2024-2027 at a
Fitch-assumed 4.8x-5x EBITDA multiple, 25% EBITDA margin, and
financed from FCF
Recovery Analysis
The recovery analysis assumes that Emeria would be reorganised as a
going concern (GC) in bankruptcy rather than liquidated.
Fitch has estimated a GC EBITDA for Emeria of EUR315 million
including the full-year EBITDA contribution from acquisitions
completed during 1H24 and no integration expenses. In 2024, the
first full year of trading after the acquisitions of Chestertons
and others from 2023, Fitch expects EBITDA of EUR355 million
excluding integration expenses. In its view, a default would be the
result of an impairment of the core RRES business segment leading
to a diminished market position, possibly as a result of regulatory
changes.
An enterprise value (EV) multiple of 6.0x EBITDA is applied to the
GC EBITDA to calculate a post-reorganisation EV. The multiple is
explained by (i) low customer churn; (ii) stable demand for
Emeria's services; and (iii) highly recurring revenue. The same
6.0x EV multiple was applied in its previous recovery analysis.
Fitch has included EUR24 million super-senior loans at the
operating companies' level. Fitch assumes the senior secured RCF of
EUR438 million would be fully drawn upon default. The remaining
pari passu senior secured instruments include a term loan B and
senior secured notes totalling EUR2,863 million. Junior debt
includes senior unsecured notes of EUR250 million.
After deducting 10% for administrative claims, its principal
waterfall analysis generated a ranked recovery for the all-senior
secured capital structure of 'RR3' and 'RR6' for the senior
unsecured notes. The estimated waterfall generated recovery
computations are 51% and 0%, respectively.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage below 7.0x on a sustained basis
- EBITDA interest cover above 2.5x on a sustained basis
- FCF (pre-M&A) margins approaching 0%
- Successful delivery of efficiency/cost-saving programmes
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage above 8.5x on a sustained basis
- EBITDA interest cover below 1.5x on a sustained basis
- Negative FCF (pre-M&A) on a sustained basis
- Deteriorating liquidity ahead of 2027 and 2028 refinancing risk
- Regulatory changes adversely affecting revenue or margins
Liquidity and Debt Structure
Satisfactory Liquidity: Emeria had EUR7.2 million of cash net of a
short-term overdraft and EUR117.1 million remained available under
its EUR438 million revolving credit facility (RCF) and overdraft at
end-1H24. Group debt (except for the RCF which matures in September
2027) matures no earlier than March 2028 with no amortising
tranches. Since about 70% of Emeria's operating cash flow is
generated in the second part of the year (40% in 4Q) Fitch expects
that the liquidity position will improve by the year-end.
Emeria issued a EUR100 million add-on to its existing EUR2.0
billion term loan B in March 2024. The proceeds from the TLB
increase was used to pay down Emeria's outstanding RCF drawings.
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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Emeria SASU LT IDR B- Downgrade B
senior unsecured LT CCC Downgrade RR6 CCC+
senior secured LT B Downgrade RR3 B+
Flamingo Lux II SCA
senior unsecured LT CCC Downgrade RR6 CCC+
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G E R M A N Y
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DYNAMO MIDCO: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
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S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating and preliminary 'B' issue rating to Germany-based
Dynamo Midco B.V. (Innomotics) and its proposed senior secured
instruments and euro- and dollar-equivalent term loans B (TLBs),
respectively.
The stable outlook reflects S&P's expectation the company will
generate 1%-4% revenue growth annually in fiscal 2025-2026,
complete all carve-out and streamlining activities, and further
improve its profitability. S&P expects Innomotics' S&P Global
Ratings-adjusted debt-To-EBITDA ratio to improve toward 5x in
fiscal 2026, solid positive free operating cash flow (FOCF), and
S&P Global Ratings-adjusted EBITDA margins trending toward 12% in
fiscal 2026.
Innomotics was acquired by KPS Capital Partners as a part of the
carve-out deal from Siemens. The rating on Innomotics is
constrained by the high leverage and as well as the
still-meaningful related carve-out costs and costs related to the
streamlining of its operations in fiscal years 2025 and 2026, which
are burdening the group's profitability and cash flow. S&P said,
"We anticipate that S&P Global Ratings-adjusted debt to EBITDA will
be 5.5x-6.0x in fiscal 2025 and then reduce to about 5.0x in fiscal
2026. We expect funds from operations (FFO) cash interest coverage
to be slightly lower than our threshold for the rating on
increasing cash taxes and higher cash interest expense on the new
capital structure, at about 1.7x and 2.1x, respectively, over the
same period. We anticipate gradual deleveraging as the company goes
through independent business set-up and takes initiatives to
improve divisional profitability." S&P expects the transaction to
complete in the fourth quarter of 2024, with the following proposed
capital structure:
-- EUR600 million senior secured instruments;
-- EUR600 million TLB;
-- EUR600 million equivalent U.S. dollar-denominated TLB; and
-- EUR400 million multicurrency revolving credit facility (RCF;
expected to be undrawn at closing) and a EUR300 million or greater
guarantee facility.
S&P said, "All the instruments are due in seven years, except for
RCF and guarantee facilities, which mature in 6.5 years. We
estimate the company will have a EUR75 million cash balance after
the transaction closes. There will be no other debt obligations in
the new capital structure and we understand there are no
shareholder loans or similar noncommon equity instruments."
Leading market positions, healthy diversification, and a large
installed base support the rating. Innomotics manufactures a
complementary product portfolio of low-to-high-voltage motors, as
well as MVDs and related services and solutions. This allows the
company to serve a very broad range of industrial customers
globally. It holds market leading positions with No. 1 market
shares in most of its segments, apart from Solutions, where it
ranks behind its main competitor, ABB Ltd. Innomotics built and
sustained its leadership, with ABB being the only company on a
global basis also providing a similar product offering, as well as
similar services and solutions. Innomotics benefits from a healthy
geographical diversification, being only somewhat skewed toward
Europe, with 29% of sales stemming from Germany and the rest of
Europe constituting 21%. This is comparable with that of larger
European capital goods peers. Innomotics has a broad customer range
and large installed base, with the top 15 customers representing
about 30% of the order intake in 2023. Siemens is the largest
customer, representing 7.1% of the total order intake and long-term
agreements. Innomotics demonstrates strong customer retention and a
good track record of project execution, with 70% of clients having
relationships lasting more than 20 years and 90% over 10.
Exposure to cyclical markets and industrial activity is offset by
economic megatrends and a large service portfolio. S&P thinks the
group's growth is closely linked to economic cycles and industrial
activity. About 43% of its sales is exposed to cyclical industries
such as oil and gas, and metals and mining. S&P thinks Innomotics
will benefit from trends to invest in more efficient energy
solutions. Motors consumes 65%-70% of industrial electrical energy,
and demand for higher efficiency motors is increasing on tightening
regulation and customers' need to meet their energy efficiency
targets. While those standards are more relevant for low-voltage
motors (LVM), customer with exposure to heavy processing
industries, like mining or oil and gas, also use a lot of energy.
Therefore, the Innomotics product suite of high-voltage motors
(HVM) and MVDs are crucial for improving operational energy
efficiency and costs. Demand for the company's products should by
also be supported by the replacement cycle opportunity as customers
replace fossil-fuel-powered engines with electric ones. Increasing
demand for hydrogen should also provide some tailwind, because new
technology requires a full suite of Innomotics products. Digital
analytics drive process controls and predictive maintenance and can
improve customer retention, benefiting Innomotics' service and
solutions offerings. Service contracts are profitable and
constitute about 17% of the company's sales.
Visibility is mixed due to the presence of short- and long-cycled
businesses in the portfolio, which offset each other. The largest
LVMs division (36.5% of revenue) is a short-cycled business, it is
more prone to market volatility as the product is more
standardized, lacking bundling potential and service component.
These products are more consumable in nature and have limited
visibility. The order backlog is quite short, at about three
months. About 60% of these products are sold via distributors,
which also tend to destock actively during market weakness. This is
offset by fast availability of the products and ability to deliver
them to the customer with a short lead time. HVMs are more
late-cycle, which provides some offsetting effect, when there is a
downward pressure on the LVM division. HVM has more potential for
customization and is used in more specialized applications. This
business unit has better order backlog visibility, at about six
months. Fifty percent of MVDs are usually sold with HVMs, and have
similar dynamics and visibility. Solutions complement the HVM and
MVD product lines, and are highly correlated with their installed
base.
S&P said, "We expect that Innomotics will return to moderate growth
after a decline in 2024, and profitability is improving given
reduced restructuring costs and measures to boost divisional
margins. We project group sales will decline approximately 3.2% in
2024, mainly due to a soft start to the year, particularly in the
short-cycle LVM division. We expect this segment to see a 7.8% drop
in sales, from destocking and normalizing order intake. We expect
other segments to be stable or show modest growth, with the
services business expanding the most (6%). In fiscal 2025, we
anticipate a rebound in LVM sales, while HVM sales could decline
due to the division's later-cycle nature. We expect the S&P Global
Ratings-adjusted EBITDA margin to improve by 150 basis points to
7.1% in 2024, with further expansion toward 10.0%-11.0% by 2025.
Profitability is projected to improve significantly, mainly due to
the completion of the carve-out and related cost-reduction
activities. Innomotics has undergone substantial restructuring and
preparation for separation, with most of the carve-out expenses to
be settled by the end of 2024. While additional optimization
efforts will continue post-carve-out, we expect these to be
significantly lower than in previous years.
"The final ratings will depend on our receipt and satisfactory
review of all final documentation and final terms of the proposed
TLB and senior instruments. The preliminary ratings should
therefore not be construed as evidence of final ratings. If we do
not receive final documentation within a reasonable time, or if the
final documentation and final terms of the proposed TLB and senior
instruments depart from the materials and terms reviewed, we
reserve the right to withdraw or revise the ratings. Potential
changes include, but are not limited to, utilization of the
proceeds, maturity, size and conditions of the facilities,
financial and other covenants, security, and ranking.
"The stable outlook reflects our expectations that Innomotics will
generate 1%-4% revenue growth annually in fiscal 2025-2026,
complete all carve-out and streamlining activities, and further
improve its profitability. We therefore expect Innomotics' S&P
Global Ratings-adjusted debt-To-EBITDA ratio to improve to near 5x
in fiscal 2026, solid positive FOCF, and S&P Global
Ratings-adjusted EBITDA margins trending toward 12% in fiscal
2026.
"We could lower the ratings if profitability weakened due to
higher-than-expected carve-out and restructuring costs or a more
pronounced economic downturn. Debt to EBITDA exceeding 6.5x and FFO
cash interest coverage falling below 2.0x for a prolonged period,
as well as the inability to generate positive FOCF, would also put
downward pressure on the ratings.
"We could raise the ratings if the group sustainably improves its
S&P Global Ratings-adjusted EBITDA margins above 13%. At the same
time, we would expect Innomotics to maintain adjusted debt to
EBITDA sustainably at or below 5x, supported by a commensurate
financial policy, and deliver constantly meaningful FOCF."
XSYS GERMANY: S&P Affirms 'B-' Issuer Credit Rating, Outlook Stable
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S&P Global Ratings affirmed its 'B-' issuer credit rating on XSYS
Germany Holding, the 'B-' issue rating on the first-lien debt, and
the 'CCC' issue rating on the second-lien debt.
The stable outlook on the issuer credit rating indicates that we
expect XSYS' S&P Global Ratings-adjusted EBITDA margin to settle at
well above 25% in the next 12 months; its free operating cash flow
(FOCF) to be positive at end-2024; that its funds from operations
(FFO) cash interest coverage will not fall below 1.5x; and that the
group will maintain adjusted debt to EBITDA below 10x over the next
12 months.
S&P said, "We do not believe XSYS' acquisition of MacDermid
Graphics Solutions (MGS) business will result in significant
leverage increase. On Sept. 3, XSYS announced it had signed a
definitive agreement to acquire MGS for an enterprise value of
about $325 million. XSYS is acquiring the assets that comprise MGS
from Element Solutions Inc., a U.S.-based specialist in
manufacturing flexographic plates and reseller of platemaking
equipment for package printing markets. The transaction will be
financed by an add-on to the existing EUR250 million TLB, and more
than EUR70 million in cash equity. The company plans to close the
acquisition in late 2024 or the first half of 2025. We believe
that, pro forma the transaction, S&P Global Ratings-adjusted debt
to EBITDA will reach around 8.3x-8.5x in 2025, and FFO cash
interest about 2.3x-2.5x; these metrics are in line with our
expectations for a 'B-' rating."
S&P said, "MGS will bring on board additional sales of about EUR130
million-EUR140 million and EBITDA of EUR30 million-EUR35 million in
2025 before synergies. MGS' profitability was comparable with XSYS'
in 2023--we calculate its adjusted EBITDA margin was about 23%.
However, we expected some margin improvement for XSYS in 2024,
owing to decreasing exceptional costs and ongoing excellence
program measures. We also anticipate that the company will gain
synergies after the acquisition of MGS on the back of a very
complementary product portfolio, so that the combined entity will
achieve adjusted EBITDA margin of about 27%-28% in 2025, offsetting
the additional restructuring costs of integrating MGS into XSYS'
business. On the back of stabilizing volumes and the end of
destocking, we predict that the combined entity will deliver
healthy growth in 2025. Growth for XSYS as a stand-alone entity is
estimated to accelerate to about 5%-7% in 2024; for the combined
entity, it is estimated at 2%-3% in 2025.
"The stable outlook reflects our expectation that adjusted EBITDA
margin will land well above 25% in the next 12 months, that FOCF
should turn positive in 2024, that the group's FFO cash interest
coverage should not go below 1.5x, and that it will maintain
adjusted debt to EBITDA below 10x in the next 12 months."
S&P could lower the rating if XSYS':
-- FOCF turns negative;
-- FFO cash interest coverage falls substantially below 1.5x;
-- Debt to EBITDA remains above 10x;
-- Liquidity deteriorates; or
-- Covenants are breached.
This could occur if exceptional charges are higher than expected or
the company faces integration problems and higher costs, or if end
markets don't recover and operational performance doesn't
strengthen as anticipated, jeopardizing the sustainability of its
capital structure.
S&P said, "Although unlikely in the next 12 to 24 months, we could
consider raising the rating if XSYS' profitability and credit
metrics materially strengthened and were on a clear trend to
sustainably reduce debt to EBITDA to 6.5x while maintaining
positive FOCF and FFO cash interest coverage of about 2.0x. We
would consider S&P Global Ratings-adjusted EBITDA of about 35% as
commensurate with a higher rating. An upgrade would also hinge on
reduction of exceptional costs, and the business becoming more
predictable with reduced volatility. We would also expect some
track record of delivering on the business plan."
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I R E L A N D
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AURIUM CLO XII: Fitch Assigns 'B-sf' Final Rating on Class F Notes
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Fitch Ratings has assigned Aurium CLO XII DAC final ratings.
Entity/Debt Rating
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Aurium CLO XII DAC
Class A – Loan LT AAAsf New Rating
Class A - Notes
XS2856814210 LT AAAsf New Rating
Class B XS2856814483 LT AAsf New Rating
Class C XS2856814996 LT Asf New Rating
Class D XS2856815290 LT BBB-sf New Rating
Class E XS2856815456 LT BB-sf New Rating
Class F XS2856815613 LT B-sf New Rating
Subordinated Notes
XS2856815886 LT NRsf New Rating
Transaction Summary
Aurium CLO XII DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of corporate rescue
loans, senior unsecured, mezzanine, second-lien loans and
high-yield bonds. Net proceeds from the note issuance were used to
fund a portfolio with a target size of EUR400 million. The
portfolio manager is Spire Management Limited. The collateralised
loan obligation (CLO) envisages a 4.6-year reinvestment period and
an 8.5-year weighted average life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 24.4.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 61.7%.
Diversified Portfolio (Positive): The transaction has four
matrices; two effective at closing with fixed-rate limits of 5% and
10%, and two one year after closing with fixed-rate limits of 5%
and 10%, provided that the portfolio balance is above target par.
All four matrices are based on a top-10 obligor concentration limit
of 21%. The closing matrices correspond to an 8.5-year WAL test
while the forward matrices correspond to a 7.5-year WAL test.
The transaction also includes various concentration limits,
including an 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 and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed 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 and matrices analysis is 12 months less than the WAL
covenant. This reflects the strict reinvestment criteria
post-reinvestment period, which includes satisfaction of Fitch
'CCC' limitation and coverage tests, as well as a WAL covenant that
progressively steps down over time. In Fitch's opinion, these
conditions reduce the effective risk horizon of the portfolio
during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase in the mean default rate (RDR) across all ratings
and a 25% decrease in the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on any of the rated
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 defaults and portfolio deterioration.
Owing to the better metrics and shorter life of the identified
portfolio than the Fitch-stressed portfolio, the class B, D and E
notes have a cushion of two notches, the class C notes have a
cushion of one notch and the class F notes have a cushion of four
notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded, either due to manager trading
or to negative portfolio credit migration, a 25% increase in the
mean RDR across all ratings and a 25% decrease in the RRR across
all ratings of the Fitch-stressed portfolio, would lead to
downgrades of up to four notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction in the RDR across all ratings and a 25% increase in
the RRR across all ratings of the Fitch-stressed portfolio would
lead to upgrades of up to three notches for the rated notes, except
for the 'AAAsf' rated notes.
During the reinvestment period, upgrades, which are based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, allowing
the notes to withstand larger-than-expected losses for the
remaining life of the transaction. After the end of the
reinvestment period, upgrades, except for the 'AAAsf' notes, may
result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread 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 Aurium CLO XII 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.
AURIUM CLO XII: S&P Assigns B-(sf) Rating on Class F Notes
----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Aurium CLO XII
DAC's class A Loan and class A, B, C, D, E, and F notes. At
closing, the issuer also issued subordinated notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated loan and notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,784.21
Default rate dispersion 531.16
Adjusted/actual weighted-average life (years) 4.66/4.66
Obligor diversity measure 136.66
Industry diversity measure 20.69
Regional diversity measure 1.31
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.50
Actual 'AAA' weighted-average recovery (%) 37.09
Actual weighted-average spread (%) 3.98
Actual weighted-average coupon (%) 5.48
Under the transaction documents, the rated loan and notes will pay
quarterly interest unless a frequency switch event occurs.
Following this, the loan and notes will switch to semiannual
payments.
The portfolio's reinvestment period will end approximately 4.59
years after closing.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, S&P has conducted its credit and cash
flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the portfolio's covenanted weighted-average
spread (3.90%), covenanted weighted-average coupon (4.75%),
covenanted weighted-average recovery rates at the 'AAA' rating
level, and target recoveries for all other rating levels. We
applied various cash flow stress scenarios, using four different
default patterns, in conjunction with different interest rate
stress scenarios for each liability rating category."
This transaction features a principal transfer test, which allows
interest proceeds exceeding the principal transfer coverage ratio
to be paid into either the principal or supplemental reserve
account. The interest proceeds can only be paid into the principal
account senior to the reinvestment overcollateralization test and
into the supplemental reserve account junior to the reinvestment
overcollateralization test. S&P said, "Therefore, we have not
applied a cash flow stress for this. Nevertheless, because the
transfer to principal is at the collateral manager's discretion, we
did not give credit to this test in our cash flow analysis."
S&P said, "Under our structured finance sovereign risk criteria, we
consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to F notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the transaction will be in its reinvestment
phase starting from closing, during which the transaction's credit
risk profile could deteriorate, we have capped our ratings assigned
to the notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our ratings are commensurate with the
available credit enhancement for the class A Loan and the class A
to F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A Loan and
class A to E notes based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
illegal activities, child or forced labour, asbestos fibres,
sanctioned products, speculative extraction of oil and gas,
controversial weapons, hazardous chemicals and pesticides, illegal
drugs or narcotics, non-sustainable palm oil production, civilian
weapons or firearms, tobacco, thermal coal, fossil fuels, private
prisons, activities that adversely affect animal welfare, payday
lending, pornography or prostitution, trade in endangered wildlife,
or opioids.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, we have not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities."
Aurium CLO XII is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Spire
Management Ltd. manages the transaction.
Ratings list
AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%)
A AAA (sf) 163.00 3mE + 1.28% 38.00
A Loan AAA (sf) 85.00 3mE + 1.28% 38.00
B AA (sf) 44.00 3mE + 1.95% 27.00
C A (sf) 24.00 3mE + 2.20% 21.00
D BBB- (sf) 29.00 3mE + 3.15% 13.75
E BB- (sf) 17.00 3mE + 6.00% 9.50
F B- (sf) 12.00 3mE + 8.25% 6.50
Sub notes NR 30.40 N/A N/A
*The ratings assigned to the class A Loan, and class A and B notes
address timely interest and ultimate principal payments. The
ratings assigned to the class C, D, E, and F notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to 6mE when a frequency switch event occurs.
3mE--Three-month Euro Interbank Offered Rate.
6mE--Six-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
HARVEST CLO XXXIII: Fitch Assigns 'B-(EXP)sf' Rating on Cl. F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Harvest CLO XXXIII DAC 's notes expected
ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
Entity/Debt Rating
----------- ------
Harvest CLO XXXIII DAC
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
B LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
F LT B-(EXP)sf Expected Rating
Subordinated Notes LT NR(EXP)sf Expected Rating
Transaction Summary
Harvest CLO XXXIII DAC is a securitisation of mainly senior secured
obligations (at least 96%) with a component of senior unsecured,
mezzanine, second-lien loans, first-lien last-out loans and
high-yield bonds. Note proceeds will be used to fund a portfolio
with a target par of EUR400 million. The portfolio will be actively
managed by Investcorp Credit Management EU Limited. The
collateralised loan obligation (CLO) will have a 4.7-year
reinvestment period expiring in July 2029 and a seven-year weighted
average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 24.7.
High Recovery Expectations (Positive): At least 96% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 60.7%.
Diversified Portfolio (Positive): The transaction will include
various concentration limits, including a maximum exposure to the
three-largest Fitch-defined industries in the portfolio at 40% and
a top 10 obligor concentration limit at 20%. These covenants ensure
that the asset portfolio will not be exposed to excessive
concentration.
Portfolio Management (Neutral): The transaction will have a
4.7-year reinvestment period and will include reinvestment criteria
similar to those of other European transactions. Fitch's analysis
is based on a stressed portfolio with the aim of testing the
robustness of the transaction structure against its covenants and
portfolio guidelines.
The transaction could extend the WAL test by one year at the
step-up date one year from closing if the aggregate collateral
balance (defaulted obligations at the lower of Fitch- and
S&P-calculated collateral value) is at least at the reinvestment
target par amount and if the transaction is passing the
collateral-quality tests (including the WAL), the coverage tests
and the portfolio-profile tests.
Cash Flow Modelling (Positive): The WAL used for the Fitch-stressed
portfolio and matrices analysis is 12 months less than the WAL
covenant, to account for structural and reinvestment conditions
after the reinvestment period, including the over-collateralisation
test and Fitch 'CCC' limitation test after reinvestment, among
other things. 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 a downgrade of no more than
one notch for the class B to E notes, downgrades to below 'B-sf'
for the class F notes and would have no impact on the class A-1 and
A-2 notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B, D, E and F notes have a
two-notch cushion and the class C notes have a one-notch cushion.
The class A-1 and A-2 notes would 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 on the class A-1 to D notes, and to below 'B-sf' on
the class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches, 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
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 Harvest CLO XXXIII
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.
HARVEST CLO XXXIII: S&P Assigns Prelim. B-(sf) Rating on F Notes
----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Harvest
CLO XXXIII DAC's) class A-1, A-2, B, C, D, E, and F notes. At
closing, the issuer will issue unrated class Z and subordinated
notes.
Under the transaction documents, the rated notes will pay quarterly
interest, unless a frequency switch event occurs. Following such an
event, the notes would permanently switch to semiannual payments.
The portfolio's reinvestment period ends 4.65 years after closing;
the noncall period ends 1.5 years after closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's 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.
Portfolio benchmarks
CURRENT
S&P Global Ratings' weighted-average rating factor 2,773.95
Default rate dispersion 462.09
Weighted-average life(years) 4.89
Obligor diversity measure 138.71
Industry diversity measure 21.45
Regional diversity measure 1.19
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Target 'AAA' weighted-average recovery (%) 37.20
Target floating-rate assets (%) 94.81
Target weighted-average coupon 4.49
Target weighted-average spread (net of floors; %) 4.05
S&P said, "We understand that the portfolio will be
well-diversified at closing. Therefore, we have conducted our
credit and cash flow analysis by applying our criteria for
corporate cash flow CDOs. As of Sept. 10, the manager had
identified almost 90% of the assets in the portfolio, of which 60%
has been ramped up.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted targeted weighted-average spread (3.9%), and
the covenanted targeted weighted-average coupon (4.0%), as
indicated by the collateral manager. We assumed the covenanted
weighted-average recovery rates at all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios, for each liability rating category.
"Our credit and cash flow analysis shows that the class B to class
F notes benefit from break-even default rate and scenario default
rate cushions that we would typically consider to be in line with
higher ratings than those assigned. However, as the CLO is still in
its reinvestment phase, during which the transaction's credit risk
profile could deteriorate, we have capped our preliminary ratings
on the notes. The class A-1 and A-2 notes can withstand stresses
commensurate with the assigned preliminary rating."
Until July 15, 2029, when the reinvestment period ends, the
collateral manager may substitute the assets in the portfolio, as
long the CDO Monitor test is maintained or improved in relation to
the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain, as established
by the initial cash flows for each rating, and compares that with
the current portfolio's default potential, plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may, through trading, cause the transaction's
credit risk profile to deteriorate.
S&P said, "Under our structured finance sovereign risk criteria, we
consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework 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 our preliminary ratings
are commensurate with the available credit enhancement for the
class A-1 to F notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we also assessed the
sensitivity of our ratings on the class A-1 to E notes, based on
four hypothetical scenarios.
"As our ratings analysis includes additional considerations to be
incorporated before we would assign ratings in the 'CCC'
category--and we would assign a 'B-' rating if the criteria for
assigning a 'CCC' category rating are not met--we have not included
the above scenario analysis results for the class F notes."
Environmental, social, and governance
S&P said, "We regard the exposure to 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 transaction's 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 the following
industries: controversial weapons; nuclear weapon programs; illegal
drugs or narcotics; thermal coal; tobacco production; pornography;
payday lending; prostitution; gambling and gaming companies; food
("soft") commodities and agricultural or marine commodities; oil
and gas from unconventional sources*; opioid; palm oil; tar and oil
sands*; and illegal logging."
*When company revenue is above a threshold.
Accordingly, since the exclusion of assets from these industries
and areas does not result in material differences between the
transaction and S&P's ESG benchmark for the sector, no specific
adjustments have been made in our rating analysis to account for
any ESG-related risks or opportunities.
Ratings list
PRELIM.
PRELIM. BALANCE CREDIT
CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§
A-1 AAA (sf) 244.00 39.00 Three/six-month EURIBOR
plus a margin TBD
A-2 AAA (sf) 6.00 37.50 Three/six-month EURIBOR
plus a margin TBD
B AA (sf) 44.00 26.50 Three/six-month EURIBOR
plus a margin TBD
C A (sf) 22.00 21.00 Three/six-month EURIBOR
plus a margin TBD
D BBB- (sf) 28.00 14.00 Three/six-month EURIBOR
plus a margin TBD
E BB- (sf) 18.00 9.50 Three/six-month EURIBOR
plus a margin TBD
F B- (sf) 11.00 6.75 Three/six-month EURIBOR
plus a margin TBD
Z NR 0.25 N/A N/A
Sub. NR 34.9 N/A N/A
*The preliminary ratings assigned to the class A-1, A-2, and B
notes address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments.
§The payment frequency permanently switches to semiannual and the
index switches to six-month EURIBOR when a frequency switch event
occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
Sub.--Subordinated.
TBD--To be determined.
PENTA CLO 14: Fitch Assigns 'B-(EXP)sf' Rating on Class F-R Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Penta CLO 14 DAC expected ratings.
Entity/Debt Rating
----------- ------
Penta CLO 14 DAC
A-1-R LT AAA(EXP)sf Expected Rating
A-2-R LT AAA(EXP)sf Expected Rating
B-R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
X LT AAA(EXP)sf Expected Rating
Transaction Summary
Penta CLO 14 DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
will be used repay outstanding notes and to fund an upsized
portfolio with a target par of EUR400 million. The portfolio is
actively managed by Partners Group. The collateralised loan
obligation (CLO) has about a 4.6-year reinvestment period and an
8.5-year weighted average life (WAL) test limit.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors in the indicative portfolio to
be in the 'B'/'B-' category. The Fitch weighted average rating
factor (WARF) of the identified portfolio is 26.50.
High Recovery Expectations (Positive): At least 90% of the
portfolio is expected to comprise senior secured obligations. Fitch
views the recovery prospects for these assets as more favourable
than for second-lien, unsecured and mezzanine assets. The Fitch
weighted average recovery rate (WARR) of the indicative portfolio
is 60%.
Diversified Asset Portfolio (Positive): The transaction will
include various concentration limits in the portfolio, including a
fixed-rate obligation limit at 10%, a top 10 obligor concentration
limit at 23% 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.
Portfolio Management (Neutral): The transaction has an
approximately 4.6-year reinvestment period and includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Modelling (Neutral): The WAL used for the stressed-cased
portfolio was 12 months less than the WAL covenant to account for
structural and reinvestment conditions after the reinvestment
period, including passing the over-collateralisation and Fitch
'CCC' limitation tests, and a WAL covenant that progressively steps
down over time, both before and after the end of the reinvestment
period. In Fitch's opinion, these conditions reduce the effective
risk horizon of the portfolio during the stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the current portfolio would have no impact on the class X, A-1-R
and A-2-R notes, but would lead to downgrades of one notch for the
class B-R to E-R notes, and to below B-sf for class F-R.
Downgrades, which are based on the current portfolio, may occur if
the loss expectation is larger than initially assumed due to
unexpectedly high levels of defaults and portfolio deterioration.
Due to the better metrics and shorter life of the current portfolio
than the stressed-case portfolio, the class B-R, C-R and F-R notes
display a rating cushion of two notches and of three notches for
the class D-R and E-R notes.
Should the cushion between the current portfolio and the
stressed-case portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the stressed-case portfolio would lead to downgrades of two
notches for the class A-1-R notes, four notches for the class A-2-R
to D-R notes and below B-sf for the class E-R and F-R notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the RDR across all ratings and a 25% increase in
the RRR across all ratings of the stressed-case portfolio would
lead to upgrades of up to three notches for the rated notes, except
for the 'AAAsf' rated notes.
During the reinvestment period, upgrades, which are based on the
stressed-case portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, leading
to the ability of the notes to withstand larger-than-expected
losses for the remaining life of the transaction.
After the end of the reinvestment period, upgrades, except for the
'AAAsf' notes, may occur in case of a 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
Penta CLO 14 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
PENTA CLO 14: S&P Assigns Prelim. B-(sf) Rating on Cl. F-R Notes
----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Penta CLO
14 DAC's class X, A-1-R, A-2-R, B-R, C-R, D-R, E-R, and F-R reset
notes. At closing, the issuer will have unrated subordinated notes
outstanding from the existing transaction.
This transaction is a reset of the already existing transaction
which closed in March 2023. The issuance proceeds of the
refinancing debt will be used to redeem the refinanced debt (the
original transaction's class A-1, A Loan, B, C, D, E, and F notes),
and pay fees and expenses incurred in connection with the reset.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will permanently switch to semiannual payments.
The portfolio's reinvestment period will end 4.57 years after
closing, while the non-call period will end 1.53 years after
closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which 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.
Portfolio benchmarks
CURRENT
S&P Global Ratings' weighted-average rating factor 2,829.67
Default rate dispersion 466.67
Weighted-average life(years) 4.45
Weighted-average life including reinvestment (years) 4.57
Obligor diversity measure 133.56
Industry diversity measure 22.09
Regional diversity measure 1.26
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.15
Target 'AAA' weighted-average recovery (%) 35.89
Target floating-rate assets (%) 97.36
Target weighted-average coupon 6.55
Target weighted-average spread (net of floors; %) 4.02
S&P said, "We understand that at closing the portfolio will be
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.
"In our cash flow analysis, we used the EUR400 million target par
amount, the targeted weighted-average spread (4.02%), and the
targeted weighted-average coupon (6.55%) as indicated by the
collateral manager. We have assumed the targeted weighted-average
recovery rates at all rating levels. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"Our credit and cash flow analysis shows that the class B-R to F-R
notes benefit from break-even default rate (BDR) and scenario
default rate cushions that we would typically consider to be in
line with higher ratings than those assigned. However, as the CLO
is still in its reinvestment phase, during which the transaction's
credit risk profile could deteriorate, we have capped our
preliminary ratings on the notes. The class X, A-1-R, and A-2-R
notes can withstand stresses commensurate with the assigned
preliminary ratings.
"Until the end of the reinvestment period on April 20, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and compares that with the
current portfolio's default potential plus par losses to date. As a
result, until the end of the reinvestment period, the collateral
manager may through trading deteriorate the transaction's current
risk profile, if the initial ratings are maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework 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 our preliminary ratings
are commensurate with the available credit enhancement for the
class X to F-R notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we also included the
sensitivity of the ratings on the class X to E-R notes based on
four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category--and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met--we have not included the above scenario analysis results
for the class F-R notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to the following industries: controversial weapons; nuclear weapon
programs; illegal drugs or narcotics; thermal coal; tobacco
production; pornography; payday lending; prostitution; gambling and
gaming companies; food ("soft") commodities and agricultural or
marine commodities; oil and gas from unconventional sources*;
opioids*; palm oil; tar and oil sands*; and illegal logging."
*When company revenues are above a threshold.
Accordingly, since the exclusion of assets from these industries
and areas does not result in material differences between the
transaction and S&P's ESG benchmark for the sector, no specific
adjustments have been made in its rating analysis to account for
any ESG-related risks or opportunities.
Ratings list
PRELIM.
PRELIM. BALANCE CREDIT
CLASS RATING* (MIL. EUR) ENHANCEMENT (%) INTEREST RATE§
X AAA (sf) 2.00 N/A Three/six-month EURIBOR
plus 0.95%
A-1-R AAA (sf) 236.00 41.00 Three/six-month EURIBOR
plus 1.30%
A-2-R AAA (sf) 14.00 37.50 Three/six-month EURIBOR
plus 1.60%
B-R AA (sf) 43.00 26.75 Three/six-month EURIBOR
plus 1.90%
C-R A (sf) 23.00 21.00 Three/six-month EURIBOR
plus 2.30%
D-R BBB- (sf) 28.00 14.00 Three/six-month EURIBOR
plus 3.35%
E-R BB- (sf) 18.00 9.50 Three/six-month EURIBOR
plus 6.35%
F-R B- (sf) 12.00 6.50 Three/six-month EURIBOR
plus 8.47%
Sub. NR 32.90 N/A N/A
*The preliminary ratings assigned to the class X, A-1-R, A-2-R, and
B-R notes address timely interest and ultimate principal payments.
The preliminary ratings assigned to the class C-R, D-R, E-R, and
F-R notes address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
Sub.--Subordinated.
=========
I T A L Y
=========
BUBBLES BIDCO: S&P Assigns Prelim. 'B' ICR, Outlook Stable
----------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' ratings to Italian
home and personal care value retailer Bubbles Bidco S.p.A. and the
group's proposed EUR850 million senior secured notes due 2031. The
preliminary '3' recovery rating on the proposed notes indicates its
expectation of meaningful recovery (50%-70%; rounded estimate: 55%)
in the event of payment default.
The stable outlook reflects S&P's expectation that Bubbles will
smoothly execute its store expansion plan, supporting 6%-10%
revenue growth over 2024-2025, and keep an S&P Global
Rating-adjusted EBITDA margin at 17%-18% over the same period. This
should enable the group to sustain leverage at about 5.4x in 2024
before deleveraging to 5.0x in 2025, while maintaining free
operating cash flow after leases at EUR20 million-EUR30 million per
year in 2024-2025.
The preliminary rating assignment follows Bubbles' plans to issue
about EUR850 million of notes to finance the leverage buyout by
private equity firm TDR Capital. As announced in May 2024, TDR
Capital intends to acquire Bubbles from the founders, the
Barbarossa family, and private equity firm H.I.G. for a total
consideration of about EUR1.7 billion, resulting in a 60% stake in
the HPC value retailer and leaving the Barbarossa family and HIG
each with about 20%. The proposed capital structure comprises
EUR850 million of senior secured notes. S&P said, "It will also
include a EUR130 million super senior revolving credit facility
(RCF) to support the group's liquidity, and we assume it will not
be drawn over the forecast horizon. We project S&P Global
Ratings-adjusted leverage of 5.4x in 2024, followed by a decrease
toward 5.0x in 2025, from 4.0x in 2023. In line with our
methodology, our adjusted debt metric includes our estimate of
about EUR320 million of lease liabilities in 2024, while we add
back to the EBITDA roughly EUR75 million of rent expenses for the
same year. Due to the private equity ownership, we do not deduct
the cash from our debt calculation."
S&P said, "We think potential operational and reputational risks
stemming from Bubbles' lack of full ownership of the Acqua & Sapone
brand are effectively managed through a set of strict key
processes.In addition, Bubbles has a free license to use the brand
for an indefinite period. The Acqua & Sapone brand was initially
created by a consortium of families split across Italian regions
and not all of these groups operate under the Bubbles structure.
Bubbles steadily consolidated most of the founding families under
the same organization, which accounted for 722 points of sales at
December 2023. This represents roughly 75% of the total Italian
stores operating under the Acqua & Sapone banner and for more than
80% of the consortium sales. Although Bubbles does not have the
rights to operate through the Acqua & Sapone brand in some regions
such as Tuscany, Umbria and Sicily, it can operate through other
banners such as La Saponeria, which accounts for a minimal share of
the group's stores and sales. Those regions are served by other
consortium members (outside Bubbles' scope). In that regard, we
think reputational issues involving a store outside of Bubbles'
network could theoretically jeopardize the group's operations and
its financial performance. However, we think the consortium's set
of processes--such as digital and marketing activities as well as a
code of conduct, among others--help avoid such reputational
damage.
"Our analysis balances Bubbles' good product diversity with its
geographic concentration in Italy.At year-end 2023, the group
generated about EUR1.17 billion of sales split between personal
care, home care, cosmetics, and other products. We think that the
broad product offering in Acqua & Sapone stores enables the group
to catch a diversified customer base, leading to increased traffic
and an average check-out basket worth EUR17. The group is present
only in Italy, but it has a leading position in almost every region
it operates in thanks to its affordable product offering, which has
supported the group's performance during adverse macroeconomic
conditions, as was the case during the recent spike in inflation.
Furthermore, the group's intentions to expand in Spain would be, in
our view, a first step toward improving its geographic diversity.
The gradual opening of pilot stores in key Spanish locations points
to the group's conservative approach to its international
expansion, thereby reducing execution risk, in our opinion. In our
base case, by end-2026, Bubbles will generate in Spain only limited
sales of less than 1.5% of its total by end-2026.
"We think that the HPC market is highly competitive but less
discretionary than other retail categories.Despite being niche and
small in size (EUR16.9 billion in 2023 by retail value prices
according to Euromonitor), the Italian HPC market has positive
dynamics and is expected to grow at a compound annual growth rate
of 2.5% over 2023-2029. This highlights the market's historical
resilience and consistent growth even against economic headwinds
like the 2008 global financial crisis or the COVID-19 pandemic.
This is because the category comprises non-discretionary product
categories that customers are less likely to reduce. We think this
gives Bubbles a clear advantage as consumer preferences have
shifted toward discounted products due to increased price
sensitivity in the recent years when inflation has reduced
households pricing power. The Italian market is highly competitive,
encompassing many local players, grocery stores, discount
retailers, international brands like Action and online platforms
such as AliExpress, Temu, or Amazon. In 2009, Gottardo, one of
Acqua & Sapone's consortium members, launched the trademark
Tigotà, which became one of Bubbles' closest competitors.
Nonetheless, we understand that Bubbles has identified whitespace
opportunities of about 1,500 locations. Still, whitespaces could be
acquired by medium- and large-sized chains and potentially
challenge Bubbles' expansion plan. In addition, we flag the
potential concentration risk arising from such a fragmented
market.
"We expect Bubbles to achieve above-average profitability in the
range of 17%-18% in 2024-2025 supported by a solid 25% market share
and established suppliers relationship. Bubbles enjoys a strong
brand image, considering Acqua & Sapone's almost 30-year history.
The company leverages its wide product assortment balanced between
home and personal care as well as cosmetic products, giving way to
a more diversified consumer base. Moreover, as a value retailer, we
notice the group has superior price competitiveness, supported by
longstanding relationships with blue-chip suppliers, creating
better procurement conditions based on a three-tier model on a
regional, national, and international level. This brings Bubbles a
cost advantage and higher promotional activity than traditional
stores. In addition, Bubbles benefits from early access to
innovative products from suppliers, supporting traffic in stores
and resulting in consumers being loyalty to the Acqua & Sapone
brand. We typically see a mixed portfolio of branded and private
label brands as key to support profitability, but Bubbles has
managed to post above-average margins despite its very limited
offering of owned brands. Bubbles boasts robust sales density and
quick ramp-up of new stores. The highest sales density generated by
Bubbles is led by central Italy, where the best-in class Acqua &
Sapone stores are located. These stores are part of the Barbarossa
family's legacy, and we understand the company will align some best
practices to its entire portfolio such as better purchasing
conditions and an improved product mix toward high selling
products. As a result, we expect Bubbles will achieve S&P Global
Ratings-adjusted EBITDA margins of 17.4% in 2024 and 17.6% in 2025,
versus 16.7% in 2023.
"The implementation of integrated enterprise resource planning
(ERP) and data science initiatives should enable the group to post
a more balanced profitability level across its store network. In
2024, we understand the group has invested in customer relationship
management CRM (systems) and IT initiatives to collect data on
customer preferences across its extensive consumer base, which will
enable tailored marketing initiatives and promotions. This should
improve product assortment, reducing the shelf space of overstocked
lines. We think this will ultimately enable the company to increase
sales per stores and profitability across the store network. In
fact, we see stores in some regions that are below the group's
average profitability, which we believe is primarily because of
more competition and lack of differentiated price strategy. We see
limited execution risk as investments have been largely completed
at this stage. However, we note that some risks exist as the group
would need to test the ability to successfully manage new
implemented pricing dynamics mechanisms across regions.
"We expect Bubbles' 6.0%-10.0% growth over 2024-2025 to be driven
by store openings in Italy and the gradual entry into Spain.We
anticipate the company will open 45-50 stores per year in Italy
over the next two years given the substantial whitespace on the
Italian market. At the same time, Bubbles is testing the Acqua &
Sapone model in the Spanish market, where its plans to open a few
pilot stores in 2024. This gradual expansion encompasses limited
execution risk, and we expect that revenue stream to contribute
less than 1.0% of total revenue in the next two years. As inflation
moderates, we assume only limited like-for-like growth of about
3.0%, driven by initiatives such as CRM, a new loyalty program, and
other data sciences projects. Overall, we expect revenue to reach
EUR1.25 billion in 2024 and EUR1.36 billion in 2025, from EUR1.17
billion in 2023.
"The preliminary 'B' rating balances the group's highly leverage
capital structure with our expectation of FOCF after leases of
EUR20 million-EUR30 million per year over 2024-2025. The group's
solid growth strategy has not materially increased capital
expenditure (capex), which remains at a limited 2.5%-3.5% of
anticipated annual revenue and mainly represent investments to open
new stores. In addition, we understand growth capex is
discretionary, as the group could delay or stop this spending, if
necessary. FOCF after leases is also supported by the limited
working capital swings given the low seasonality of the business.
This, coupled with an increasing S&P Global Ratings-adjusted
EBITDA, will drive FOCF after leases to about EUR20 million in 2024
then further up to nearly EUR30 million in 2025. The cash flow
generation and adjusted leverage of 5.0x-5.5x over 2024-2025 are
commensurate with our 'B' rating.
"The final rating will depend on our receipt and satisfactory
review of all final documentation and terms of the transaction.The
preliminary ratings should therefore not be construed as evidence
of final ratings. If we do not receive final documentation within a
reasonable time, or if the final documentation and final terms of
the transaction depart from the materials and terms reviewed, we
reserve the right to withdraw or revise the ratings. Potential
changes include, but are not limited to, utilization of the
proceeds, maturity, size and conditions of the facilities,
financial and other covenants, security, and ranking.
"The stable outlook reflects that sound revenue growth, fueled by
store expansion, and an above-average S&P Global Ratings-adjusted
EBITDA margin of 17.0%-18.0% should push adjusted leverage closer
to 5.0x by 2025 from 5.4x in 2024; and that annual FOCF after lease
payments will stand at EUR20 million-EUR30 million in 2024-2025
despite capex increasing with store openings.
"We could lower the rating over the next 12 months if Bubbles
underperforms our base-case scenario and its operating performance
deteriorates leading to adjusted leverage of above 6.5x, negative
FOCF after leases, or a weaker liquidity position."
This could happen if:
-- Increased competition erodes Acqua & Sapone's market position;
or
-- The expansion plan, including the implementation of data
science initiatives, is less successful than anticipated; or
-- Relationships with suppliers deteriorate, leading to loss of
pricing advantage
-- A more aggressive financial policy gives way to debt-funded
acquisitions or dividend distributions.
A positive rating action would be contingent on stronger credit
metrics, including adjusted debt to EBITDA consistently below 5x
and improved FOCF after leases. This could be driven, for example,
by a stronger-than-anticipated store expansion and the
international roll-out of the Acqua & Sapone brand yielding a
higher EBITDA base. In this case, an upgrade would hinge on a clear
commitment from the equity sponsor to keep leverage below 5x.
CEME SPA: Fitch Assigns 'B(EXP)' First-Time IDR, Outlook Stable
---------------------------------------------------------------
Fitch has assigned CEME S.p.A. a first-time expected Issuer Default
Rating (IDR) of 'B(EXP)' with a Stable Outlook. Fitch has also
assigned the proposed floating rate notes (FRN) an expected Senior
Secured rating of 'B(EXP)'/RR4.
The IDR reflects the strong position the company holds in the niche
market of pumps and valves production primarily targeted to home
coffee machine end-markets, with a well-diversified and
long-standing customer base. The rating also reflects the company's
small size, limited product diversification and moderate financial
profile.
While the EBITDA margins are solid with its expectation of over 20%
after 2024 driven by revenue growth and available production
capacity, its forecast free cash flow (FCF) are modest in the short
term, but Fitch anticipates an improvement with FCF margins about
2.5% in 2025. Fitch expects the higher pro-forma opening leverage
to quickly improve on accretive EBITDA generation to about 5.5x, a
level that is commensurate with the rating and supportive of the
Stable Outlook.
The proceeds of the proposed notes will largely be used for
refinancing of the existing debt and shareholder funding. The
assignment of the final ratings is contingent on completing the
transaction in line with the terms already presented.
Key Rating Drivers
Healthy Profitability: Fitch expects CEME's strong profitability to
further improve over its forecast horizon to 2027. This is
indicated by EUR154 million of order backlog and driven by CEME's
strategic investment in the single-serve coffee segment, which is
its most dynamic source of revenue. It is also heightened by CEME's
increasing market share in specialty applications, which is
associated with the lowest cost of goods sold (COGS) ratio among
its revenue streams and, hence, effectively supports its margin
resilience through the inherent market cyclicality. Fitch expects
this boost in profitability to be helped by the subsiding impact of
destocking, which has affected the industry's performance in 2024.
Improving FCF Generation: Fitch views the expected FCF generation
as a credit strength for CEME. Fitch expects the temporary pressure
arising in 2024 as a result of Fluid Control's acquisition to
subside as the operations of the group become fully integrated in
2025. Fitch expects this, as well as plateauing capex and against
increased interest cost, to drive consistent positive FCF
generation of over 2% for the remaining forecast horizon, which is
strong for the rating level and compared with peers.
Healthy Liquidity Headroom: Fitch forecasts sustained satisfactory
liquidity in the medium term, exhibiting financial flexibility for
CEME, which is also a credit strength. CEME's liquidity buffer
contains EUR67.5 million undrawn RCF post-transaction, while the
only limited short-term maturities outstanding will be related to
the ongoing factoring facility.
Limited Scale Constraints Rating: Fitch believes CEME's small size
exposes it to exacerbated risks in case of market shocks and
considering the inherent industry cyclicality. The latter arises
from CEME's cost construction being subject to raw material price
volatility as it represents about 75% of its total COGS. This is
shown by the destocking impact on the company's profitability,
especially affecting the food & beverage and professional coffee
revenue streams, mainly in the US.
Fitch expects the company's increasing geographical diversification
to mitigate market risks. Fitch assumes CEME will be able to
sustain its market leading position and maintain competitive
advantage against industry peers, albeit modestly offset by its
limited product coverage.
High Leverage Metrics to Improve: Fitch expects the higher
post-transaction consolidated EBITDA leverage to decrease to about
5x by 2026, and interest coverage to remain above 2.0x, which is
within its rating sensitivities for CEME. This is driven by healthy
EBITDA growth, limited use of factoring and RCF. Fitch views the
proposed long-term financing and the simplified capital structure
as supportive of the ratings.
Derivation Summary
CEME displays a similar modest scale (annual revenue under EUR500
million) and end-market diversification to EVOCA S.p.A (B/Stable),
which also has a broadly comparable post-transaction (ie 2025)
financial profile characterised by an EBITDA margin of about 20%,
gross leverage of between 5x and 6x and FCF mid-single digit FCF
margins.
Other 'B' category rated companies in the Diversified Industrials
sector, such as Ammega Group B.V. (B-/Stable), INNIO Group Holding
GmbH (B/Positive), Nova Alexandre III S.A.S. (B+/Stable) and Expleo
Group (B-/Stable) and much larger with a more diversified product
range and global presence, although their capital structures, the
key rating driver in the 'B' category, is often similar at 5x-6x.
Key differences are evident in the earnings margins, with Ammega
and INNIO at a broadly similar level, while Nova Aleandre and
Expleo are in the mid-to-high single digit range.
Key Assumptions
- Revenue growth of about 6% between 2025 and 2027
- EBITDA margin trending above 22% driven by higher revenue,
product mix and spare capacity utilisation
- Cash interest paid of about EUR28 million per annum
post-refinancing, also reflecting Fitch's latest Global Economic
Outlook
- Broadly neutral working capital flows
- Capex to average 4.7% of revenue until 2027
- No further M&A or dividends paid until 2027
Recovery Analysis
- The recovery analysis assumes that CEME would be reorganised as a
going-concern (GC) in a bankruptcy, rather than liquidated upon
default.
- A 10% administrative claim.
- The GC EBITDA estimate of EUR50 million reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level upon which Fitch
bases the enterprise valuation (EV).
- An EV multiple of 5.0x EBITDA is applied to the GC EBITDA to
calculate a post-reorganisation EV, in line with industry median
and peers.
- The multiple of 5.0x reflects CEME's business model as a
multi-specialist manufacturer of solenoid pumps and valves serving
four different markets, relative to other manufacturing peers that
are mainly focused on food and beverage coffee machines. It is
further supported by a strong niche market position and a strong
customer base.
- The waterfall analysis is based on the expected capital structure
and consists of super senior EUR67.5 million RCF fully drawn in a
post-reorganisation scenario, senior secured EUR360 million FRNs,
factoring with the highest outstanding amount of EUR21.2 million
(as of June 2024) assumed and EUR10 million outstanding bilateral
facility going forward.
- The principal waterfall analysis output percentage on current
metrics and assumptions is 38% for the FRNs, corresponding to
'RR4'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Gross EBITDA leverage below 4.5x
- FCF margins sustainably above 2%
- EBITDA interest coverage above 3.0x
- Cash flow from operations (CFO) minus capex/debt above 5.0%
- Successful implementation of expansion strategy leading to
structurally stronger business profile and product diversification
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Gross EBITDA leverage sustainably above 5.5x
- Consistently neutral-to-negative FCF margins
- EBITDA interest coverage below 2.0x
- CFO minus capex/debt below 2.0%
Liquidity and Debt Structure
Adequate Liquidity: The healthy post-transaction cash balance of
about EUR55 million (after its adjustment for intra-year
working-capital changes of 1% of sales) is supported by positive
FCF generation from 2025 onwards and proposed RCF of EUR67.5
million due in 2031. CEME is expected to continue its reliance on
the factoring facility, which had an outstanding balance of EUR21.2
million at end-June 2024, and EUR10 million outstanding bilateral
facility post-transaction.
CEME's new capital structure is proposed to be concentrated in the
EUR360 million senior secured FRNs due in 2031.
Issuer Profile
CEME is an Italian industrial manufacturing platform active in the
production of solenoid pumps and valves for high precision fluid
control technology solutions serving global markets.
Date of Relevant Committee
06 September 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 Recovery
----------- ------ --------
CEME S.p.A. LT IDR B(EXP) Expected Rating
senior secured LT B(EXP) Expected Rating RR4
CEME SPA: S&P Assigns Prelim. 'B' LongTerm Issuer Credit Rating
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit to Italian pump and valve maker Ceme SpA and its preliminary
'B' issue rating to the proposed EUR360 million senior secured
floating rate notes, with a '4' preliminary recovery rating,
indicating average recovery (about 40% recovery prospects).
The stable outlook reflects S&P's expectations that Ceme's debt to
EBITDA will improve to sustainably below 6x by 2025, free operating
cash flow (FOCF) will remain positive, margins will improve to
above 20%, and funds from operations (FFO) cash interest coverage
ratio will sustainably stay above 2.0x.
S&P said, "The preliminary rating reflects our expectation that
Ceme will gradually deleverage to 5.3x in 2025 through EBITDA
expansion, thanks to a rebound in sales and an improvement in
profitability. Following an 18% decline in sales in 2023, which
reduced revenue to EUR265 million due to aggressive destocking by
key customers in the home coffee machine segment, we project Ceme
will achieve revenue of EUR335 million in 2024 (pro-forma the
consolidation of the U.S. entities). The 26% revenue growth we
anticipate for 2024 will be largely driven by the integration of
U.S. entities, complemented by a 7% organic growth, mainly
supported by the expected rebound in the home coffee machine
segment. We anticipate Ceme's revenue growth continuing through
2025, with revenue expected to increase by 6% to EUR355 million.
Coupled with the expected improvement in profitability, driven
primarily by the realization of cost synergies and turnover growth
leading to better absorption of fixed costs, we anticipate a
significant expansion in adjusted EBITDA, reaching EUR80 million by
2025 (EUR44 million in 2023). We forecast the EBITDA expansion will
enable the group to deleverage, with S&P Global Ratings-adjusted
debt to EBITDA expected at 5.3x by 2025 from 6.7x anticipated in
2024 and 6.2x in 2023, as we do not assume any change in the newly
proposed capital structure.
"The home coffee machine segment, which accounted for 56% of Ceme's
revenue in 2023, represents the backbone of the business, and its
evolution is one of the key drivers of Ceme's revenue growth. The
gradual market recovery in the home coffee machine segment, coupled
with increasing penetration into the professional coffee, food and
beverage, and specialty application segments, should drive revenue
growth. The home coffee machine segment experienced a significant
slowdown in 2022 and 2023 due to the aggressive destocking
implemented by original equipment manufacturers and brands after
the inventory build-up during the pandemic boom. This resulted in a
top-line contraction of 18% in 2023 for Ceme. We now expect that
demand will normalize in 2024 as the sell-in and sell-out volumes
rebalance. Along with volume recovery, the demand for coffee
machines should continue to benefit from supporting trends, like
growing urban populations in developing regions, the increasing
penetration of full and semi-automatic machines that require an
ever larger number of pumps and valves, as well as the
proliferation of coffee culture and a shift in consumer preferences
toward specialty and gourmet coffee varieties, particularly in
urban areas and among younger consumers. This should translate into
18% organic growth in single serve coffee revenue in 2024, followed
by a normalization to 7% in 2025. We expect the rebound in single
serve coffee to be complemented by Ceme's strategic initiatives in
food and beverage, professional coffee, and specialty application,
including identified cross-selling opportunities, and expansion
into new sub-segments, leveraging on an increased product portfolio
after the consolidation of Procon and Micropump.
"We anticipate a step-up in profitability over the next few years,
mainly on cost synergies realization and turnover expansion leading
to a better absorption of fixed costs. As revenue growth rebounds
from the 2023 contraction, operating leverage is expected to
improve significantly. Top-line expansion is set to create
additional economies of scale, further supported by the realization
of cost synergies. The company targets realizing about EUR14.7
million of run-rate synergies by 2026, based on initiatives already
implemented and executed, such as the insourcing of plastic
components, the introduction of new products with reduced raw
material costs, and the reorganization of production facilities.
This includes streamlining U.S. operations and partially relocating
production to more cost-effective locations. The results were
already partially visible in the first half of 2024, when Ceme's
reported EBITDA margin (based on unaudited figures), improved to
19.8% from 16.1% in the same period last year. Overall, we expect
the S&P Global Ratings-adjusted EBITDA margin to expand to 19.1% in
2024 (20.3% without the impact of transaction costs) from 16.5% in
2023, with a further increase to 22.6% in 2025.
"We expect Ceme's FOCF to stabilize at least at EUR30 million
annually from 2025, following years of volatility due to
substantial expansionary capital expenditure (capex) and unstable
working capital needs. Between 2020 and 2023, Ceme's FOCF
experienced significant volatility, driven by substantial swings in
working capital linked to clients' stocking and destocking
dynamics, while the company was investing significantly in
expansionary capex. The company invested around EUR70 million of
gross capex between 2019 and 2023, to increase production capacity,
improve energy efficiency of the production facilities of
Tarquinia, Trivolzio, and China, and increase the level of
automation. Reported capex peaked at 6.6% in 2021, before only
slightly declining to 5.2% in 2022 and 4.1% in 2023. As a result,
in the past four years, Ceme cumulatively generated EUR45 million
of FOCF, ranging from a minimum of negative EUR14.7 million in
2021, to a maximum of EUR31.6 million in 2020. For 2024 we
anticipate Ceme's FOCF to be negative for EUR3 million (positive
EUR11 million when excluding the impact of transaction costs),
while for 2025-2026 we expect the FOCF generation to stabilize at a
minimum of EUR30 million annually, equivalent to about 8%-10% of
revenue. This stabilization will be supported by expanding margins,
normalized working capital needs after years of fluctuation, and
reduced capex levels to around 2%-3% of revenue."
Ceme's small size of operations and narrow product offering is
offset by a relatively defensive profitability. With 2023 revenue
of EUR265 million (EUR327 million in the last 12 months to June
2024, including U.S. activities) and 2023 S&P Global
Ratings-adjusted EBITDA of EUR44 million, Ceme is one of the
smallest players we rate in the capital goods sector. The limited
scale is further constrained by a narrow product portfolio, with
about 90% of its sales concentrated in valves and pumps. Moreover,
although we expect the company to grow further in professional
coffee, food and beverage, and specialty application, we expect the
home coffee segment will continue to represent the backbone of the
business, generating about 50% of revenue and limiting the
company's diversification. Despite these limitations, Ceme is the
undisputed market leader in valves and pumps for home coffee
machines, with a market share that is 4x-5x higher than its closest
competitor, resulting in an 85%-90% share of key customers' related
share of wallet, based on the company's data. Ceme also has
significant market share in professional coffee (20%-25%) and food
and beverage (30%-35). This competitive position helps mitigate
some of the risks tied to its smaller size. Moreover, Ceme's
benefits by a relatively resilient profitability. The company's
high level of vertical integration--with 80% of production handled
in house--and substantial investments in automation have provided a
meaningful cost advantage and have helped sustain a resilient S&P
Global Ratings-adjusted EBITDA margin of 17.1% on average during
2022 and 2023, when revenue declined 1% and 18%, respectively. S&P
said, "Although the company's return of capital is relatively low,
on average at 5.2% in 2022-2023, we anticipate an improvement,
thanks to increasing asset utilization, currently at about 60%.
Finally, we believe Ceme benefits from adequate pricing power,
supported by the mission-critical nature of its components and the
longstanding customer relationships with blue chip companies."
Ceme's substantial exposure to the home coffee segment, along with
the short cycle nature of its business, makes the company
vulnerable to fluctuations in stocking and destocking trends. This,
in turn, creates potential volatility in revenue, EBITDA, and free
cash flow generation. Such volatility was particularly evident
during the COVID and post-COVID periods; volumes peaked in 2021 and
2022, driven by client stocking dynamics in anticipation of a surge
in home coffee consumption that, ultimately, did not materialize as
expected. Consequently, 2022 saw a 48% decline in Ceme's orders,
after the 50% order intake increase recorded in 2021.
S&P said, "Looking ahead, we expect lower volatility in 2024 and
2025, as the market stabilizes, with a gradual easing of destocking
trends and a re-alignment of sell-in and sell-out volumes. However,
due to the short-term nature of Ceme's customer commitments, as
well as the fluctuation of the stocking cycles, we believe the
company's revenue visibility remains relatively limited and
compares negatively with peers with long order backlogs. We believe
this generally leaves the company exposed to demand volatility in
the event of unexpected shifts in demand patterns or consumer
preferences."
As part of its new capital structure and the consolidation of the
U.S. entities, Ceme plans to issue EUR360 million senior secured
floating rate bond due 2031. S&P said, "We understand that the
bond's proceeds, along with EUR43 million cash on hand, will be
used to refinance EUR304 million of existing debt, repay EUR85
million of shareholder loans currently present in the new
consolidation perimeter, and pay EUR14 million fees and expenses
related to the transaction. The financing package will be
complemented by a new multicurrency super senior revolving credit
facility (RCF) of EUR67.5 million which we expect to be undrawn at
closing. The new proposed capital structure entails an asset
reorganization and by the issue date Ceme will consolidate the U.S.
entities Procon and Micropump, already owned by Investindustrial
through Fluid Control Acquisitions Sarl, with no related cash
outflows. In the context of the refinancing, the EUR69 million
outstanding debt at the U.S. entities will be repaid along with the
EUR235 million debt outstanding at Ceme (including drawings
outstanding under the existing RCF). Pro forma the transaction, we
expect Ceme's S&P Global Ratings-adjusted debt will reach
approximately EUR427 million, comprising the proposed EUR360
million notes, about EUR7 million in outstanding bilateral lines
that won't be refinanced, about EUR3 million in outstanding debt at
the recently acquired DTI, about EUR21 million in non-recourse
factoring line outstanding, about EUR34 million for lease
liabilities, EUR2 million for pensions and other postretirement
deferred compensations, and about EUR1 million for earn-outs
related to the acquisition of DTI."
S&P said, "Our rating on Ceme is constrained by the group's private
equity ownership. Although we forecast that adjusted leverage will
be comfortably below 6x from 2025, we also factor into our
assessment that the group is owned by a financial sponsor. We
cannot rule out potential incremental debt, also considering a
relatively loose documentation on additional indebtedness (the net
leverage ratio for additional indebtedness is set at 5.0x), and the
company's potential appetite in consolidating further its position
in the coffee-machines segments, while expanding into others
through potential mergers or acquisitions (M&A). A more aggressive
financial policy, demonstrated by a higher leverage tolerance or
debt-funded shareholder returns, would put pressure on our rating.
At the same time, we expect only bolt-on acquisitions over the next
few years, with related cash outflow of about EUR5 million-EUR10
million per year, and we also note that, pro forma the transaction,
Ceme will be less leveraged than other private equity-owned rated
peers.
"The final rating will depend on our receipt and satisfactory
review of all final transaction documentation. Accordingly, the
preliminary rating should not be construed as evidence of a final
rating. If we do not receive the final documentation within a
reasonable time frame or if the final documentation departs from
the materials reviewed, we reserve the right to withdraw or revise
our preliminary rating. Potential changes include share terms, the
consolidation of the U.S. entities, the utilization of the bond
proceeds, maturity, size, and conditions of the notes, financial
and other covenants, security, and ranking.
"The stable outlook reflects our expectations that CEME's debt to
EBITDA will improve to sustainably below 6.0x by 2025, that free
operating cash flow (FOCF) will remain positive, that margins will
improve to above 20%, and that the company will maintain adequate
liquidity, with sources covering uses by at least 1.2x,
complemented by FFO cash interest coverage sustainably above
2.0x."
S&P could lower the preliminary rating if:
-- CEME's debt to EBITDA exceeds 6x with no prospect of swift
recovery, due to weaker-than-anticipated operating performance or
lower-than-expected benefits from synergies implementation that
materially deviate from our base case, or in case of material
debt-funded acquisitions or dividend distributions;
-- FOCF turns negative with no prospect of recovery; or
-- FFO cash interest coverage deteriorates to below 2.0x.
S&P sees limited upside in the next two years considering the
limited scale and scope of Ceme versus higher rated peers and due
to the relatively high indebtedness. S&P could raise the
preliminary rating if:
-- Ceme substantially improves its revenue base and end-market
exposure, while maintaining its current margin profile;
-- Debt to EBITDA improves and remains consistently below 5x,
supported by a commensurate financial policy; and
-- FOCF remains positive, translating into FOCF to debt
sustainably between 5% and 10%.
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Ceme Group, as for
most rated entities owned by private-equity sponsors. We believe
the company's financial risk profile points to corporate
decision-making that prioritizes the interests of the controlling
owners. This also reflects the generally finite holding periods and
a focus on maximizing shareholder returns.
"Environmental and social credit factors have no material influence
on our credit analysis. Ceme has set a target to achieve a 27.5%
reduction in emissions (Scope 1 and Scope 2 greenhouse gases) by
2030. Additionally, by 2025, Ceme aims to cover 82.5% of its total
electricity consumption across all Ceme Group plants with
guarantees of origin."
EMERALD ITALY 2019: Fitch Lowers Rating on Class B Notes to CCsf
----------------------------------------------------------------
Fitch Ratings has downgraded Emerald Italy 2019 S.R.L.'s class A to
B notes, and placed the class A notes with a Negative Outlook, as
detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Emerald Italy
2019 S.R.L.
A IT0005387896 LT B-sf Downgrade BB-sf
B IT0005387953 LT CCsf Downgrade B-sf
C IT0005387961 LT CCsf Affirmed CCsf
D IT0005387979 LT CCsf Affirmed CCsf
Transaction Summary
The transaction is a securitisation of a variable-rate EUR105.8
million (now EUR94.8 million) loan secured on three northern
Italian shopping centres of average quality. A standstill on
enforcement was put in place until September 2024 after the loan
failed to meet the required conditions for an extension (including
interest rate hedging) two years before. On 16 September 2024, the
financing was restructured, centred on a three-year loan/note
extension alongside deferral of components of loan interest (and
disapplication of default penalty interest while the restructured
loan performs) to create headroom for capex.
In its last rating action commentary Fitch outlined which of the
credit-relevant terms being proposed were responsible for the
Rating Watch Negative (RWN). The proposed terms were signed into
documentation and today's rating action resolves this RWN.
KEY RATING DRIVERS
Restructuring Weakens Principal Priority: The thrust of the
restructuring is a significant debt extension, which Fitch views as
broadly ratings neutral. However, under a revised definition of the
Sequential Principal Redemption Amount, which determines how much
principal is payable to noteholders on each payment date, loan
default interest and Euribor excess amounts have both been carved
out. Removing the 2% loan default interest component alone from
this definition has the effect of increasing the senior debt burden
by 8pp, under Fitch's assumed four-year recovery process. This
explains the severity of the downgrades. The Negative Outlook
signals concerns about market sentiment for these retail assets.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Reduction in occupational demand, which leads to lower rents or
higher vacancy in the portfolio.
The change in model output that would apply with cap rate
assumptions 1pp higher produces the following ratings:
'CCCsf' / 'CCsf' / 'CCsf'/ 'CCsf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A sustained improvement in portfolio performance led by sustainable
renting environment and decline in vacancy, coupled with stable
market conditions.
The change in model output that would apply with cap rate
assumptions 1pp lower produces the following ratings:
'BBsf' / 'CCCsf' / 'CCCsf' / 'CCCsf'
Weighted average (WA) assumptions (weighted by market value)
Applied estimated rental value: EUR11million
Depreciation: 5.0%
'Bsf' WA cap rate: 7.29%
'Bsf' WA structural vacancy: 40.5%
'Bsf' WA rental value decline: 2.7%
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has not conducted any checks on the consistency and
plausibility of the information it has received about the
performance of the asset pool and the transaction. Fitch has not
reviewed the results of any third-party assessment of the asset
portfolio information or conducted a review of origination files as
part of its ongoing monitoring.
ESG Considerations
Emerald Italy 2019 S.R.L. has an ESG Relevance Score of '4' for
Rule of Law, Institutional and Regulatory Quality due to
uncertainty of the enforcement process in Italy which has a
negative impact on the credit profile which has a negative impact
on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===================
L U X E M B O U R G
===================
ACCORINVEST GROUP: Fitch Gives 'B' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has published AccorInvest Group S.A.'s Long-Term
Issuer Default Rating (IDR) of 'B', with Stable Outlook. Fitch has
also published an expected senior secured rating of 'BB(EXP)' with
a Recovery Rating of 'RR1' to proposed EUR600 million notes.
The company plans to use proceeds from senior secured notes to
repay EUR457 million outstanding under its bridge facility maturing
in March 2025 and prepay its term loans A and B. The assignment of
final ratings is subject to final documentation conforming to
information already received.
The 'B' IDR reflects reduced refinancing risks following recent
extension of term loans and revolving credit facility (RCF) and
assumes a successful placement of the bond, which would address the
bridge loan maturity. Without the bond, Fitch estimates that
AccorInvest's liquidity and refinancing risks will not be
commensurate with 'B' rating and therefore Fitch may consider a
downgrade in this case.
The rating is also supported by projected strengthening of credit
metrics over the next two years, which would increase rating
headroom and reduce refinancing risks related to the next large
debt maturity in 2027. The rating considers the strength of
AccorInvest's business profile in comparison with other 'B'
category peers and neutral-to-positive free cash flow (FCF)
generation.
The Stable Outlook reflects its expectation that further asset
divestments will improve AccorInvest's liquidity, and in case of
slower progress with disposals the company will be eligible to
receive additional EUR100 million from shareholders.
Key Rating Drivers
Addressed 2025 Maturities: AccorInvest made significant progress
with addressing its 2025 debt maturities. It executed amendment and
extension of term loans A and B and the RCF, and repaid around
EUR700 million under the bridge facility since the beginning of
2024.
It expects to use proceeds from the planned bond issuance to repay
the remaining EUR457 million outstanding under the bridge facility
and prepay term loans A and B. This would leave EUR191 million
amortisation payment under government-backed facilities (PGE) as
the only 2025 debt maturity. AccorInvest will also have a more
favourable debt maturity profile, with some concentration in 2027,
but Fitch acknowledges the company's ability to extend the RCF and
term loan B to December 2028.
Asset Disposals Part of Strategy: AccorInvest has been
rationalising its hotel portfolio since 2021 through non-core asset
divestments, which included assets outside its core region or not
meeting profitability and return criteria. Progress under the
program accelerated in 2024, with EUR386 million of proceeds
received in 7M24 after being slowed down in 2023 due to the
unfavourable market environment for real estate transactions.
Nevertheless, Fitch still sees execution risks for the remaining
divestments planned for 2024-2025, for which the company aims to
receive more than EUR800 million. Successful realisation of the
disposal plan would reduce strategy execution risks and leverage.
Executed Deleveraging: AccorInvest has managed to reduce debt by
around EUR900 million since end-2023, using available cash and
proceeds from asset disposals and preference shares issuance (as a
form of shareholder support, which Fitch treated as non-debt).
Pro forma for the bond placement, Fitch expects AccorInvest's
EBITDAR net leverage to fall to 6.1x in 2024 (2023: 6.7x), which is
aligned with its 'B' rating. Fitch believes this deleveraging would
be sustained, even if EBITDA reduces due to asset divestments, as
Fitch expects proceeds to be available for debt repayment and
therefore account for them in its net leverage calculation.
Trading Normalisation: AccorInvest benefited from the post-pandemic
rebound in travel and leisure demand and significant pricing power,
which drove revenue and EBITDA growth in 2022-2023. Fitch projects
revenue per available room (RevPAR) growth to moderate to low
single digits as demand stabilises in 2024. Fitch also assumes that
further EBITDA margin improvements, excluding the impact of asset
divestments and swaps, will be more limited and related mostly to
cost savings.
Structural Profitability Improvements: Fitch expects the EBITDA
margin to increase by around 200bp over 2024-2027, supported by the
disposal plan as it focuses on assets with lower profitability. In
addition, Fitch assumes that AccorInvest's asset swap transaction
with Covivio hotels would allow it to reduce rents and improve
EBITDA margin.
Neutral to Positive FCF: Neutral to positive free cash flow (FCF)
is important for AccorInvest's liquidity and 'B' rating. Fitch
believes this is achievable if asset disposals do not significantly
erode EBITDA (2023: EUR628 million). Interest payments and capex
are substantial, totalling around EUR550 million a year but Fitch
acknowledges AccorInvest's flexibility to reduce capex and save at
least EUR100 million a year if necessary.
Strong Business Profile: AccorInvest's business profile is strong
for the rating. The company owns and operates one of the largest
hotel portfolios in Europe with around 110,000 rooms at end-June
2024 and is well-diversified within the region with no significant
reliance on one single country.
It also has some price segment diversification, being present in
the economy and midscale segments. AccorInvest owns 47% of its
hotel portfolio (by number of hotels), which gives it additional
financial flexibility compared with peers that lease their
properties. However, its assessment considers the lack of own
brands, as the company operates under the brands of Accor SA
(BBB-/Positive), which is also responsible for providing hotel
management expertise and the reservation system.
Derivation Summary
AccorInvest differs from other Fitch-rated hotel operators as it
does not own brands.
It compares best with other asset-heavy hotel operators, with
Whitbread PLC (BBB/Stable) its closest peer. Both companies operate
a similar number of rooms and have comparable business scale by
EBITDAR. AccorInvest is more diversified than Whitbread due to its
footprint across 24 countries, while Whitbread operates
predominantly in the UK and is expanding into Germany.
AccorInvest also has better price segment diversification across
economy and midscale while Whitbread focuses on the economy
segment. Nevertheless, a significant rating differential comes from
AccorInvest's materially weaker financial profile and more volatile
operating performance. Fitch also considers there to be greater
execution risks in AccorInvest's strategy, which involves asset
disposals.
AccorInvest's business profile is stronger than those of other
asset-heavy hotel operators (those who own and lease hotels), such
as Sani/Ikos Group Newco S.C.A. (B-/ Stable), FIVE Holdings (BVI)
Limited (B+/ Stable) and One Hotels GmbH (B+/ Stable). FIVE and One
Hotels are rated higher than AccorInvest due to expected stronger
credit metrics and liquidity. AccorInvest is rated higher than Sani
Ikos Group as Fitch projects it to have lower leverage and better
FCF generation.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue before disposals increasing by 2%-4% a year;
- Asset disposals over 2024-2025, leading to revenue declining by
2% in 2024 and 16% in 2025, and generating around EUR750 million of
cash proceeds
- EBITDA margin increasing by around 200bp over 2024-2027 due to
disposal of less profitable assets and the cost-saving programme
- Capex at EUR220 million-EUR250 million a year over 2024-2027
- EUR200 million preference shares issuance in July 2024;
additional EUR100 million assumed to be issued under Fitch's
disposal proceeds assumptions; all treated as non-debt
- Successful EUR600 million bond placement in 2024
- No dividends on ordinary or preference shares
Recovery Analysis
Fitch estimates that AccorInvest would be liquidated in a
bankruptcy rather than restructured on a going-concern basis as
Fitch considers the large tangible asset base, consisting of its
hotels. The liquidation estimate reflects Fitch's view that the
company's hotel portfolio (valued by external third parties as of
June 2024) can be realised in a liquidation scenario and
distributed to relevant creditors upon default. Fitch has applied a
50% advance rate to the EUR8.2 billion AccorInvest gross asset
value after deducting EUR337 million, representing assets secured
by a mortgage security or under finance lease contracts.
Fitch deducts 10% for administrative claims from the resulting
liquidation value. In its analysis, Fitch assumed PGE ranks ahead
of other senior secured debt as the latter is structurally
subordinated. Term loans A and B, the RCF and the bridge loan rank
pari passu among themselves. Its waterfall analysis generated a
waterfall generated recovery computation (WGRC) for the senior
secured debt in the 'RR1' band, indicating a 'BB' rating, three
notches above the company's IDR of 'B'. The WGRC output percentage
on current metrics and assumptions is 96%.
Fitch expects the prospective EUR600 million bond to rank pari
passu with senior secured credit facilities, with proceeds to be
used to prepay the bridge loan and a portion of the term loans.
Under these assumptions, its waterfall analysis generates a WGRC
for the senior secured bond in the 'RR1' band, indicating a
'BB(EXP)' rating, three notches above the company's IDR of 'B'. The
WGRC output percentage on current metrics and assumptions is 95%.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Successful realisation of the disposal plan, building up
liquidity and leading to profitability improvements
- EBITDAR net leverage below 6.0x on a sustained basis
- EBITDAR fixed charge cover above 1.7x on a sustained basis
- Positive FCF generation
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Failure to place the bond to address 2025 debt maturities
- EBITDAR net leverage above 6.5x on a sustained basis
- EBITDAR fixed charge cover below 1.5x on a sustained basis
- Negative FCF, reducing available liquidity
Liquidity and Debt Structure
Limited but Improving Liquidity: Fitch assesses AccorInvest's
liquidity as limited as Fitch estimates that cash balance has
reduced due to debt prepayments and transaction costs, while its
EUR250 million RCF remains fully drawn. Fitch expects liquidity to
improve after the bond placement as it would allow the company to
repay the bridge facility and reduce short-term debt to EUR191
million, related to the amortisation payment under PGE.
Successful execution of asset disposals may replenish AccorInvest's
cash position, improving liquidity assessment to satisfactory.
Fitch also assumes that the company will receive another EUR100
million from shareholders before March 2025 should its asset
disposal proceeds be lower than expected.
Issuer Profile
AccorInvest is a France-based real estate hotel owner and
operator.
Date of Relevant Committee
04 September 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 Recovery
----------- ------ --------
AccorInvest Group S.A. LT IDR B Publish
senior secured LT BB(EXP) Publish RR1
senior secured LT BB Publish RR1
ACCORINVEST GROUP: S&P Assigns Prelim. 'B' LT ICR, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings assigned a preliminary 'B' long-term issuer
credit rating to AccorInvest Group S.A. (AIG) and a preliminary
'B+' issue rating with a preliminary '2' recovery rating, to the
company's proposed EUR600 million senior secured notes due 2029.
The stable outlook reflects S&P's expectations that AIG will
maintain S&P Global Ratings-adjusted debt to EBITDA of 5.5x-6.0x
(excluding preference shares) and positive FOCF after leases over
the next 12 months, while maintaining adequate liquidity.
S&P's rating primarily reflects a high level of financial debt and
limited flexibility, forcing the company to focus on deleveraging
and addressing its debt maturity profile in the short term. In July
2024, AIG successfully completed an amend and extend (A&E)
agreement for the existing senior secured facilities under its
senior facilities agreement (SFA). As a result, the maturities of
the main debt instruments were pushed to 2027 from 2025 and
interest margins applied to the existing facilities increased to an
average of 450 basis points from 340 basis points, reflecting
material cash interests paid by the company. The issuer has the
option to push out the maturity of the term loan B (TLB) and
revolving credit facility (RCF) by an additional year, conditional
to a partial prepayment through asset disposals. AIG plans to issue
EUR600 million senior secured notes, the proceeds of which will be
used to redeem the existing bridge loan and make partial repayments
under the existing term loan A and B. Following the completion of
the proposed issuance, AIG's capital structure will comprise:
-- About EUR830 million term loan A maturing June 2027;
-- About EUR1,580 million term loan B maturing December 2027 (with
a potential option to extend maturity by one year);
-- EUR250 million fully drawn revolving credit facility due
December 2027 (with potential option to extend maturity by one
year);
-- EUR441 million amortizing government-backed loan (Pret garanti
par l'Etat, PGE) maturing March 2027;
-- EUR600 million senior secured notes due September 2029.
Although the proposed issuance and the renegotiated terms obtained
in July 2024 lengthen the debt maturities, the strict financial
conditions obtained limit the group's financial flexibility. The
SFA terms include, among others, an excess cash flow sweep
mechanism on the company's free cash flow and strongly incentivize
the completion of at least EUR1,144 million of asset disposals by
the end of 2026, whose proceeds will be directly applied to the
repayment of the outstanding loans. As a result, AIG's operational
resources generated over the next 12-18 months, whether organically
or through asset disposals, will be mostly dedicated to service the
financial debt and reduce the loans' outstanding amounts.
Therefore, the company's current short-term financial
considerations prevail over the execution of a long-term
operational strategy, postponing investments in operations that
will ultimately drive the group's long-term growth.
The asset disposal plan will help improve AIG's profitability,
contributing to organic deleveraging. AIG possesses an estate of
about 736 hotels with a gross asset value (GAV) of about EUR8.6
billion as of December 2023, of which about EUR6.1 billion are
owned assets and EUR2.5 billion are leased. As part of the A&E on
the SFA negotiated over the past year, AIG committed to dispose of
at least EUR1,144 million of assets, applying the proceeds to the
repayment of the outstanding loans, and will be allowed to retain
50% of the profit from the disposals once this threshold has been
reached and the reported leverage ratio has declined below 5x. S&P
said, "We understand that, since 2021, the company has been able to
raise significant proceeds from disposing of hotels at an average
price aligned or above the latest market valuation. Given the
strong track record of disposals and the group's strategic
objective of optimizing its portfolio, in 2022 it upgraded its
asset disposal plan to EUR1.7 billion. AIG will dispose on a
first-priority basis noncore nonstrategic less-profitable leased
assets, which will help the group to recalibrate its portfolio
toward owned hotels, refocus its operations on the European
continent, and improve its profitability. While we assume some
execution risk for the disposal plan and give credit to only about
EUR1.3 billion of asset disposals in our forecasts, we believe that
the plan will help to increase the company's S&P Global
Ratings-adjusted EBITDA margin to about 23% in 2024 and 2025, up
from 21.8% in 2023, which will also contribute organically to
deleveraging."
A high cash interest burden will constrain free operating cash flow
(FOCF) over the next 12-18 months. The improvement in the company's
EBITDA margin will sustain FOCF after leases over the next 12
months, although the increase in the interest margins applied to
the loans and the proposed senior secured notes will weigh
substantially on cash flows. Capital expenditure will also increase
to about EUR250 million per year, from about EUR210 million in
2023, reflecting the acceleration of renovations and improvements
to the existing hotels, subject to the cap imposed by the SFA. S&P
said, "Consequently, we forecast about EUR20 million of FOCF after
lease payments in 2024 and EUR35 million in 2025, down from EUR189
million in 2023. We believe that the proposed senior secured notes
issuance is the first milestone in the implementation of a cheaper
and lighter capital structure. While this is not part of our
current forecast, we expect the company will proceed to
progressively refinance the remaining loans under the SFA over the
next 12-18 months, reducing the weight of financial interest and
returning to a more normative FOCF after leases of about EUR120
million in 2026."
Well-capitalized and supportive shareholders bolster the group's
creditworthiness. S&P said, "In July 2024, AccorInvest's
shareholders approved a capital increase of the group, taking the
form of a EUR200-million issuance of preference shares, which we
treat as a debt-like instrument because the documentation
anticipates the possibility of an eventual future repurchase from
the group, under certain conditions. That said, the preference
shares are fully subordinated to the existing and future company's
debt and are unsecured and unguaranteed instruments in the capital
structure. The proceeds from these shares, combined with AIG's
operating cash flow, the proceeds from the asset disposal plan
received so far, and the proceeds from the issuance of notes will
extinguish the bridge loan at the transaction's closing.
Consequently, S&P Global Ratings-adjusted leverage will decline to
5.8x (excluding preference shares) by the end of 2024, from 6.6x at
the end of 2023. Shareholders are also committed to support further
issuance of preference shares of up to EUR200 million, depending on
the group's progress on its disposal plan over the period to March
2025, and reduce the amount of the outstanding facilities under the
SFA. This follows the support that shareholders already gave during
the pandemic of EUR477 million of common equity. We believe that
shareholders' track-record and commitment to supporting
deleveraging alleviates to some extent the plan's execution risk
and strengthens creditworthiness overall."
Positive market dynamics in the hotel and lodging industry should
support organic growth. Excluding the impact of the disposal plan,
AIG's revenue per available room (RevPar) in the first half of 2024
increased by about 3%, supported by growth in both average daily
rates and occupancy rates. The group's reported EBITDA also
increased by 4%, reflecting the termination of lease agreements and
the disposal of non-profitable and less profitable hotels in line
with the strategic plan. S&P said, "We forecast high average daily
rates for the remainder of 2024, but we also believe that further
increases should abate as economic growth remains moderate and
inflation should slow over the next two years. That said, occupancy
rates should continue to play favorably in the RevPar dynamics,
thanks to a gradual improvement in volumes of business travellers,
which constitute about 47% of AIG's customer base. Therefore, we
expect the revenue of those hotels not subject to the disposal plan
to increase by about 2% in 2024 and 4% in 2025, supporting the
growth of the going-concern perimeter."
Single-manager exposure and a high fixed cost base constrain the
group's creditworthiness. AIG operates its hotels under 14 brands
from the leading hotel manager and shareholder Accor S.A.
(BBB-/Stable/A-3). While Accor is a well-established global player
in the hotel and lodging industry, the lack of manager
diversification ties AccorInvest's operational performance
exclusively to that of its shareholder. Effectively, the rates that
AIG can apply to its rooms and other revenue-enhancing strategic
initiatives (such as loyalty program, marketing campaigns, etc.)
are dictated by Accor, reducing the company's ability to increase
prices or put in place other revenue-generating operations.
Moreover, AIG pays significant management and other fees to Accor,
which, as a percentage of revenue, is higher than rated peers such
as Ryman Hospitality Properties Inc. (B+/Positive/--) and Park
Hotels & Resorts Inc. (BB-/Stable/--), partially explaining the
smaller EBITDA margin compared with these rated peers. S&P said,
"Our 'B' preliminary long-term issuer credit rating on AIG also
reflects its status as an asset-heavy lodging operator, with a
significant fixed cost base composed of personnel costs, hotel
running costs, management fees, and lease costs. Therefore, while
AIG's EBITDA generation flows from the RevPar achieved on its
rooms, AIG's future earnings are a function of the group's ability
to optimize its asset portfolio, improve the efficiency of its
hotel operations, and increase its return on capital employed. In
this context, we believe that the asset disposal plan should help
the company to reduce the lease burden and increase its share of
good quality owned assets through asset swaps, providing a higher
level of financial flexibility from 2026."
S&P said, "The final ratings will depend on our receipt and
satisfactory review of all final documentation and final terms of
the transaction.The preliminary ratings should therefore not be
construed as evidence of final ratings. If we do not receive final
debt documentation within a reasonable time, or if the final
documentation and final terms of the transaction depart from the
materials and terms reviewed, we reserve the right to withdraw or
revise the ratings. Potential changes include, but are not limited
to, utilization of the proceeds, debt maturity, size and conditions
of the facilities, financial and other covenants, security, and
ranking.
"The stable outlook reflects our expectations that AIG will pursue
its asset disposal plan, thereby addressing its front-loaded debt
maturity profile, reducing its outstanding financial debt, and
optimizing its asset portfolio, such that S&P Global
Ratings-adjusted leverage will remain stable at about 5.5x-6.0x
(excluding preference shares) and adjusted funds from operations
(FFO) to debt at about 8%-10% over the next 12 months, while
generating positive FOCF after leases. We also expect the company
to maintain adequate liquidity over the next 12 months."
Downside scenario
S&P would lower the rating on AIG if choppy market conditions
hindered the group's ability to complete its asset disposals in
line with the budget and the group was unable to successfully
refinance its capital structure on a timely basis, causing S&P
Global Ratings-adjusted leverage (excluding preference shares) to
increase above 7.0x and leading to material refinancing risk and
liquidity pressure within the next 12 months.
Additional rating pressure could arise if there were a material
deterioration in the competitive landscape that significantly
impaired the group's business model due to macroeconomic or
geopolitical event risks, or intense competition resulting in a
dramatic reduction in the volume of customers for a prolonged
period, or a substantial increase in costs, causing FOCF after
leases to turn negative.
Upside scenario
S&P said, "We could raise the rating on AIG if the company made
significant progress toward the completion of its asset disposal
plan and refinancing of its capital structure, resulting in a
longer debt maturity profile, lower financial leverage, stronger
liquidity, and a more efficient asset portfolio. In this case, we
should also see S&P Global Ratings-adjusted leverage (excluding
preference shares) improving to below 5.5x, FFO to debt reaching
12%, and materially positive FOCF after leases."
Environmental factors are a neutral consideration in S&P's credit
ratings analysis of AIG. The group has a dedicated committee and
internal monitoring tools that drive investments in improving the
sustainability of the company's assets. The company is actively
pursuing sustainable building certifications with BREEAM and Green
Key in order to have 80% of the portfolio certified by the end of
2026. These certifications require low operating expenditure and
will improve utilities usage and energy consumption of the
buildings, lowering the company's overall carbon emissions at an
asset level. AIG is also committed to reduce greenhouse gas
emissions from Scope 1 and 2 by 2030, which were already lowered by
12% since 2019, while 97% of the hotel portfolio has removed
single-use plastics, reducing the environmental footprint.
Social factors are a negative consideration in our credit rating
analysis of AIG. In general, S&P sees social risks as an inherent
part of the hotel industry, which is exposed to health and safety
concerns, terrorism, cyberattacks, and geopolitical unrest.
Governance factors are a neutral consideration. Although there is
no publicly stated financial policy, the company currently has
limited capacity to distribute dividends under its debt
documentation. S&P said, "We also do not expect the group to
materially increase financial leverage over the forecast period. We
note that the group also has a very supportive shareholder base,
which includes Accor S.A. (holding about 30% of AccorInvest), the
Singaporean and Saudi sovereign wealth funds and other
institutional investors (70%). To support the group during the
pandemic, shareholders injected EUR477 million of equity in 2021.
They also contributed EUR200 million of equity in the form of
preference shares as part of the A&E agreement of July 2024 and we
understand that they remain committed to another EUR200 million if
the execution of the disposal plan is slower than currently
anticipated."
TSM II LUXCO 21: S&P Assigns 'B+' LongTerm ICR, Outlook Stable
--------------------------------------------------------------
S&P Global Ratings assigned its 'B+' long-term issuer credit rating
to TSM II Luxco 21 S.a.r.l., V&N Group's holding company. S&P also
assigned its 'B+' issue rating to the EUR465 million term loan B
and EUR100 million revolving credit facility (RCF). The '3'
recovery rating reflects its expectations of a meaningful recovery
(50%-70%; rounded estimate 65%) in the event of a default.
The stable outlook reflects S&P's view that V&N Group will generate
strong organic growth in both its energy and utility and
installation businesses. This is due to favorable trends in
addressable markets, with a steady increase in EBITDA margins
leading to adjusted leverage of 4.0x-4.5x and positive free
operating cash flow (FOCF) over the next 12 months.
Private equity firm Triton Partners created holding company TSM II
luxco 21 S.a.r.l. to acquire 100% stake in V&N Group. V&N Group has
been formed through the carve-out of three businesses--Telecom,
Homij, and VS&H--by previous owners Koninklijke VolkerWessels B.V
(Volkerwessels). To finance the transaction, TSM II luxco 21
S.a.r.l. issued a EUR465 million term loan B, supported by a EUR100
million RCF that remained undrawn at close of the transaction, as
well as a EUR125 million guarantee facility. Triton also injected
EUR275 million new equity to support the transaction. S&P said, "We
note that there are EUR275 million preference shares in the capital
structure, which sit at the entity level. We treat these shares as
equity and exclude them from leverage and coverage calculations
because there is an alignment of interest between noncommon and
common equity holders."
V&N Group's business units operate in a competitive landscape with
numerous providers, resulting in low margins for participants in
their respective sector. Although S&P's think V&N Group is uniquely
positioned in the electricity and utility segment, telecom
business, and installation business with its end-to-end offering on
a national scale in the Netherlands, the end markets are quite
fragmented. There are many service providers and vendors, ranging
from international providers to local regional specialists, which
limits participants' pricing power.
Favorable industry trends will support organic growth, somewhat
offset by a runoff in demand for fiber connectivity services in the
telecom business. The Group's VS&H and Homij businesses are
expected to benefit from several industry tailwinds related to
energy transition and sustainability, growing electricity needs,
increased regulatory standards for energy-efficient buildings
supported by housing shortage, and an ageing residential
infrastructure. S&P said, "We expect this will result in organic
growth of 13% in VS&H and about 5.4% growth in Homij in 2024. With
fiber-to-the-home rollout peaking in 2024, we expect telecom
revenues to decline to about 3.7% in the short term. However, fiber
maintenance and growing demand for the private connectivity segment
is expected to drive positive growth in long term."
High revenue visibility through its strong orderbook and
long-standing relationship with its blue chip client base. About
53% of V&N Group's total contracts are long-term framework
agreements that include inflation protection on both labor and
material costs. This helps to secure future orders with price
increases. Given the long-term relationship with its blue chip
client base, the group has a strong orderbook that provides revenue
visibility and also attracts a talented workforce, which is not
easily available. Historically, the group has a good track record
maintaining relationships with key customers, demonstrated by the
majority of contracts being extended or renewed.
V&N Group's geographical and client concentration constrains our
business risk profile. The group has a high geographical
concentration in the Netherlands (about 95% of revenue). The
remainder comes from Germany. In addition, there is a high client
concentration, with the top five customers accounting for 35% of
its 2023 revenue. Although we understand that company's dependence
on some of its largest clients will decrease, especially in its
telecom business as fibre roll out subsides, the company may expand
geographically based on its clients' needs. S&P believes the
current geographic and customer concentration makes it less
resilient compared with larger, geographically diversified service
providers, of which we assign a stronger business risk profile.
S&P said, "We anticipate EBTIDA margin improvement which coupled
with low working capital and capex needs will support positive cash
flow generation. EBITDA margin improvement is expected to be
supported by continued disciplined approach in contract management
both with its long term framework agreements which have indexation
clauses as well as project contracts which has limited cost
exposure due to its shorter pass-through cycle for inflation. This
is in addition to operational efficiencies and overhead
optimisations that we expect from the carve-out. We forecast a
steady increase in its EBITDA margin to 9.5%-9.8% over 2024-2025.
To reach S&P Global Ratings-adjusted EBITDA, we deduct exceptional
costs from the company-calculated EBITDA. The group has low capex
and working capital requirements, which support its cash flows.
Yet, the company experienced higher-than-usual capex in 2023 due to
investments in drilling equipment and implementation of new
software development projects. We forecast positive FOCF of about
EUR35 million in 2024, including transaction costs, and EUR65
million in 2025, together with an adjusted funds from operations
(FFO) cash interest coverage of 2.9x in 2024 and 3.4x in 2025,
which is well in line with our assessment of aggressive financial
risk profile.
"The rating on TSM II Luxco 21 S.a.r.l. is constrained by its
financial-sponsor ownership. We forecast V&N Group's adjusted debt
to EBITDA will be 4.5x at year-end 2024 and decline to 4.1x in
2025, on the back of EBITDA growth. However, financial-sponsor
ownership and future acquisitions may limit deleveraging. We think
the group may adhere to its clients' needs and expand outside the
Netherlands in addition to strategic bolt-on acquisitions. However,
geographical expansion is not a near-term priority for the group
since it is primarily focused on growth opportunities in the
Netherlands. Additionally, although we see integration risk as
limited and do not expect meaningful synergies from the three
business lines combining, the company has yet to build a track
record of operating on a stand-alone basis following the carve-out
from the family-owned company.
"The stable outlook reflects our view that V&N Group will generate
strong organic growth in its energy and utility business and
installation business due to favorable trends in addressable
markets, with a steady increase in EBITDA margins leading to
adjusted leverage of 4.0x-4.5x and positive FOCF over the next 12
months."
Downside scenario
S&P could lower the rating on TSM II luxco 21 S.a.r.l. in the next
12 months if it expects its S&P Global Ratings-adjusted leverage to
rise and remain above 5x or its FOCF to weaken, likely because of:
-- A more aggressive financial policy involving debt-funded
shareholder returns or acquisitions;
-- Weaker trading performance; or
-- Integration missteps or higher-than-expected costs to operate
the company on a stand-alone basis.
Upside scenario
Although unlikely in the near term, S&P could consider taking a
positive rating action if:
-- Financial-sponsor ownership reduces, and the group maintains a
less-aggressive approach to debt, such that S&P does not anticipate
a significant leveraging event over 4x; or
-- The company enhances its scale and diversity while operating
performance and margins continue to improve.
S&P said, "Governance factors are a moderately negative
consideration in our credit analysis of V&N Group. Our assessment
of the company's financial risk profile as aggressive reflects
corporate decision-making that prioritizes the interests of the
controlling owners. This aligns with our view of most rated
entities owned by private-equity sponsors. Our assessment also
reflects the generally finite holding periods and the focus on
maximizing shareholder returns."
=====================
N E T H E R L A N D S
=====================
NOBIAN HOLDING: S&P Rates New EUR974MM Term Loan B 'B'
------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating and '3' recovery
rating to the proposed EUR974 million term loan B (TLB) to be
issued by Nobian Finance BV, a subsidiary of Netherlands-based
chemical producer Nobian Holding 2 BV (Nobian, B/Stable/--). The
'3' recovery rating indicates its expectation of meaningful
recovery (50%-70%, rounded estimate: 60%) in the event of a
default.
Nobian intends to extend the maturities of its EUR974 million TLB
and its EUR200 million revolving credit facility (RCF). The
proposed new tranches will be used to repay the existing TLB and
RCF due in July 2026 and January 2026, respectively. This will lead
to an extension of the TLB and RCF to July 2029 and January 2029,
respectively, well before they are due. This proactive move
strengthens the company's liquidity profile.
Nobian's proposed amend-and-extend transaction is leverage neutral
and would improve the company's debt maturity profile.
S&P said, "We do not expect that this amend-and-extend transaction
will increase the company's gross debt. Nobian will pay transaction
fees with cash on the balance sheet. In our base case for the
ratings, we continue to anticipate that Nobian's S&P Global
Ratings-adjusted leverage will be about 4.8x in 2024."
OCI NV: Moody's Assigns 'Ba1' CFR, Placed on Review for Downgrade
-----------------------------------------------------------------
Moody's Ratings assigned a long-term corporate family rating of Ba1
and a probability of default rating of Ba1-PD to OCI N.V. (OCI),
and has placed them on review for downgrade. Moody's also
downgraded the company's $2 billion backed senior unsecured medium
term note (MTN) programme to (P)Ba1 from (P)Baa3, and its backed
senior unsecured medium term notes due 2033 to Ba1 from Baa3. The
ratings remain on review for further downgrade. The Baa3 backed
senior unsecured medium term notes due 2025 remain on review for
further downgrade but Moody's expect them to be redeemed on October
15, 2024, and will withdraw the rating upon full repayment.
At the same time Moody's have withdrawn its Baa3 long-term issuer
rating and the Baa3 rating of the Iowa Finance Authority backed
revenue refunding bonds due to their legal defeasance which
occurred on August 29.
RATINGS RATIONALE
The rating action reflects the company's series of divestiture
announcements, which will greatly diminish the scale,
diversification and resiliency of OCI's business profile. To date
the company has announced the divestiture of its subsidiary IFCo;
its subsidiary Fertiglobe plc (Fertiglobe); its still under
construction Texas Blue ammonia facility, and its global methanol
operations.
On August 29, 2024 the company closed on its IFCo divestiture for
net proceeds of roughly $2.6 billion. The remaining asset sales are
expected to raise: (i) Fertiglobe - $3.6 billion (2024), (ii) Texas
blue ammonia - $2.35 billion ($1.88 billion in 2024 and $470
million in 2025), (iii) global methanol operations - $1.15 billion
of cash and Methanex common shares (9.9 million shares) valued at
around $450 million in H1 2025. In total Moody's expect around $9.7
billion in net cash proceeds (excluding the Methanex shares).
Following the IFCo closure, the company has repaid its revolver
borrowings (estimated at around $580 million) and terminated its
EUR400 million bridge facility. During the course of Q4 Moody's
expect the company to retire its 2025 bonds ($685 million), buyout
the MetCo minority partners, close out gas hedges related to IFCo
and pay certain transaction costs estimated at around $450 million,
and pay the already announced roughly $3.4 billion of dividends to
shareholders. In total Moody's estimate around $5.6 billion of
defined cash uses.
Aggregating these known sources and uses Moody's estimate the
company could generate net cash proceeds of around $4.1 billion.
This estimate does not incorporate Moody's cash flow expectations
for the ongoing business or ongoing capex, which Moody's expect
could reduce the readily available cash by the time the global
methanol business closes around the end of H1 2025.
Moody's view the prospective large cash balance and overall net
cash position as a strong credit positive. Deployment of high
levels of capital for shareholder returns would reduce Moody's
tolerance for the current rating positioning and would drive
negative ratings pressure.
Governance considerations were a driver of the rating action as the
company has yet to determine the exact application of all the cash
proceeds, despite following a path of disposing of some of its core
assets.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade or downgrade of the ratings
will be updated once the review is completed.
The review will consider the ongoing disposals and business
profile, the evolving capital structure and financial policies,
uncertain strategic direction and yet to be communicated
application of the disposal proceeds.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in October 2023.
COMPANY PROFILE
Headquartered in the Netherlands, OCI N.V. (OCI) was established on
January 2, 2013 as a public limited liability company incorporated
under Dutch law. The group is a global producer and distributor of
natural gas-based fertilisers and industrial chemicals (mainly
methanol).
=========
S P A I N
=========
CODERE FINANCE 2: Moody's Rates New EUR128MM Secured Notes 'Caa2'
-----------------------------------------------------------------
Moody's Ratings has assigned a Caa2 instrument rating to the
proposed EUR128 million backed senior secured notes due 2028 (the
"first-priority notes") issued by Codere Finance 2 (Luxembourg)
S.A. ("Codere Finance 2"), a subsidiary of Codere Luxembourg 2
S.a.r.l.'s ("Codere" or "the company").
Codere's C corporate family rating ("CFR"), C-PD/LD probability of
default rating ("PDR"), the Caa1 instrument rating on the backed
interim super senior secured notes due 2025 issued by Codere
Finance 2 (original amount of EUR50 million, the "interim notes"),
the Caa1 instrument rating on the backed bridge super senior
secured notes due 2025 issued by Codere Finance 2 (original amount
of EUR20 million, the "bridge notes"), the C instrument rating on
the backed super senior secured notes due 2026 issued by Codere
Finance 2 ("super senior notes"), the C instrument rating on the
EUR/$ backed senior secured notes due 2027 issued by Codere Finance
2 ("senior notes"), as well as the C instrument rating on the
backed subordinated PIK notes due 2027 issued by Codere New Holdco
S.A. ("subordinated PIK notes") remain unchanged until successful
completion of the restructuring transaction. The outlook on all
entities is stable.
On September 10, 2024 [1], Codere announced that it has signed the
purchase agreements related to the first-priority notes to be
issued at completion of its restructuring transaction.
Net proceeds from the issuance of those first-priority notes will
be used to refinance the interim notes and the bridge notes as well
as for general corporate purposes and fees and expenses related to
the implementation of the restructuring transaction.
Codere's proposed restructuring transaction announced [2] on June
13, 2024, currently expected to close towards the end of September
or early October 2024, will result in a reduction of close to 90%
of the group's total financial debt because of the write-downs and
cancellations of the senior notes and subordinated PIK notes and
the debt-for-equity swap on the full amount of super senior notes.
Moody's will likely consider the proposed restructuring transaction
as a distressed exchange, which is an event of default under
Moody's definition, given that the transaction involves a
debt-for-equity swap and debt write-downs and allows the company to
avoid a default.
RATINGS RATIONALE
The Caa2 rating on Codere's first-priority notes reflects Moody's
assessment of the group's credit profile and future CFR after it
will complete its restructuring transaction. This assessment
reflects the company's improved capital structure
post-restructuring, but also its weak liquidity and cash flow
generation as well as the delays in financial reporting.
Post-transaction, the financial debt remaining on Codere's balance
sheet will be in the range of EUR190 million to EUR200 million
excluding leases liabilities, mainly composed of the EUR128 million
new first-priority notes and financial debt located in operating
subsidiaries.
As a result, Moody's expect Codere's Moody's-adjusted leverage
(calculated as Moody's-adjusted gross debt to EBITDA post-IFRS 16)
to decrease from Moody's estimate of above 11x in 2023 (2023
audited accounts are not available yet) to around 3x in 2024.
Despite the lower debt burden and the additional liquidity provided
to the company as part of the restructuring transaction, Moody's
expect Codere's liquidity to remain weak even after completion of
its restructuring transaction. Moody's expect Codere to generate
negative free cash flow (FCF) owing to its high capital spending
requirements at a time when EBITDA recovery is still uncertain. As
a result, if the company is unable to significantly improve its
EBITDA and cash flow generation in the next two years, there will
be continued risk of a covenant breach and liquidity shortfall. The
group's ability to breakeven in terms of FCF in the next two years
will depend on the pace of recovery in earnings but also on the
timing of the payment of the Italian licenses renewal cost, both of
which are uncertain.
Codere's credit quality is also constrained by compliance and
reporting risks, with notably a lack of timeliness in reporting its
audited accounts for 2023 due to a change in auditor at the end of
2023. Moody's expect the company's audited accounts to be delivered
just before or in Q4 2024. In October 2023, Codere announced that
Ernst & Young's ("EY"), its auditor at the time, decided to
discontinue being the auditor for Codere due to alleged corporate
governance failings by certain group's subsidiaries, and PKF Attest
was appointed as new auditor for the group.
LIQUIDITY
Codere's liquidity is weak because Moody's expect the company to
continue to generate sizably negative FCF in the next 12-18 months.
Codere's cash balance was EUR107 million as of December 2023
(unaudited figure), of which around EUR66 million corresponds to
retail activities.
As part of the proposed new restructuring transaction, Codere has
received EUR20 million of additional liquidity via the issuance of
the new bridge notes in the end of Q2 this year, and will receive
an additional amount of around EUR40 million at completion of the
restructuring transaction following of the issuance of the EUR128
million first-priority notes. However, because Moody's expect
negative free cash flow, there is a risk of liquidity shortfall and
covenant breach in the next two years depending on the group's pace
of recovery in EBITDA and the timing of the payment of the Italian
licenses renewal cost.
Given the uncommitted nature of its capital expenditures, Codere
has some flexibility to reduce investments which would partially
offset short-term liquidity issues. Moody's also note there are
some risks of potential additional liquidity needs associated with
the tax claim from the Mexican tax authority for which the company
has already provisioned an amount of around EUR60 million. However,
there is modest risk of a negative impact on cash flow in the short
term, given that the ultimate conclusion of the associated legal
process is not expected before the end of 2025.
Codere's liquidity covenant has been waived while the lock-up
agreement is in place and will be reinstated upon completion of the
transaction. This liquidity covenant, tested quarterly, requires
that Codere maintains EUR40 million of cash in its retail
operations (excluding the cash in the online division that is
restricted).
Codere's next significant debt maturity is the June 2025 debt
maturity of the interim notes and bridge notes (original amounts of
EUR50 million and EUR20 million respectively), which will be
ultimately refinanced by the first-priority notes to be issued at
completion of the transaction. The first-priority notes will mature
in December 2028.
ESG CONSIDERATIONS
Moody's consider the company's governance to be a key driver for
the rating action. Codere's governance score of G-5 is linked to
the company's financial policy and the weak management track record
given its regular liquidity issues leading to serial defaults, as
well as compliance and reporting issues associated with the change
in auditor and the delay in reporting its annual audited accounts
for 2023. However, Moody's positively note the material debt
reduction associated with the restructuring transaction, which will
reduce leverage from Moody's estimate of above 11x in 2023 (2023
audited accounts are not available yet) to around 3x in 2024.
STRUCTURAL CONSIDERATIONS
Codere's interim notes and bridge notes are rated Caa1 which
reflects the higher expected recovery, based on the expectation
that those notes will be refinanced in full from the proceeds of
the EUR128 million first-priority notes at completion of the
restructuring transaction, in line with the terms of the proposed
transaction.
The Caa2 rating of the first-priority notes is in line with Moody's
expectations of the future post-restructuring CFR.
The super senior notes, senior notes and subordinated PIK notes are
rated in line with the CFR, which reflects the very low expected
recovery implied by the terms of the proposed restructuring
transaction.
RATIONALE FOR STABLE OUTLOOK
The stable rating outlook reflects the terms of Codere's proposed
restructuring transaction and the implied overall recovery of the
company's debt below 35%, which is commensurate with a C rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure is unlikely until completion of Codere's
restructuring transaction given the terms of the proposed
restructuring transaction and implied overall recovery of the
company's debt is commensurate with a C CFR. Following completion
of the restructuring transaction, Codere's CFR will reflect the new
capital structure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
published in June 2021.
COMPANY PROFILE
Founded in 1980 and headquartered in Madrid, Spain, Codere
Luxembourg 2 S.a.r.l. (Codere) is an international gaming operator.
The company is present in seven countries where it has
market-leading positions: Spain and Italy in Europe; and Mexico,
Argentina, Uruguay, Panama and Colombia in Latin America. In 2023,
the company reported preliminary non-audited consolidated revenue
of around EUR1.4 billion and preliminary non-audited consolidated
company-adjusted EBITDA of EUR205.7 million.
As part of Codere's 2021 restructuring, most of the company's
bondholders received 95% of the equity of the group through a
debt-for-equity swap. Also, after this 2021 restructuring, the
entity Codere S.A. ceased to be the top holding company of the
group and was delisted. The top holding entity of Codere's super
senior notes, senior notes, interim notes and bridge notes
restricted group is Codere Luxembourg 2 S.a.r.l.
===========================
U N I T E D K I N G D O M
===========================
BLUE CHYP: FRP Advisory Named as Administrators
-----------------------------------------------
Blue Chyp Limited was placed into administration proceedings in the
High Court of Justice, Court Number: CR-2024-4686, and Andy John
and Miles Needham of FRP Advisory Trading Limited were appointed as
administrators on Sept. 2, 2024.
Blue Chyp manufactures metal structures and parts of structures.
Its registered office is at c/o FRP Advisory Trading Limited, 4
Beaconsfield Road, St Albans, Hertfordshire, AL1 3RD. Its
principal trading address is at Cobalt House, Monument Way,
Ashford, TN24 0HB.
The administrators can be reached at:
Andy John
Miles Needham
FRP Advisory Trading Limited
4 Beaconsfield Road, St Albans
Hertfordshire, AL1 3RD
Contact details for Liquidators:
Andrew Andreou
E-mail: cp.stalbans@frpadvisory.com
BOPARAN HOLDINGS: Fitch Puts 'B-' LongTerm IDR on Watch Positive
----------------------------------------------------------------
Fitch Ratings has placed Boparan Holdings Limited's Long-Term
Issuer Default Rating (IDR) and Boparan Finance plc's GBP525
million senior secured notes (SSNs) due in 2025 - both rated 'B-' -
on Rating Watch Positive (RWP).
The RWP follows the group's announcement to divest its European
poultry operations, with the cash proceeds earmarked for debt
reduction. This will mitigate near-term refinancing risk,
complemented by its record of improved operating performance.
Fitch expects to resolve the RWP after Boparan completes its
divestment and repays part of its debt in conjunction with a clear
plan for a timely refinancing of its remaining 2025 SSNs.
Key Rating Drivers
Sale Proceeds to Lower Debt: The cash to be received from the EU
poultry sale will enable Boparan to lower leverage to levels that
are consistent with a 'B' rating category. It intends to use around
GBP150 million of cash proceeds to repay some of its debt. This
will reduce leverage to well below 4.0x in FY25 (financial year to
July) and help refinance its remaining 2025 maturities. Fitch
estimates leverage to have fallen below 5x in FY24 from 6.6x in
FY23, driven by profitability improvement.
Near-Term Refinancing Needs: Fitch views the divestiture as
critical to addressing Boparan's approaching SSN maturity in
November 2025. Given the compressed timeline for the divestiture
and Boparan's refinancing needs, Fitch intend to resolve the RWP in
conjunction with an advanced credible refinancing plan. Absence of
a refinancing strategy 12 months ahead of the SSN maturity will
lead to a downgrade.
EU Poultry Sale to Improve Margin: The divestment to Boparan
Private Office (BPO) owned by Boparan Holding shareholders would
lift Boparan's margins to 6% in FY26 from an estimated 5% for FY24,
and help improve cash generation. Fitch views the European division
as much less profitable with a more challenging market due to
disruption from increased Ukraine imports.
The sale would free up cash for further operational improvements
such as cost-cutting technological investments and yield
improvements, as well as for funding continued investment in its
meals and bakery segment in the UK. Fitch expects free cash flow
(FCF) margins to improve towards 1% following completion of the
transaction, reversing its volatile FCF trend.
Profitability Recovery: Fitch projects Boparan's EBITDA margin will
recover to 5% in FY24 (FY23: 3.2%), due to the full-year impact of
cost-cutting measures as well as the good performance of the ready
meal segment. Cost-cutting measures include a new fillet automation
line and closure of the Llangefni production site. However,
Boparan's operating margins are still vulnerable to external
pressures. While feed price change is passed onto customers, wages
and energy costs are not part of this pass-through mechanism.
Leading UK Poultry Producer: Boparan has a leading position in the
UK, with nearly one-third of the country's poultry market. This is
supported by its large-scale operations and established
relationships with key customers, including grocery chains, the
food-service channel and packaged-food producers. It also benefits
from an integrated supply chain via its joint venture with PD Hook,
the UK's largest supplier of broiler chicks. This adds to the
stability of livestock supply and ensures sufficient processing
capacity utilisation.
Limited Diversification: The protein business accounts for nearly
80% of Boparan's revenue, with poultry being the core processed
animal protein and the remainder from ready chilled meals and
bakery categories. Boparan is exposed to key customer concentration
risk in poultry and ready meals in the UK, particularly with sales
to Marks and Spencer Group plc. The divestiture would leave the
group with no geographical diversification to other European
countries. However, Fitch sees limited rating impact from this
change.
Favourable Market Fundamentals: Boparan operates in food categories
with sound fundamental growth prospects. Fitch assumes resilient
low-to-mid single-digit growth in poultry consumption, which is the
fastest-growing protein globally, due to its low cost versus other
proteins, as well as consumer perception that it is a healthier
option than beef and pork. Boparan's large exposure to discount
retailers should support the resilience of its sales volumes during
weaker economic growth, as expected for 2024.
Derivation Summary
Boparan's credit profile is constrained by high leverage and a
modest size, with EBITDA below USD200 million, the median for the
'B' rating category in Fitch's Rating Navigator for protein
companies, as well as by its regional focus in the UK with only
moderate diversification in the EU.
It has lower profitability than the majority of its peers, such as
Minerva S.A. (BB/Stable) and Pilgrim's Pride Corporation
(BBB-/Stable), which Fitch believes is due to limited vertical
integration and some operating inefficiencies that Boparan is
addressing. Fitch still sees the risk of profits remaining under
pressure from energy, distribution, packaging and labour cost
inflation, which may not be fully covered if costs increase.
No Country Ceiling, parent-subsidiary linkage or operating
environment aspects apply to Boparan's ratings.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue to have declined 0.3% in FY24, and to fall a further 20%
in FY25 and 8% in FY26 following the European operation
divestiture
- EBITDA margin at 5% in FY24, gradually increasing to 6% in FY26
- Capex at GBP40 million a year in FY25-FY27
- No M&A or dividend payments over FY25-FY27
- Cash pension contribution of GBP8 million in FY24, before
normalising at GBP16 million-GBP18 million from FY25, as reflected
in funds from operations
- Repayment of GBP150 million of its senior debt, together with a
timely refinancing of its revolving credit facility (RCF), term
loan B (TLB) and SSNs at a 9% cost
Recovery Analysis
The recovery analysis assumes that Boparan would be reorganised as
a going concern (GC) in bankruptcy rather than liquidated. Fitch
has assumed a 10% administrative claim.
Boparan's GC EBITDA is estimated at GBP95 million, reflecting its
view of a sustainable, post-reorganisation EBITDA, on which Fitch
bases the enterprise valuation (EV).
An EV/EBITDA multiple of 4.5x is used to calculate a
post-reorganisation valuation and reflects a mid-cycle multiple
consistent with the protein business industry and, particularly,
with that of peers with similar market share size and brands.
Fitch views Boparan's receivables factoring as super senior in the
waterfall, which would not be available to the group during and
post-bankruptcy and would need to be replaced with an alternative
funding. Fitch assumes the GBP80 million RCF is fully drawn on
default.
The waterfall analysis generated a ranked recovery for the GBP525
million SSNs in the 'RR4' Recovery Rating band, ranking after its
GBP80 million of committed RCF and GBP10 million TLB. This
indicates a 'B-'/'RR4' instrument rating for the senior secured
debt with an output percentage based on current metrics and
assumptions of 47%.
The placement of the senior secured debt on RWP signals a near-term
probability of a debt class upgrade in tandem with a possible
upgrade of the IDR.
Post-divestiture, Fitch projects to lower the GC EBITDA, with
senior secured debt estimated to remain at a reduced level, in line
with the currently contemplated partial debt repayment.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Successful completion of the European Poultry operation
divestment, together with partial repayment of the SSNs with its
proceeds, which would result in the removal of RWP
- Sustained improvement of EBITDA margin to above 5% and positive
FCF
- EBITDA leverage below 4.5x on a sustained basis
- EBITDA interest coverage above 2.5x
- Sufficient liquidity to cover all operational needs - working
capital and capex - with limited intra-year drawings under the RCF
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Absence of credible refinancing options 12 months ahead of debt
maturities, which would be accompanied by the removal of the RWP
- EBITDA margin below 3.5% with negative FCF eroding liquidity
headroom
- EBITDA leverage above 5.5x on a sustained basis
- EBITDA interest coverage below 2x
Liquidity and Debt Structure
Limited but Adequate Liquidity: Fitch estimates that Boparan had
just over GBP30 million cash on its balance sheet at FYE24, after
adjusting for GBP15 million required for operational purposes, and
a fully undrawn GBP80 million under its RCF available until May
2025. Fitch also expects FCF to remain positive, albeit thin,
following lower pension contributions and profit recovery.
Near-Term Debt Maturities: The RWP incorporate its assumption of
Boparan's partial repayment from the disposal proceeds. This,
together with reduced debt levels and improved operating
performance, would support the refinancing of its upcoming RCF
(currently undrawn), TLB and senior secured debt due in May 2025
and November 2025, respectively, in the next two months. Absence of
this near-term debt reduction and an advanced refinancing plan will
lead to a downgrade.
Issuer Profile
Boparan is the UK's leading poultry meat producer and the
second-largest poultry processor in the fragmented European
market.
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
----------- ------ -------- -----
Boparan Holdings
Limited LT IDR B- Rating Watch On B-
Boparan Finance plc
senior secured LT B- Rating Watch On RR4 B-
CELLEN BIOTECH: Mercer & Hole Named as Administrators
-----------------------------------------------------
Cellen Biotech Limited was placed in administration proceedings in
the High Court of Justice, Business and Property Courts of England
and Wales, Insolvency & Companies List (ChD), Court Number:
CR-2024-005239, and Henry Nicholas Page and Dominic Dumville of
Mercer & Hole were appointed as administrators on Sept 10, 2024.
Cellen Biotech manufactures basic pharmaceutical products.
Its registered office and principal trading address is:
c/o CMS Cameron McKenna Nabarro
Olswang LLP
78 Cannon Street
London, EC4N 6AF
The administrators can be reached at:
Henry Nicholas Page
Dominic Dumville
Mercer & Hole
21 Lombard Street
London, EC3V 9AH
Further information can be obtained from:
Harry Smart
Email: Harry.Smart@Mercerhole.co.uk
Tel No: 020 7236 2601
CELLEN LIFE: Mercer & Hole Named as Administrators
--------------------------------------------------
Cellen Life Sciences Limited was placed in administration
proceedings in the High Court of Justice. Business and Property
Courts of England and Wales, Insolvency & Companies List (ChD),
Court Number: CR-2024-005238; and Henry Nicholas Page and Dominic
Dumville of Mercer & Hole were appointed as administrators on Sept
10, 2024.
Cellen Life manufactures of basic pharmaceutical products. Its
registered office and principal trading address is:
c/o CMS Cameron McKenna Nabarro
Olswang LLP
78 Cannon Street
London, EC4N 6AF
The administrators can be reached at:
Henry Nicholas Page
Dominic Dumville
Mercer & Hole
21 Lombard Street
London, EC3V 9AH
Further information can be obtained from:
Harry Smart
Email: Harry.Smart@Mercerhole.co.uk
Tel No: 020 7236 2601
CONTRACT FLOORING: Wilson Field Named as Administrators
-------------------------------------------------------
Contract Flooring & Interiors (C.F.I.) Ltd was placed in
administration proceedings in the High Court of Justice Business
and Property Courts in Manchester, Insolvency & Companies List
(ChD), Court Number: CR-2024-001139; and Kelly Burton and Olivia
Barker of Wilson Field Ltd, were appointed as administrators on
Sept 13, 2024.
Contract Flooring & Interiors specializes in non-slip flooring, PVC
flooring and office refurbishment.
Its registered office and principal trading address is at Premier
House, 16 Henry Boot, Priory Park, Hull, HU4 7DY.
The administrators can be reached at:
Kelly Burton
Olivia Barker
Wilson Field Ltd
The Manor House
260 Ecclesall Road South
Sheffield, S11 9PS
For further details, contact:
The Joint Administrators
Tel No: 0114 235 6780
Alternative contact:
Joanne Hoyland
E-mail: j.hoyland@wilsonfield.co.uk
ELECTROLYTIC PLATING: BDO Named as Joint Administrators
-------------------------------------------------------
Electrolytic Plating Company Limited, trading as EPC, was placed
into administration proceedings in the High Court of Justice,
Business and Property Courts in Manchester, Court Number:
CR-2024-MAN-001117, and Kerry Bailey and Lee Causer of BDO LLP were
appointed as joint administrators on Sept. 5, 2024.
Electrolytic Plating is manufacturer of fabricated metal products.
Its registered office is at 138 Wednesbury Road, Walsall, Staffs,
WS1 4JJ to be changed to C/O BDO LLP, 5 Temple Square, Temple
Street, Liverpool, L2 5RH. Its principal trading address is at 138
Wednesbury Road, Walsall, Staffs, WS1 4JJ.
The joint administrators can be reached at:
Kerry Bailey
BDO LLP
Eden Building, Irwell Street
Salford, Manchester, M3 5EN
-- and --
Lee Causer
BDO LLP, Two Snowhill
Birmingham, B4 6GA
For further details, contact:
Owen Casey
E-mail: BRCMTNorthandScotland@bdo.co.uk
Tel No: +44 151 237 4437
FINSBURY SQUARE 2021-2: Fitch Lowers Rating on Two Tranches to B-sf
-------------------------------------------------------------------
Fitch Ratings has upgraded Finsbury Square 2021-1 Green plc's
(FSQ21-1) class B notes and affirmed the rest. Fitch has also
upgraded Finsbury Square 2021-2 PLC's (FSQ21-2) class B, C, D, E
and F notes, downgraded its class X2 and X3 notes, and affirmed the
rest.
Entity/Debt Rating Recovery
----------- ------ --------
Finsbury Square
2021-1 Green plc
Class A XS2352500636 LT AAAsf Affirmed AAAsf
Class B XS2352501360 LT AAAsf Upgrade AA+sf
Class C XS2352501527 LT A+sf Affirmed A+sf
Class D XS2352502509 LT CCCsf Affirmed CCCsf
Class X2 XS2352505197 LT BB+sf Affirmed BB+sf
Finsbury Square 2021-2
A XS2400370255 LT AAAsf Affirmed AAAsf
B XS2400370412 LT AAAsf Upgrade AA-sf
C XS2400372624 LT A+sf Upgrade Asf
D XS2400373192 LT Asf Upgrade BBBsf
E XS2405114872 LT BBBsf Upgrade BB+sf
F XS2405115259 LT BBsf Upgrade BB-sf
G XS2405115507 LT CCCsf Affirmed CCCsf
X1 XS2400373945 LT BB+sf Affirmed BB+sf
X2 XS2400374166 LT B-sf Downgrade BB+sf
X3 XS2405116224 LT B-sf Downgrade BBsf
Transaction Summary
The transactions are securitisations of owner-occupied and
buy-to-let mortgages originated by Kensington Mortgage Company
Limited and backed by properties in the UK.
KEY RATING DRIVERS
Increasing Credit Enhancement (CE): CE has increased since the last
rating action in September 2023 due to the sequential amortisation
of the notes and static reserve funds. CE for FSQ21-1's class A
notes has increased to 43.6% from 24.9%, and for FSQ21-2's class A
notes to 51.4% from 20.6%. This supports the upgrades and
affirmations today.
Worsening Asset Performance: Asset performance for both
transactions has deteriorated since the last rating action, due to
high interest rates and cost-of-living pressures. The proportion of
loans in arrears for more than one month for FSQ21-1 has increased
to 6.5% from 4.2% since July 2023, and for FSQ21-2 to 4.3% from
0.84% in the same period. Consequently, upgrades to FSQ21-2's class
D, E and F notes have been limited to below their respective
model-implied ratings.
High Prepayments Limit Excess Spread: The asset portfolio of
FSQ21-2 saw high levels of prepayments in the last 12 months at
37.5% on average, higher than Fitch's assumptions for the 'BBsf'
rating category. This is a result of a high concentration of
borrowers scheduled to roll-off onto floating rates during this
period, who instead prepaid their loans by refinancing with other
lenders.
The prepayments have constrained the excess spread available for
the transaction, because as the asset pool amortises more rapidly,
the weighted-average coupon of the bonds increases materially,
thereby generating less available revenue for the class X notes.
This drives the downgrade of FSQ21-2's class X2 and X3 notes, as
they are paid down solely with the available excess spread.
Liquidity Access Constrains Ratings: Both transactions feature
dedicated liquidity reserves to mitigate payment interruption risk.
However, these liquidity reserves only cover interest shortfalls on
the class A and B notes. As a result, the class C notes of both
transactions have been capped at 'A+sf'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transactions' performance may be affected by changes in market
conditions and the economic environment. Weakening asset
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce CE available to the
notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain note ratings
susceptible to negative rating actions depending on the extent of
the decline in recoveries. Fitch found that a 15% increase in the
weighted average (WA) foreclosure frequency (FF) and a 15% decrease
in the WA recovery rate (RR) would lead downgrades of no more than
one notch to FSQ21-2's class D notes and three notches to its class
E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and, potentially,
upgrades. Fitch found that a decrease in the FF of 15% and an
increase in the RR of 15% would lead to upgrades of one, four and
five notches to FSQ21-2's class D, E and F notes, respectively.
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
FSQ2021-1
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third-party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transaction closing, Fitch conducted a review of a
small targeted sample of the originator's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
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.
FSQ2021-2
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third-party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
HADDEN CONSTRUCTION: Alvarez & Marsal Named as Joint Administrators
-------------------------------------------------------------------
Hadden Construction Limited was placed in administration
proceedings in the Court of Session, Scotland, Court Number: No
P760-24, and Benjamin Cairns and Jonathan Marston of Alvarez &
Marsal Europe LLP were appointed as administrators on Sept 10,
2024.
Hadden Construction provides general building works and and planned
maintenance works on projects up to GBP500,000 across Scotland.
Its registered office and principal trading address is at 1
Maidenplain Place, Aberuthven Nr Auchterarder, Perthshire, PH3
1EL.
The joint administrators can be reached at:
Benjamin Cairns
Jonathan Marston
Alvarez & Marsal Europe LLP
Suite 3 Regency House, 91 Western Road
Brighton, BN1 2NW
Tel No: +44 (0) 20 7715 5200.
For further information, contact:
Roddy McKellar
Alvarez & Marsal Europe LLP
E-mail: INS_HADDCL@alvarezandmarsal.com
Tel No: +44(0)-121-281-7720
LEVANTINA (UK): Interpath Advisory Named as Joint Administrators
----------------------------------------------------------------
Levantina (UK) Limited was placed into administration proceedings
in the High Court of Justice, Business and Property Courts of
England and Wales, Insolvency and Companies List (ChD), No
CR-2024-005124, and Nicholas Holloway and Stephen John Absolom of
Interpath Advisory were appointed as joint administrators on Sept.
3, 2024.
Levantina (UK) specializes in wholesale of wood, construction
materials and sanitary equipment.
Its registered office is at c/o Interpath Ltd, 10 Fleet Place,
London, EC4M 7RB. Its principal trading address is at Goumal & Co,
3 Wedmore Street, London, N19 4RU.
The joint administrators can be reached at:
Nicholas Holloway
Stephen John Absolom
Interpath Advisory
10 Fleet Place, London
EC4M 7RB
For further details, contact: LevantinaUK@interpath.com
LIFESTYLE LIVING: BDO Named as Joint Administrators
---------------------------------------------------
Lifestyle Living (NI) Limited was placed into administration
proceedings in the High Court of Justice, Business and Property
Courts in London (Insolvency and Companies List), Court Number:
CR-2024-005149, and Brian Murphy and Michael Jennings of BDO were
appointed as joint administrators on Sept. 4, 2024.
Lifestyle Living, trading as EncoreParcs, offers recreational
vehicle parks, trailer parks and camping grounds services.
Its registered office is at 82a James Carter Road, Mildenhall, Bury
St. Edmunds, IP28 7DE. Its principal trading address is at
Cloughey Holiday Park, 55D Main Road, Cloughey, County Down,
Northern Ireland, BT22 1JB.
The joint administrators can be reached at:
Brian Murphy
Michael Jennings
c/o BDO
Metro Building, First Floor
6-9 Donegall Square South
Belfast, BT1 5JA
For further details, contact:
Michele Goan
E-mail: michele.goan@bdoni.com
Tel No: 028 90 439009
LONDON SLTS: FRP Advisory Named as Administrators
-------------------------------------------------
London SLTS Ltd, trading as London Speech Therapy, was placed into
administration proceedings in the High Court of Justice, Court
Number: CR-2024-005176, and Richard Bloomfield and Ian James
Corfield of FRP Advisory Trading Limited were appointed as
administrators on Sept. 5, 2024.
London SLTS is an independent Speech and Language Therapy service
for children and young people with Speech, Language & Communication
needs.
Its registered office is at Newtec Centre 22 Deanery Road,
Stratford, London, England, E15 4LP in the process of being changed
to c/o FRP Advisory Trading Limited, Dencora Court, 2 Meridian Way,
Norwich, Norfolk, NR7 0TA.
The administrators can be reached at:
Richard Bloomfield
Ian James Corfield
FRP Advisory Trading Limited
Dencora Court, 2 Meridian Way
Norwich, NR7 0TA
For further details, contact:
The Joint Administrators
Tel No: 01603 703 173
Alternative contact:
Stuart Hook
E-mail: cp.norwich@frpadvisory.com
PLATFORM BIDCO: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has assigned Ireland-based Platform Bidco Limited
(Valeo Foods) a first-time Long-Term Issuer Default Rating (IDR) of
'B-' with a Stable Outlook. Fitch has also assigned its upcoming
issue of a EUR300 million senior secured loan an expected
instrument rating of 'B(EXP)' with a Recovery Rating of 'RR3'.
Valeo Foods' rating reflects its moderate scale among global and
regional leading packaged-food producers, although it benefits from
its top position in its core markets of Ireland and the UK. It also
has a strong brand portfolio in a number of ambient food
categories, complemented by significant offerings in a private
label, suggesting resilient relationships with retailers. This is
offset by high starting leverage and still-recovering profitability
after operational underperformance, mainly in the UK, in the
financial year ended March 2023 (FY23).
The Stable Outlook captures its projection of leverage falling
towards levels consistent with the rating and the prospect of
consolidating free cash flow (FCF) from FY26, supported by a
performance turnaround in the UK as well as recent and planned
acquisitions in Central Europe and Canada. The Outlook is also
supported by the company's satisfactory liquidity and extended
maturity profile.
The assignment of the final instrument rating is contingent upon
final documents conforming to information already received.
Key Rating Drivers
Strong Business Position: Valeo Foods' credit profile is supported
by its established operations and leading market positions in
Europe, particularly in Ireland and the UK, which make up a
combined 65% of revenue in FY24, and a growing presence in North
America as one of the biggest maple syrup producers globally.
It owns international and local leading brands in confectionery,
bakery products, honey and maple syrups, snacks and ambient food
products, complemented by wide private-label offerings (FY24: 45%
of revenue). These factors as well as diverse manufacturing
infrastructure and wide distribution capabilities result in strong
ability to pass on cost inflation to consumers and adequate
operating margins.
IDC Acquisition Positive: The planned acquisition of IDC, the
largest wafer producer in Slovakia and largest soft-candy
private-label producer in the Czech Republic, will enhance Valeo
Foods' scale and geographical diversification in Europe, reducing
dependence on its core Ireland and UK markets. Fitch believes the
deal will provide additional growth and cross-selling
opportunities, while integration risks will be moderate given IDC's
well-established profile and healthy profitability. The acquisition
will improve profitability and contribute to faster deleveraging
following the heightened levels in FY23-FY24.
High Initial Leverage: The rating is mainly under pressure from
Valeo Foods' high debt burden with EBITDA gross leverage of 10.7x
at FYE24, which Fitch projects will drop towards 8.8x pro forma
after accounting for the IDC and other recent acquisitions in FY25
before reaching a level consistent with the rating of below 7.5x in
FY26.
Deleveraging Critical: Fitch expects deleveraging, which Fitch
views as critical to the ratings, to be mainly driven by revenue
and EBITDA growth after the recent acquisitions and gradual ramp-up
of savings from synergies and ongoing efficiency measures. Profit
is likely to be reinvested in the business with the aim of creating
Europe's leading sweet-treats producer, rather than debt repayment
or dividends. Lack of visibility over a moderation in leverage in
the next 12-18 months will put the ratings under pressure.
EBITDA Margin Improvement: Fitch projects Valeo Foods' EBITDA
margin will improve to 10.4% in FY25 or 10.9% pro forma for IDC and
other recent acquisitions (FY24: 9.1%). Fitch expects a further
widening in the EBITDA margin to 13%-14% in FY26-FY28 once it
achieves most of the acquisition synergies and savings from the
ongoing and planned efficiency initiatives, which Fitch assumes
will total EUR45 million by FY28.
The planned key sources of efficiency gains are the shift in
procurement towards a centralised system for key raw materials,
rationalisation of production facilities, including shifts in
production between sites, production capacity optimisation and
integration synergies from the recent acquisitions of Pattini,
Appalaches Nature and the closing of the Dal Colle acquisition in
November 2024.
FCF to Fund Growth: Fitch estimates the group's FCF to turn
consistently positive from FY26 as operating profit margin improves
and capex spending normalises following increased investments in
additional capacity in FY25, which Fitch expects to be only partly
offset by normalisation in working capital. This should lead to FCF
margin improving sustainably to 3% to 4% over FY26-FY28. Reducing
FCF volatility and the prospect of FCF turning positive sustainably
should support the 'B-' IDR.
Fitch expects most of the FCF to be reinvested into the business,
as inorganic growth is part of the group's growth strategy, with
the likely continuation of bolt-on M&A, which Fitch assumes at
around EUR20 million a year from FY26.
Material Execution Risks: Fitch sees material execution risks from
the company's integration of four M&A in FY24-FY25 and the
significant ongoing and yet-to-be-delivered efficiency initiatives.
Fitch believes the group is well-positioned to deliver on the plan,
given the established nature of the acquired businesses and recent
record of operational turnaround, but the broad scope of the
initiatives planned for FY25-FY26 cumulatively leads to heightened
execution risks around productivity gains and synergy extraction.
Supportive Growth Fundamentals: Valeo Foods' confectionery, sweet
bakery and snack products are food that can maintain steady demand
even during economic downturns. Fitch expects increasing consumer
demand for convenience foods to also be supportive of its sales
growth. Still, its organic revenue growth may be constrained by
rising consumer demand for healthier indulgence food options across
Europe, where many large international packaged-food companies are
expanding. Continued investment in innovation, including the types
of sugars and sweeteners used and packaging size, may help Valeo
Foods withstand the competition in the long term.
Derivation Summary
Valeo Foods has a smaller scale, lower operating margins and
significantly higher leverage than Ulker Biskuvi Sanayi A.S.
(BB-/Positive), a Turkiye-based confectionery and sweets producer.
This is to some extent balanced by Ulker's higher foreign-exchange
(FX) risks and exposure to more volatile operating environments in
its core markets.
Valeo Foods is smaller in scale than Argentinian confectionery
producer Arcor S.A.I.C. (B/Stable) but enjoys higher operating
margins. Valeo Foods' exposure to FX risks and a weak operating
environment is limited compared with Arcor, although Arcor balances
this with a much more conservative capital structure with gross
leverage of below 3x.
Valeo Foods' business profile is stronger than that of La Doria
S.p.A. (B/Positive), an Italian tomato and vegetable processing
company operating mainly in the private-label space. La Doria has
smaller scale with EBITDA of around EUR130 million and does not
benefit from a wide brand portfolio as a private-label producer.
The company also has narrower product diversification and lower
operating profitability. This is offset by La Doria's more
conservative capital structure with Fitch expecting leverage of
below 5x in 2024, which is reflected in the Positive Outlook for La
Doria's ratings.
Key Assumptions
- Organic revenue CAGR of 3% in FY25-FY28 with reported revenue
rising by CAGR of around 4% due to recent and future acquisitions,
including IDC.
- EBITDA margin improvement from 10.4% in FY25 towards 14% by
FY28.
- Combined capex of EUR110 million for the next two years followed
by a normalisation to around 2.5% of sales annually.
- Integration costs of EUR15 million in FY25 followed by annual
non-recurring costs of EUR3 million from FY26.
- Net working capital inflow in FY25 and FY26, resulting from
recent stock and receivable optimisation, followed by a
normalisation from FY27 to around 10% of revenue.
- IDC and Appalaches acquisitions completed in FY25, followed by
bolt-on acquisitions of EUR20 million a year through to FY27.
- EUR30 million equity injection in FY25.
- No dividend distributions.
Recovery Analysis
Its recovery analysis assumes that Valeo Foods will be considered a
going concern (GC) in bankruptcy, and that it would be reorganised
rather than liquidated. This is because most of its value lies
within its established brand portfolio, as well as client
relationships, and production and logistic capabilities.
Fitch assumes a 10% administrative claim.
Fitch assesses GC EBITDA at EUR190 million, which includes the
ongoing four acquisitions and represents a hypothetical distress
EBITDA, at which level the group would have to undergo a debt
restructuring due to an unsustainable capital structure. The GC
EBITDA assumes undertaking corrective measures and the
restructuring of its capital structure in order for the company to
be able to remain a GC.
A financial distress leading to a debt restructuring may be driven
by Valeo Foods losing part of its key retailer base, disruption in
the UK operations, difficulties in passing through cost inflation
or having issues with the new acquisitions' integration.
Fitch applies a recovery multiple of 5.5x, at about the mid-point
of its multiple distribution in EMEA and in line with sector peers.
This generates a ranked recovery in the 'RR3' band after deducting
10% for administrative claims. This results in a 'B' senior secured
instrument rating with a waterfall-generated output percentage of
59% on current metrics and assumptions for the prospective EUR300
million term loan B (TLB).
Its estimates of creditor claims include a fully drawn EUR180
million revolving credit facility (RCF), EUR1,385 million in
first-lien TLBs and EUR24.5 million of local facilities, all
ranking pari passu. Fitch expects Valeo Foods' existing receivable
factoring facilities with average utilisation of EUR130 million to
remain in place and, post-distress, to be driven by the strong
credit quality of the company's client base.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA gross leverage remaining below 6.5x through organic growth
and integration of non-debt-funded bolt-on targets;
- EBITDA margin sustainably above 12%, sustaining FCF margin above
2%;
- EBITDA interest coverage rising towards 2.5x.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Failure to reduce EBITDA gross leverage to below 7.5x from FY26
through lack of profitability improvement or new debt-funded
acquisitions;
- EBITDA margin below 10% and additional working-capital
requirements that could result in volatile FCF margins;
- EBITDA interest coverage weakening below 1.5x on a sustainable
basis;
- Reducing liquidity headroom.
Liquidity and Debt Structure
Satisfactory Liquidity: Following the completion of the IDC
acquisition, Fitch expects the Valeo Foods' freely available cash
balance to be around EUR15 million at FYE25 after restricting EUR10
million for daily operational purposes, including intra-year
business seasonality. This is complemented by the access to EUR127
million available under the committed EUR180 million RCF as of June
2024 and access to the second-lien acquisition facility, which has
an undrawn EUR41 million. This should be sufficient for operations
and debt servicing in light of improving FCF and no significant
debt maturing before 2028.
Issuer Profile
Valeo Foods is an Ireland-based producer of wafers, sweets, snacks
and ambient food.
Date of Relevant Committee
10 September 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 Recovery
----------- ------ --------
Platform Bidco Limited LT IDR B- New Rating
senior secured LT B(EXP) Expected Rating RR3
Q DELIVERY: KBL Advisory Named as Administrators
------------------------------------------------
Q Delivery Services Limited was placed in administration
proceedings in the High Court of Justice Business and Property
Courts of England and Wales Insolvency and Companies, Court Number:
CR-2024-005066; and Steve Kenny and Richard Cole of KBL Advisory
Limited were appointed as administrators on Sept. 5, 2024.
Q Delivery is an end-to-end logistics company, which provides
industry-leading haulage and warehousing to the UK and Europe's
well-known brands.
Its registered office and principal trading address is at Towngate
Business Centre, Everite Road, Widnes, Cheshire, WA8 8PT.
The administrators can be reached at:
Steve Kenny
Richard Cole
KBL Advisory Limited
Stamford House, Northenden Road
Sale, Cheshire
M33 2DH
Email: steve@kbl-advisory.com.
richard@kbl-advisory.com
For further information, contact:
Alex Trust
KBL Advisory Limited
Email: Alex.T@Kbl-advisory.com
Tel No: 0161-637-8100
R&Q UK: Teneo Financial Named as Administrators
-----------------------------------------------
R&Q UK Holdings Limited was placed in administration proceedings in
the High Court of Justice the Business and Property Courts of
England & Wales, Court Number: CR-2024-005115, and David Philip
Soden and Michael John Summersgill of Teneo Financial Advisory
Limited were appointed as administrators on Sept 11, 2024.
R&Q UK provides management consultancy services. Its principal
trading address is at 71 Fenchurch Street, London, EC3M 4BS.
The administrators can be reached at:
David Philip Soden
Michael John Summersgill
Teneo Financial Advisory Limited
The Colmore Building
20 Colmore Circus Queensway
Birmingham, B4 6AT
For further details, contact:
The Joint Administrators
Tel No: +44-113-396-0164
Alternative contact:
Alia Khan
E-mail: Alia.Khan@teneo.com
VEDANTA RESOURCES: Moody's Ups CFR to 'Caa1', Outlook Stable
------------------------------------------------------------
Moody's Ratings has upgraded the corporate family rating of Vedanta
Resources Limited (VRL) to Caa1 from Caa3.
Concurrently, Moody's have upgraded to Caa2 from Ca Moody's rating
on the senior unsecured bonds issued by VRL and by VRL's
wholly-owned subsidiary Vedanta Resources Finance II Plc and
guaranteed by VRL.
Moody's have revised the outlook to stable from negative.
RATINGS RATIONALE
The upgrade to Caa1 is primarily driven by VRL's reduced
refinancing risk following its successful issuance of $900 million
in 10.875% notes due in September 2029. The proceeds from this
issuance have been earmarked for the repurchase of two existing
bonds. Specifically, VRL plans to fully redeem its 2027 notes,
which have an outstanding value of $470 million, and use any
remaining funds to partially repurchase its 2028 notes, currently
outstanding at $1.008 billion.
Bondholders who tender their bonds before the early deadline of
September 16 will receive full repayment. In contrast, those
tendering after this date will receive 96% of the bond's value.
Moody's do not consider this as a distressed exchange because (1)
it does not serve as a means to avoid default, given that both
bonds mature in January 2027 or later; and (2) it does not result
in an economic loss for investors because the bonds are offered to
be repurchased at their full value. Even if some bondholders do not
tender their bonds before the early deadline and these are
repurchased at below par, the transaction does not qualify as
distressed since it is not a default avoidance.
VRL's next bond maturity is a $600 million bond that is due in
April 2026. A springing covenant as part of its debt restructuring
in January 2024 requires VRL to refinance this maturity by December
2025, failing which the amended bonds that were restructured would
mature in April 2026. Moody's expect holdco VRL to address the
April 2026 bond maturity in a timely manner.
Moody's note that the holding company VRL has successfully reduced
its gross debt to $5.7 billion as of March 2024 from $9.1 billion
at March 2022. Such repayments have been funded via dividends
received from its principal operating subsidiary Vedanta Limited
(VDL), which VRL owns 56.4% of, in addition to stake sales in VDL.
In recent months, VDL has enhanced its liquidity to support
shareholder distributions through a $1.0 billion equity issuance
via a qualified institutional placement and the sale of around 3%
stake in its subsidiary Hindustan Zinc Limited (HZL). VDL's
ownership in HZL now stands at around 62% following the stake
sale.
The CFR reflects as credit strengths VRL's large-scale and
diversified low-cost operations; exposure to a wide range of
commodities such as zinc, aluminum, iron ore, oil and gas, steel
and power; strong position in key markets, enabling it to command a
pricing premium; and history of relative margin stability through
commodity cycles. However VRL's ratings are constrained because of
its weak liquidity and refinancing risk.
VRL's senior unsecured bonds are rated at Caa2, one notch lower
than the Caa1 CFR, reflecting Moody's view that the bondholders are
in a weaker position relative to the operating subsidiaries'
creditors. The one-notch differential reflects the legal and
structural subordination of the holding company bondholders to the
rest of the group. Moody's estimate the operating company's claims
are around 75% of total consolidated claims as of March 2024, with
the remaining claims distributed across VRL and its intermediate
holding companies that have a direct shareholding in VDL.
OUTLOOK
The rating outlook is stable, reflecting Moody's view that VRL's
credit metrics will remain comfortable for its Caa1 rating.
LIQUIDITY
Holding company VRL's liquidity remains weak, given its debt
maturities and interest-servicing needs.
The holding company should receive around $300 million annually in
the form of management and brand fees from its operating
subsidiaries, however any other cash movements from its operating
subsidiaries may be in the form of dividends, entailing leakage
given the presence of minority shareholders. As of June 2024, its
operating subsidiaries held $2 billion in cash, down from $4.5
billion at March 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A further upgrade of VRL's ratings is unlikely if the company does
not substantially improve its liquidity profile and its financial
management.
Moody's could downgrade VRL's ratings if its default risk increases
materially above what is indicated by its current rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Mining
published in October 2021.
COMPANY PROFILE
Vedanta Resources Limited (VRL), headquartered in London, is a
diversified resources company with interests mainly in India. Its
main operations are held by Vedanta Limited (VDL), a 56.4%-owned
subsidiary. Through VRL's various operating subsidiaries, the group
produces oil and gas, zinc, lead, silver, aluminum, iron ore, steel
and power. In September 2023, VDL announced its demerger into six
separate listed entities, subject to the relevant approvals. Its
shareholders will receive one share in each of the six companies
upon the demerger's completion, while VDL and the six companies
will have the same shareholding; i.e. VRL will hold a 56.4% stake
in VDL and the six new companies.
VRL delisted from the London Stock Exchange in October 2018 and is
now wholly owned by Volcan Investments Ltd. VRL's founder and
chairman Anil Agarwal and his family are Volcan's key shareholders.
For the fiscal year ended March 2024, VRL generated revenues of
$17.1 billion and an adjusted EBITDA of $4.9 billion.
WHEEL BIDCO: S&P Downgrades LT ICR to 'CCC+', Outlook Stable
------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
PizzaExpress (under the holding company Wheel Bidco Ltd.) to 'CCC+'
from 'B-'. S&P also lowered its issue rating on the company's super
senior revolving credit facility (RCF) to 'B' from 'B+', and our
issue rating on the senior secured notes to 'CCC+' from 'B-'.
The stable outlook reflects S&P's view that PizzaExpress' leverage
will remain elevated with S&P Global Ratings-adjusted debt to
EBITDA of over 6x in the next 12 months, despite the group's
revenue and margin enhancing initiatives, but that liquidity
remains adequate, underpinned by GBP53 million cash and GBP26
million undrawn under the RCF due in January 2026 at mid-2024.
S&P said, "We think the competitive operating environment and high
operating leverage of the business will prevent PizzaExpress from
materially improving its credit metrics in the next 12-24 months.
In our view, the prolonged economic weakness in the U.K., the
softening of the labor market, and still very cautious consumer
sentiment continue to constrain customers' discretionary spending.
We think that the dine-in segment will continue facing difficult
demand dynamics, thereby challenging PizzaExpress' efforts to turn
around the business amid intense competition. The cost pressure
from the increase in national living wages and sizable lease
payments will largely offset benefits from the revenue-enhancing
and cost-control measures the management has already put in place
and plans to implement this year, and ultimately hinder a material
improvement in profitability and credit metrics in the next 12-24
months. As such, we revised down our forecasts of S&P Global
Ratings-adjusted EBITDA to about GBP74 million in 2024 and GBP86
million in 2025, from our previous forecast of about GBP85 million
and GBP95 million, respectively. We project weak, and possibly
negative, FOCF after leases for these two years."
Persistently weak cash flow undermines the long-term sustainability
of PizzaExpress' capital structure. The group was able to sustain
neutral FOCF after leases for 2022 and 2023, supported by a
temporary increase in accounts payable and phasing of lease
payments. The group reported maintenance capital expenditure
(capex) of GBP6 million as of end-2023 and GBP2.3 million as of
mid-2024. S&P said, "While we forecast total capex of about GBP26
million in 2024 and GBP23 million in 2025, primarily driven by the
group's refurbishment program targeting 70 refurbishments annually,
we believe the group has flexibility to downsize capex. That said,
considering little flexibility around cash charges including rent
payments of about GBP40 million and interest expense, as well as
potential working capital volatility from the subdued topline, we
view the group's cash flow as weak and capital structure as
unsustainable in the long term, absent unforeseen improvements in
trading conditions."
S&P said, "Current base case indicates rising refinancing risk.
Under the current capital structure, annual cash interest is about
GBP22 million. The group has GBP30 million super senior RCF due
January 2026 and GBP335 million senior secured notes due in July
2026, with the notes benefiting from a fixed coupon of 6.75%. We
believe the headroom under our forecast of FOCF after leases could
be insufficient to refinance at potentially higher interest rates
in the prevalent market conditions.
"Liquidity provides some cushion in the near term. We expect
liquidity sources will exceed liquidity uses by 1.3x-1.4x over the
next 12 months. The group has GBP53 million of cash (including
tills float) on the balance sheet as of June 30, 2024, up to GBP20
million cash funds from operations (FFO), and about GBP8 million
available under the fully undrawn EUR30 million RCF. We assume that
only 40% will be available under the RCF (net of GBP4 million used
as collateral for an electricity letter of credit) given the tight
headroom under the springing covenant.
"The outlook is stable, balancing our view that, notwithstanding
the group's revenue and margin enhancing initiatives, leverage will
remain elevated with adjusted debt to EBITDA over 6x in the next 12
months, against our assessment of adequate liquidity.
"We could lower our rating if we see heightened likelihood of a
payment default or distressed debt exchange within the next 12
months increases. This could occur if the group's operating
performance is persistently weak and its liquidity deteriorates
such that we no longer expect the group has sufficient cash to meet
its obligations or sustain its capital structure.
"We could take a positive rating action once the group has resolved
its refinancing risk and its earnings growth and cash generation
improved such that FOCF after leases returns to positive and
demonstrates sustainable growth, ensuring comfortable liquidity
headroom."
*********
S U B S C R I P T I O N I N F O R M A T I O N
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