/raid1/www/Hosts/bankrupt/TCREUR_Public/241010.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, October 10, 2024, Vol. 25, No. 204
Headlines
A Z E R B A I J A N
EXPRESSBANK: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
F R A N C E
CASPER MIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable
G E R M A N Y
BLITZ 24-151: S&P Assigns Preliminary 'B' LT ICR, Outlook Stable
XSYS GERMANY: Fitch Assigns 'B-(EXP)' LongTerm IDR, Outlook Stable
I R E L A N D
ARBOUR CLO VI: Fitch Assigns 'B-sf' Final Rating on Class F-R Notes
N E T H E R L A N D S
YINSON BORONIA: Moody's Affirms Ba1 Rating & Alters Outlook to Pos.
P O R T U G A L
HAITONG BANK: S&P Affirms 'BB/B' ICRs, Outlook Developing
R U S S I A
NAVOI MINING: S&P Rates Proposed Senior Unsecured Bond 'BB-'
T U R K E Y
EMLAK KONUT: Fitch Hikes LongTerm IDRs to 'BB-', Outlook Stable
MERSIN ULUSLARARASI: Fitch Ups Rating on USD600MM Unsec Debt to BB-
U N I T E D K I N G D O M
ASTON MARTIN: S&P Affirms 'B-' ICR & Alters Outlook to Negative
COMET BIDCO: Moody's Hikes CFR to 'B2', Outlook Stable
DIVERSITY FUNDING 1: S&P Lowers Class D Notes to 'CC(sf)'
DONT BE SHY: Begbies Traynor Named as Joint Administrators
FINNSWORTH LIMITED: MHA Named as Joint Administrators
FOURPURE LIMITED: FRP Advisory Named as Joint Administrators
GHI CONTRACTS: BDO LLP Named as Joint Administrators
HOWELLS & JOLLEY: FRP Advisory Named as Joint Administrators
LYRA ELECTRONICS: Begbies Traynor Named as Joint Administrators
ORCHARD (STAMFORD): CRG Insolvency Named as Administrators
PRUMO GROUP: Fitch Assigns 'B+' LongTerm IDR, Outlook Stable
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A Z E R B A I J A N
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EXPRESSBANK: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
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Fitch Ratings has upgraded Expressbank Open Joint Stock Company's
(Express) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B'
with a Stable Outlook. The Viability Rating (VR) has been upgraded
to 'b+' from 'b'.
The upgrade is driven by the material improvements in the operating
environment for Azerbaijani banks, which has resulted in
significant strengthening of the bank's financial metrics over the
past few years, and Fitch expects them to remain reasonably good in
the medium term.
Key Rating Drivers
Express's Long-Term IDR is driven by its standalone
creditworthiness, as expressed by its VR. The VR reflects a record
of good financial metrics through the cycle, particularly asset
quality and capitalisation, along with an improving risk profile.
The VR also captures Express's small size and modest market shares,
which result in limited pricing power and above-sector funding
costs.
Strengthened Banking Sector: Fitch has revised up its assessment of
the operating environment for Azerbaijani banks to 'bb-'/stable'
from 'b+'/positive, underpinned by the increased financial
stability in a cyclical economy depending on oil revenues. The
sector's financial profile has improved materially since 2017, as
confirmed by the reduced dollarisation levels and pressure on
capitalisation from legacy asset-quality risks. This was also
supported by the central bank's efforts to tighten regulatory
oversight and develop the local financial sector.
Small Retail-Focused Bank: Express is a privately-owned bank making
up a small 1% of sector assets at end-1H24. The bank runs a
universal business model and is focused on retail lending
(end-1H24: 71% of gross loans) complemented by to micro, small and
medium-sized enterprise financing.
Growth Moderates, Granular Loan Book: Express's gross loans grew by
a high 38% in 2023 due to the purchase of mortgage portfolios from
two local defaulted banks. In 1H24, loan growth moderated to 16%
and Fitch expects it to remain in the 15%-20% range in 2H24-2025,
with a continued focus on unsecured consumer and micro lending. The
bank's borrower concentrations and loan dollarisation are low,
which softens credit risk, in its view.
Record-Low Impaired Loans, Fully Provisioned: The bank's impaired
loans ratio reduced to a record low 1.4% at end-2023 (the latest
available data), 400bp down from end-2021, reflecting lending
growth and a favourable environment. Express materially increased
loan provisioning, and problem exposures were fully reserved at
end-2023, which is quite conservative, in its view. Fitch expects
the bank's asset quality metrics to remain strong in 2H24-2025,
with the impaired loan ratio remaining below 2% in its baseline
scenario and high reserve coverage intact.
Good Profitability: Given its consumer lending focus, Express has
benefited from high interest rates and reported a high net interest
margin over the past few years (10% in 2023). The bank's cost of
risk has been around zero recently, translating into a robust
operating profit/risk-weighted assets ratio of 3.9% in 2023 (2022:
4.8%), even though its operating efficiency remains limited (the
cost-to-income ratio averaged 69% in 2020-2023). Fitch expects
Express's profitability metrics to remain healthy in 2H24-2025,
despite gradually narrowing margins.
High Capital Ratios: Express's Fitch Core Capital (FCC) ratio was a
high 28% at end-2023, although it was down by 4pp year-on-year,
given high loan growth. Fitch expects the bank's capital buffer to
moderately decrease further in 2H24-2025 due to high risk weights
on some of the bank's loans, continued healthy loan growth and
material dividend pay-outs. However, the FCC ratio will remain
above 20% in its baseline scenario.
Material Wholesale Funding; Moderate Liquidity: Customer accounts
(mostly from retail depositors) made up 52% of total liabilities at
end-1H24, while wholesale funds accounted for a sizeable 44%. The
latter mostly comprise cheap long-term loans from state development
institutions and short-term repurchase obligations. The bank's
liquidity buffer is adequate, with total liquid assets covering a
third of deposits at end-1H24.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The VR and IDR could be downgraded in case of a severe
asset-quality deterioration, which could result in significant loan
impairment charges and weigh on internal capital generation. Rapid
lending growth or large dividend pay-outs eroding the bank's
capital buffer would also be rating negative.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade prospects for Express's VR and IDR are currently limited
and would require a material strengthening of the bank's limited
franchise, while maintaining good financial metrics.
Express's Government Support Rating (GSR) of 'no support' (ns)
reflects its view that state support is unlikely to be available to
Azerbaijani banks, due to the authorities' patchy record of support
to the banking sector, as well as the bank's limited systemic
importance
Upside potential for the GSR is currently limited and would require
significant growth of Express's franchise, making it at least
moderately systemically important, as well as a revision of Fitch's
view of the sovereign's propensity to support the banking sector.
VR ADJUSTMENTS
The earnings and profitability score of 'b+' is below the 'bb'
category implied score because of the following adjustment reason:
revenue diversification (negative).
The capitalisation and leverage score of 'b+' is below the 'bbb'
category implied score because of the following adjustment reason:
size of capital base (negative).
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Expressbank Open
Joint Stock Company LT IDR B+ Upgrade B
ST IDR B Affirmed B
Viability b+ Upgrade b
Government Support ns Affirmed ns
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F R A N C E
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CASPER MIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable
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Moody's Ratings affirmed Casper MidCo SAS's (B&B or the company) B3
long term corporate family rating, the B3-PD probability of default
rating and the B3 senior secured instrument ratings on the EUR1250
million backed senior secured term loan B5 (TLB) due 2031 to be
increased to EUR1600 million and EUR195 million backed senior
secured revolving credit facility due 2030 debt rating assigned to
Casper BidCo SAS. The outlook was changed to stable from positive
for both entities.
"The change of outlook to stable from positive reflects the
aggressive dividend distribution which is diverting existing
liquidity from future growth and delaying the previously expected
operational deleveraging." says Elise Savoye, Moody's Ratings VP
Senior Analyst and lead Analyst for B&B. " Moody's however expect
ongoing robust performance, which will support the company ability
to maintain adequate liquidity as well as leverage and coverage
metrics commensurate with a B3 rating", adds Mrs. Savoye.
RATINGS RATIONALE
The rating action reflects B&B's continuously good relative
performance but also a high leverage appetite as evidenced by a
significant dividend recapitalization which diverts existing
liquidity from future growth and delays operational deleveraging.
The rating affirmation highlights B&B's strong performance and
efficient business model, and future growth potential. Although the
French market has slowed due to fewer tourists and business
travelers in the Pre-Olympics period, B&B has shown good dynamics
with a 39% like-for-like RevPAR growth year-to-date August 2024
compared to the same period in 2019. B&B's future pricing power and
occupancy growth may be impacted by a softening in demand after two
years of exceptional growth, but the company is well-positioned to
continue posting solid revenue growth, on more resilient economy
segment and strong track record in new openings, which account for
the lion's share of the company growth by year-end 2026.
Despite a high leverage appetite, restored profitability limits the
deterioration of leverage metrics. Moody's-adjusted EBITDA is
estimated at EUR531 million in the last twelve months to July 2024,
driven by an improved EBITDA margin. However, the additional
financial debt and increasing lease liabilities as the company
rolls out its expansion plan, with roughly 160 new openings over
2024 and 2025, will temporarily deteriorate B&B's financial
structure, with leverage expected to remain between 6.4x and 5.5x
over the next 12 to 18 months. Large lease liabilities combined
with already high leverage, weigh on the coverage ratio, which is
expected to remain in the 1.1x - 1.3x range over the next 12 to 18
months following the dividend recapitalization. However, B&B does
not have significant refinancing needs before 2031, allowing it to
benefit from market recovery and grow its EBITDA to levels more
appropriate for its higher debt load.
The B3 rating on the TL-B5 which size will increased to EUR1600
million reflects its pari passu rank with the backed senior secured
RCF which shares the same security.
LIQUIDITY
The issuer's adequate liquidity is supported by EUR324 million in
cash and the EUR195 million undrawn senior secured revolving credit
facility (RCF) as of August 2024. The company's liquidity will
weaken after the use of EUR174 million of cash to fund the EUR524
million planned dividend payout. No significant financial debt will
mature before March 2031 and the RCF will mature in September 2030.
Restored profitability will also support liquidity generation.
Moody's estimate Moody's-adjusted FCF as around EUR67 million in
2023 despite higher capital expenditure of EUR162 million for the
full year. The EUR524 dividend payout will lead a negative
Moody's-adjusted FCF of EUR578 million. Because of growth
expansion, Moody's adjusted FCF will remain negative in 2025,
albeit to a much lesser extent.
The backed senior secured RCF has a springing covenant of net
leverage below 8.5x if drawn above 40%. The company complies with
its financial covenants and Moody's expect it will continue to do
so in the next 12 to 18 months.
OUTLOOK
The stable outlook reflects Moody's expectation of ongoing robust
performance, owing to the company's strong brand and highly
streamlined business model with a flexible cost structure and a
strong track record of generating accretive revenue from expansion,
which should more than balance the expected normalization of demand
after two years of exceptional growth. Moody's hence expect that
over the 12 to 18 months, despite the very large dividend payout,
the company will be able maintain adequate liquidity, leverage and
coverage metrics commensurate with a B3 rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded if there is a combination of the
following:
-- Strong liquidity and a return to meaningful and sustained
positive free cash flow
-- Maintaining a consistent track record of only modest
shareholder distribution to support growth and positive Moody's
adjusted FCF despite continuously material growth related capital
spending
-- Improvement in credit metrics with debt/EBITDA decreasing to
around 6.0x, interest coverage gradually improving towards 1.5x and
retained cash flow/net debt above 10%, all on a sustained basis and
including Moody's standard adjustments
Negative rating pressure could arise if:
-- Moody's adjusted gross debt/ EBITDA remains sustainably above
7x;
-- Moody's adjusted EBITA/ Interest remains sustainably below 1x;
-- A rapid and significant deterioration in the underlying
business conditions with lower than anticipated demand or higher
costs leading to materially negative free cash flow and inability
to preserve an adequate liquidity profile
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Moody's take the impact of environmental, social and governance
(ESG) factors into account when assessing companies' credit
quality. The aggressive distribution underscores Casper MidCo SAS's
shareholder's high leverage appetite, diverting existing liquidity
from future growth and delaying the previously expected operational
deleveraging after several years of no shareholder payout. CIS-4
score indicates that the rating is lower than it would have been if
ESG considerations, particularly governance risks, did not exist.
B&B, owned by a private equity fund, has a financial policy
characterized by high historic leverage and strong debt-funded
growth, which weigh on B&B's leverage.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
STRUCTURAL CONSIDERATION
In the loss-given-default (LGD) assessment for Casper BidCo SAS,
Moody's rank pari passu the EUR1,600 million term loan B5 and
maturing in 2031 and the backed senior secured RCF of EUR195
million, which share the same security and are guaranteed by
certain subsidiaries of the group accounting for at least 80% of
consolidated EBITDA.
The term loan is covenant-light with a spring net leverage covenant
set at 8.5x only applicable to the revolver if it is drawn over 40%
(undrawn as of August 2024). Current debt instrument ratings
aligned with the CFR addresses the fact that there is no loss
absorption from more junior debt.
COMPANY PROFILE
Based in Paris, France, B&B Hotels is a limited-service hotel chain
with 817 hotels in 14 European countries and Brazil as of August
2024. B&B focuses on the "econo-chic" concept - the more upscale
part of the budget segment. The company follows an asset-light
business strategy by leasing almost all its hotels. In the last 12
months to August 2024, B&B generated EUR1.3 billion in revenue.
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G E R M A N Y
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BLITZ 24-151: S&P Assigns Preliminary 'B' LT ICR, Outlook Stable
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S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit ratings to Blitz 24-151 GmbH (Fischbach KG) and Blitz 24-120
GmbH, as well as a preliminary 'B' issue rating to the senior
secured TLB, with a '3' recovery rating that indicates its
expectation of 50% recovery in the event of a default.
The stable outlook reflects S&P's expectation that Fischbach's
adjusted debt to EBITDA will remain around 5x in the next 12 months
with free operating cash flow (FOCF) of EUR10 million–EUR15
million.
Private equity firm Onex Partners will acquire 90% of Fischbach in
October 2024. Existing shareholders and the management team will
retain a 10% stake in the group. To fund this transaction, Blitz
24-120 GmbH, a financing subsidiary of the group, will raise a
EUR350 million seven-year senior secured TLB and a EUR75 million
6.5 year RCF (EUR15 million expected to be drawn at the
transaction's close). It will also raise a EUR70 million delayed
drawn TLB, which will be undrawn at closing and available for
drawings for two years. While its primary purpose is to fund
possible earnouts to the sellers, it will also be available to fund
acquisitions, investments and refinancing of existing debt.
Fischbach's business risk profile reflects its limited size and
customer concentration, but is supported by its above-average
EBITDA margins and leading niche market position. S&P said, "We
view the business risk at the low end of our fair assessment. We
believe that Fischbach's EBITDA margins of around 30% reflect its
strong pricing power and leading positions in plastic cartridges in
Europe and North America. Fischbach's high profitability is
underpinned by lower production costs, supported by its technical
know-how, and lower logistic costs, given that manufacturing
facilities are close to customers. Fischbach's production footprint
also results in shorter lead times. Our assessment also takes into
account its longstanding customer relations, limited substitution
risk, well-invested asset base, proprietary printing technology and
ability to pass raw material (mainly resin) price fluctuations on
to customers, albeit with a three-to-four month average lag."
S&P said, "On the other hand, our business risk assessment is
constrained by Fischbach's limited size, narrow product range, some
cyclicality in its end markets (i.e., construction and home
renovation), and some customer concentration. With expected revenue
of around EUR220 million and forecast EBITDA of roughly EUR71
million in 2024, Fischbach's scale is small, especially compared
with other peers in the packaging industry. We believe the group's
size and our view of the discretionary nature of home renovations
make Fischbach vulnerable to unforeseen high-impact events. The
company is present in the niche and mature European and North
American plastic cartridges market where it already has significant
market shares (60% and 66%, respectively). With its main customer
accounting for 11% of sales and its 10 top customers for 53% of
sales, we view its customer base as relatively concentrated. That
said, this reflects the concentration in the adhesives and sealants
industry.
"We assess Fischbach's financial risk profile as highly leveraged,
given its credit metrics and financial-sponsor ownership. We
anticipate that leverage will remain around 5x and funds from
operations (FFO) to debt around 9% in the near term. Together with
the 90% ownership by Onex Partners, which we view as a financial
sponsor, this results in a highly leveraged financial risk
assessment. In 2024, we expect FOCF to be around EUR10
million-EUR15 million. We forecast a similar FOCF for 2025 because
lower transaction costs of about EUR20 million in 2024 and zero in
2025 are offset by higher interest payments, given that the TLB
will only be raised in October 2024.
"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation. Accordingly, the
preliminary ratings should not be construed as evidence of final
ratings. If S&P Global Ratings does not receive final documentation
within a reasonable time frame, or if final documentation departs
from materials reviewed, we reserve the right to withdraw or revise
our ratings. Potential changes include, but are not limited to, use
of loan proceeds, maturity, size and conditions of the loans,
financial and other covenants, security, and ranking.
"The stable outlook reflects our expectation that Fischbach's
adjusted debt to EBITDA will remain around 5.0x in the next 12
months and FOCF of EUR10 million–EUR15 million during the same
period."
S&P could lower its ratings on Fischbach and its subsidiaries if
the group's operating performance deteriorated or credit metrics
weakened due to a more aggressive financial policy, e.g., due to
debt-funded acquisitions, investments, or shareholder returns, such
that:
-- FOCF generation was sustainably weaker than expected ;
-- EBITDA interest coverage sustainably declined below 2x; or
-- Leverage increased above 7x.
S&P believes an upgrade is unlikely in the next 12 months, given
Fischbach's financial sponsor ownership and the transformational
nature of this change in ownership. However, over time, S&P could
raise its rating if:
-- Fischbach established a track record of strong EBITDA margins
and FOCF under this new ownership structure;
-- S&P's view of its business risk profile improved; and
-- Adjusted debt to EBITDA declined toward 4x sustainably while
its financial policy supported such credit metrics.
S&P said, "ESG factors are an overall neutral consideration in our
credit rating analysis of Fischbach. As a producer of plastic
cartridge packaging solutions, we believe that its exposure to
environmental risks is comparable with that of the broader
industry. As for other plastic packaging peers, risks include waste
concerns and tightening recyclability regulations on plastic
packaging. That said, we understand that Fischbach is able to
produce cartridges with a large proportion of recycled resin. We
also believe that Fischbach faces limited substitution risk from
other substrates due to the high technical specifications of its
products.
"Governance factors are a moderately negative consideration in our
credit rating analysis of Fischbach. Our assessment of the
company's financial risk profile as highly leveraged reflects
corporate decision-making that prioritizes the interests of the
controlling owners, in line with our view of the majority of rated
entities owned by private-equity sponsors. Our assessment also
reflects the sponsors' generally finite holding periods and focus
on maximizing shareholder returns."
XSYS GERMANY: Fitch Assigns 'B-(EXP)' LongTerm IDR, Outlook Stable
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Fitch Ratings has assigned XSYS Germany Holding GmbH (XSYS) a
first-time expected Long-Term Issuer Default Rating (IDR) of
'B-(EXP)'. The Outlook is Stable. Fitch has also assigned an
expected 'B-(EXP)'/Recovery Rating of 'RR4' to the flexographic
plate manufacturer's senior secured first lien term loan B of
EUR435 million with a proposed add-on of EUR250 million.
On 3 September 2024, the German company announced it signed a
purchase agreement to acquire MacDermid Graphics Solutions (MGS)
from Element Solutions Inc for USD325 million. The deal is to be
financed with a planned EUR250 million add-on to XSYS's existing
first lien secured term loan B and an equity injection of at least
EUR70 million. The transaction is subject to regulatory approvals
and customary closing conditions.
The IDR reflects the strong market position of the group, good
geographical and customer diversification, and expected healthy
EBITDA margin generation. The rating is constrained by the
company's small size, limited product diversification, material
execution risk attributed to the proposed acquisition and high
post-transaction leverage.
Fitch expects an improving EBITDA generation to drive a material
improvement in free cash flow (FCF) margins from 2026, which will
bring leverage to within the rating sensitivity, and support the
Stable Outlook.
The assignment of the final ratings is contingent on completing the
transaction in line with the terms already presented and the
completion of acquisition.
Key Rating Drivers
Transformative Acquisition: The proposed acquisition is
transformative for XSYS as it will contribute to about 50% of
XSYS's revenue and EBITDA, according to Fitch's estimates. The
transaction is assumed to be conducted on a debt- and cash-free
basis. MGS is a complementary fit in that it is also a manufacturer
of flexographic plates and reseller of platemaking equipment for
package printing markets globally. Management's pro-forma estimate
indicates that EBITDA margins of MGS are lower than those of XSYS
(which are above 30% based on management data), although still
healthy, at over 20%. Fitch expects acquisition synergies to
support margins improvement.
High Leverage to Reduce: XSYS's EBITDA leverage is high, expected
at 9.8x end-2024 pre-acquisition and without proposed add-on of
EUR250 million. Fitch forecasts high pro-forma post-transaction
leverage of 8.3x at end-2025 to improve on stronger EBITDA to 7.1x
at end-2026, which is commensurate with the rating.
Healthy Profitability Margins: XSYS's financial profile benefits
from solid EBITDA margins, of above 20% based on 2023 financials
(Fitch-defined calculations). The management is targeting further
margins improvement and embarked on cost savings in 2022, which, in
combination with potential synergy after the acquisition, should
help XSYS to increase EBITDA generation by about two times in value
terms by 2028 versus the 2023 level. Fitch forecasts an EBITDA
margin improvement, from 22.7% in 2023 to 28.1% in 2026
(historically already achieved), and to above 29% from 2027.
Improving FCF: FCF is weak as material interest costs and capex
exceed XSYS EBITDA. Fitch forecasts FCF will be sustainably
positive from 2026, following the acquisition and subsequent EBITDA
margin improvement. With the absence of dividends, Fitch expects
the FCF margin is to be sustainably above 3%, supporting
deleveraging capacity.
Strong Market Position: XSYS holds a strong market position in a
highly specialised area of flexographic plates production. The
proposed acquisition will further bolster this position and enable
an expansion of its sales footprint. Solid market position and R&D
to maintain a product portfolio underpin its long-term relationship
with customers and support revenue and EBITDA generation.
Good Geographical Diversification: The business profile of the
group is characterised by good geographical and customer
diversification. About 42% of pro-forma group's revenue following
the acquisition is exposed to EMEA, 27%; North America, 16%; Latin
America; and 15% Asia. The group also benefits from a
well-diversified customer base.
Limitations on Business Profile: The profile of the group is
constrained due to its small scale in comparison to larger
industrial peers as it operates in a highly specialised area. In
addition, it has a narrow product range with exposure primarily to
flexible and corrugated packaging that further limits operational
flexibility.
Derivation Summary
XSYS has a leading market position in the flexographic plates
market. Similar to Flender International GmbH (B/Stable), EVOCA
S.p.A. (B/Stable), Ammega Group B.V. (B-/Stable), XSYS's business
profile is constrained with less diversified products range and
markets exposure in comparison to large industrial peers.
Nevertheless, the group has good geographical diversification,
similar to Ahlstrom Holding 3 Oy (B+/Stable), Ammega, Flender and
INNIO Group Holding GmbH (B/Positive).
XSYS's financial profile is characterised by solid double-digit
EBITDA margin, which is higher than that of some Fitch-rated
diversified industrials peers, such as Flender, TK Elevator and
Ahlstrom, but close to Evoca's margins. Fitch forecasts material
improvement of FCF margins from 2026 that will be comparable with
that expected for INNIO and Evoca.
Expected high EBITDA leverage of 9.0x as of end-2025 is
commensurate with that of Ammega and TK Elevator Holdco GmbH
(B/Stable), but is higher than Evoca's, Flender's and Ahlstrom's.
Key Assumptions
- Revenue rises in 2024 by 3.9% year-on-year; jump of revenue by
about 50% in 2025, assuming the acquisition of MGS is completed by
end-1Q25; mid-teens increase in revenue in 2026 and mid-single
digit revenue rise between 2027 and 2028.
- Costs initiatives to drive EBITDA margin to about 23% in 2024 and
close to 30% from 2027.
- Capex at about 4% of revenue in 2024-2026 and about 3% in
2027-2028.
- Add-on of EUR250 million to be completed by end-2024.
- No debt amortisation with bullet maturity in 2029.
- No M&As before 2028.
- No dividend payments before 2028.
Recovery Analysis
- The recovery analysis assumes that XSYS would be reorganised as a
going concern (GC) in bankruptcy rather than liquidated.
- A 10% administrative claim.
- Fitch estimates the going concern EBITDA of XSYS at EUR80
million, taking into account the proposed acquisition of MGS. The
going concern EBITDA reflects its view of a sustainable,
post-reorganisation EBITDA on which Fitch bases the valuation of
the group.
- An enterprise value multiple of 5.0x is applied to going concern
EBITDA to calculate a post-reorganisation valuation. It reflects
XSYS' strong market position in flexographic plates industry, good
geographical diversification and expected moderate FCF generation.
The enterprise value multiple also reflects the group's limited
range of products and constrained scale.
- Fitch deducts about EUR12 million from the enterprise value due
to XSYS's high use of factoring, in line with its criteria.
- Fitch estimates senior debt claims at EUR875 million, which
include a proposed increased EUR110 million senior secured
revolving credit facility (RCF), EUR685 million senior secured
first lien term loan B, a planned add-on of EUR250 million and an
additional EUR80 million secured second lien term loan B.
- Its waterfall analysis generates a ranked recovery for XSYS's
term loan Bs (excluding the second lien term loan B) equivalent to
a Recovery Rating of 'RR4', leading to a 'B-(EXP)' rating. The
waterfall generated recovery computation output score is 44%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage below 6.0x.
- EBITDA interest coverage ratio above 2.5x.
- FCF margin consistently above 3%.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage above 7.5x.
- EBITDA interest coverage ratio below 1.5x.
- FCF margin consistently negative.
- Failure to deliver EBITDA margin growth with cost-optimisation
initiatives and a structurally weaker business profile
Liquidity and Debt Structure
Satisfactory Liquidity: As at end-2024, the group had readily
available cash of EUR13.8 million (net of Fitch-restricted cash of
EUR2.3 million) and an undrawn RCF facility of EUR80 million, due
on August 2028, that is sufficient to cover negative FCF over the
next 12 months.
Following the proposed transaction, the group will increase its RCF
to EUR110 million, further supporting its liquidity; expected
positive FCF generation from 2026 will be an additional cash
cushion.
No Maturities Until 2029: XSYS has a favourable debt maturity
profile: it will add EUR250 million to its due February 2029,
EUR435 million first lien term loan B; and the group also has a due
February 2030, second lien term loan B of EUR80 million.
In addition, XSYS has a EUR89 million shareholder loan that matures
six months after the second lien secured term loan B, which Fitch
views as equity-like.
Issuer Profile
XSYS is a leading provider of mission-critical consumables
(printing plates and sleeves) and equipment to the global
flexographic printed packaging industry.
Date of Relevant Committee
01 October 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
----------- ------ --------
XSYS Germany
Holding GmbH LT IDR B-(EXP) Expected Rating
senior secured LT B-(EXP) Expected Rating RR4
=============
I R E L A N D
=============
ARBOUR CLO VI: Fitch Assigns 'B-sf' Final Rating on Class F-R Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Arbour CLO VI DAC reset notes final
ratings.
Entity/Debt Rating Prior
----------- ------ -----
Arbour CLO VI DAC
A-1 XS1971345779 LT PIFsf Paid In Full AAAsf
A-2 XS1971346314 LT PIFsf Paid In Full AAAsf
A-R XS2900383832 LT AAAsf New Rating
B XS1971347122 LT PIFsf Paid In Full AA+sf
B-R XS2900384053 LT AAsf New Rating
C-1 XS1971348443 LT PIFsf Paid In Full A+sf
C-2 XS1971349177 LT PIFsf Paid In Full A+sf
C-R XS2900384483 LT Asf New Rating
D XS1971349763 LT PIFsf Paid In Full BBB+sf
D-R XS2900384640 LT BBB-sf New Rating
E XS1971350340 LT PIFsf Paid In Full BB+sf
E-R XS2900384996 LT BB-sf New Rating
F XS1971350696 LT PIFsf Paid In Full B+sf
F-R XS2900385290 LT B-sf New Rating
X XS2900383675 LT AAAsf New Rating
Transaction Summary
Arbour CLO VI DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
have been used to redeem all the existing notes apart from the
class M notes and the subordinated notes, and to fund a portfolio
with a target par of EUR450 million.
The portfolio is actively managed by Oaktree Capital Management
(Europe) LLP. The CLO has a 2.1-year reinvestment period and a
six-year weighted average life (WAL) test at closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'. The Fitch weighted
average rating factor of the identified portfolio is 24.3.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 61.5%.
Diversified Asset Portfolio (Positive): The transaction includes
two Fitch matrices effective at closing, corresponding to a WAL
covenant of six years and two fixed-rate asset limits at 5% and
12.5%. The transaction also includes various concentration limits,
including a top-10 obligor concentration limit at 20% and a maximum
exposure to the three-largest Fitch-defined industries in the
portfolio at 40%. These covenants ensure the asset portfolio will
not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 2.1-year
reinvestment period, which is governed by reinvestment criteria
that are similar to those of other European transactions. Fitch's
analysis is based on a stressed-case portfolio with the aim of
testing the robustness of the transaction structure against its
covenants and portfolio guidelines.
Cash Flow Modelling (Positive): The WAL is modelled at the WAL
covenant. There are strict reinvestment conditions envisaged by the
transaction after its reinvestment period. These include passing
the coverage tests and the Fitch 'CCC' maximum limit, as well as a
WAL covenant that progressively steps down over time. In Fitch's
opinion, these conditions would reduce the effective risk horizon
of the portfolio during stress periods. However, the Fitch-stressed
portfolio is modelled at the WAL covenant since it is already at
the floor of six years.
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 result in no rating impact on the
class X to D-R notes and downgrades of one notch for the class E-R
notes and to below 'B-sf' for the class F-R notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B-R, D-R, E-R and F-R notes
have a rating cushion of two notches and the class C-R notes three
notches. The class X and A-R notes have no rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would result in no rating impact on
the class X notes and downgrades of up to three notches for the
class A-R to D-R notes and to below 'B-sf' for the class E-R and
F-R notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches, except for
the 'AAAsf' notes, which are at the highest level on Fitch's scale
and cannot be upgraded.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Arbour CLO VI DAC.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose any ESG factor that is a
key rating driver in the key rating drivers section of the relevant
rating action commentary.
=====================
N E T H E R L A N D S
=====================
YINSON BORONIA: Moody's Affirms Ba1 Rating & Alters Outlook to Pos.
-------------------------------------------------------------------
Moody's Ratings has changed to positive from stable the outlook of
Yinson Boronia Production B.V. At the same time, the Ba1 senior
secured rating was affirmed.
The rating action follows Moody's change in outlook of Petroleo
Brasileiro S.A. - PETROBRAS (Petrobras) to positive from stable and
affirmation on the Ba1 Corporate Family Rating, on October 2, 2024.
RATINGS RATIONALE
RATIONALE FOR POSITIVE OUTLOOK
The change in the outlook to positive reflects the positive outlook
on Petrobras and the likelihood that Yinson Boronia Production's
rating will be upgraded if Petrobras is upgraded. Yinson Boronia
Production's rating is currently constrained by the credit quality
of Petrobras, the sole project offtaker for the charter and service
agreement.
The positive outlook further incorporates Moody's view that the
project's financial profile will remain strong over the next 12-18
months, with a legal Debt Service Coverage Ratio (DSCR) around
1.3x.
RATIONALE FOR RATING AFFIRMATION
The Ba1 rating reflects the fully contracted revenue profile of the
issuer with Petrobras (Ba1 positive) throughout the debt term,
pursuant a 25-year charter and services agreements which provide
for a stable and predictable availability-based revenue stream. It
also considers the contractual structure that entails limited
volatility on cash flows with regular interruptions in production
for maintenance, and Moody's expectations of good availability of
the vessel, leading to debt-service coverage ratio that averages
1.26x, with a minimum of 1.22x, over the life of the transaction.
From first oil in May 2023 to March 2024 the FPSO Anna Nery's
average commercial uptime was 97.2%. The rating further factors the
high importance of the FPSO for Petrobras. The sponsors' profile
with willingness to provide additional financial support, if
needed, is also an important credit consideration.
The rating is directly limited to Petrobras' credit quality, the
sole project offtaker for the charter and service agreement.
Notably, sovereign linkages also exist mainly through Brazil's
regulatory framework, set by the Petroleum National Agency (ANP),
and therefore exposure to interference of the Government of Brazil
(Brazil, Ba1 positive) given its operation in Brazilian waters. The
relevance of the FPSO to Petrobras' revenue stream combined with
the substantial royalty and tax generation of the oil field provide
an alignment on the economic interests mitigating corporate and
sovereign risks.
The issuer has the right to issue Additional Notes in the last five
years of the transaction without a Note holders' consent, provided
that the Issuer maintains a minimum DSCR of 1.30x and receives
rating confirmation by at least one agencies, while also in
compliance with other provisions of the indenture.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The rating could be upgraded if Petrobras' rating is upgraded. An
upgrade would also require Yinson Boronia Production to demonstrate
stable operating performance in line or above Moody's base case
scenario.
The rating could be downgraded if uptime performance deteriorates
or operating costs increase substantially, such that DSCRs approach
1.15x. A rating downgrade would also be triggered upon a similar
action on the ratings of Petrobras or a multi-notch downgrade of
the Government of Brazil.
The principal methodology used in this rating was Generic Project
Finance published in October 2024.
===============
P O R T U G A L
===============
HAITONG BANK: S&P Affirms 'BB/B' ICRs, Outlook Developing
---------------------------------------------------------
S&P Global Ratings said it took the following rating actions on
Portuguese banks:
-- Banco Comercial Portugues S.A.: S&P raised its long- and
short-term issuer credit ratings by one notch to 'BBB/A-2' from
'BBB-/A-3'. S&P also raised the long-term resolution counterparty
rating (RCR) and issue ratings on the bank by one notch, and
affirmed its 'A-2' short-term RCR on the bank. The outlook is
positive."
-- Banco Santander Totta S.A.: S&P affirmed its 'A-/A-2' ratings
and maintained the positive outlook. S&P also affirmed its 'A-/A-2'
RCRs. Additionally, S&P revised its stand-alone credit profile
(SACP) on the bank to 'bbb+' from 'bbb'.
-- Banco BPI S.A.: S&P affirmed its 'BBB+/A-2'ratings and
maintained the positive outlook. S&P also affirmed its 'A-/A-2'
RCRs. Also, S&P revised its SACP on the bank to 'bbb+' from 'bbb'
and raised the program ratings on its senior subordinated
instruments to 'BBB' from 'BBB-' and those of its subordinated debt
to 'BBB-' from 'BB+'.
-- Haitong Bank: S&P affirmed its 'BB/B' ratings and maintained
the developing outlook. The 'b+' SACP is unchanged.
Portuguese banks have maintained their solid funding profiles and
benefit from a stronger access to foreign capital markets.
Portuguese banks have defended their solid funding in the past
year, with deposits accounting for about 80% of their funding
structures, comfortably exceeding their loan books (estimated
system's loan-to-deposit ratio at 75% at end-June 2024). S&P does
not expect major changes ahead. In addition, banks repaid almost
all of the remaining targeted longer-term refinancing operations in
the first months of 2024, while maintaining ample liquidity (the
system's liquidity coverage ratio [LCR] stood at 273% at end-June
2024). The Portuguese banking sector remains an external lender
overall. Banks have tapped foreign capital markets only
occasionally and mostly to build up their minimum requirement for
own funds and eligible liabilities (MREL). But decreasing economic
risks and stronger sovereign and bank financials have supported
investor confidence, ensuring Portuguese banks easier access to the
foreign capital markets.
While decelerating, Portugal will continue to post above-eurozone
average economic growth, while government and external debt will
likely continue declining rapidly.Portugal's economy is set to grow
by 1.8% in 2024 and 2% on average over 2025-2027, compared with
0.8% and 1.3% for the eurozone, respectively, aided by private
consumption, robust net exports, especially tourism, as well as
further spending of Next Generation EU funds. External deleveraging
will likely progress further, and government debt will likely fall
at one of the fastest paces in Europe. S&P does not expect mounting
political fragmentation that followed the lack of an absolute
majority in the March 2024 snap elections to alter the government
debt reduction plans or affect economic growth.
S&P said, "We anticipate a slight deterioration in asset quality
indicators, while the housing market will remain dynamic. After
further problem loans cleared throughout 2023 and the first months
of 2024, we think problematic assets could increase--primarily
among small and midsize enterprises and unsecured consumer
loans--due to the lag effect of higher costs of living and
still-tight financing conditions. The deterioration should be
manageable, however, as economic growth will continue supporting
employment and debt levels are less of an issue after substantial
deleveraging over more than a decade. We forecast sector credit
losses will stand at slightly below 60 basis points over the next
couple of years. In addition, the problem loans ratio will likely
peak at about 4.75% by end-2025 from an estimated 4.0% at end-2023,
a significant improvement from over 10% in 2018. Meanwhile, housing
price increases are set to continue the slowing that started in
2023, after having risen about 10% on average from 2016-2022. In
particular, we anticipate annual nominal growth rates of 3.0%-3.5%
over the next two years, with foreign demand remaining an important
factor. Less than half of residential real estate transactions are
likely to be financed by domestic credit, though, as has been the
case in recent years. Overall, we expect residential mortgage
performance will hold given still-high employment and contained
average loan-to-value (LTV) ratios in the system (69% average LTV
on new loans as of end-2023).
"We expect banks to maintain sound profitability and superior
efficiency than peers. Portuguese banks will continue to post good
profitability, if below the peaks of 2023, with domestic return on
equity standing at about 10% over the next two years, and
cost-to-income at close to 40%. Their net interest margins are set
to decline amid lower interest rates, which will be passed through
to a greater extent to their asset bases, but banks should benefit
from streamlined operating structures and contained credit losses.
"We have revised our industry risk score for the Portuguese banking
sector to '4' from '5' and reclassified the system as being in
Banking Industry Country Risk Assessment (BICRA) group 4 (from 5).
As a result, we have revised upward our anchor (the starting point
for assigning an issuer credit rating) for banks operating
primarily in Portugal to 'bbb' from 'bbb-'. Other European
countries in BICRA group 4 include Spain, Poland, Iceland, and
Slovenia. Our economic risk assessment for Portugal remains at '5',
with a positive trend, indicating diminishing external imbalances.
The stable industry risk trend reflects our view that banks will
maintain sound profitability and good funding profiles, with a
stronger capacity to tap international capital markets."
Banco Comercial Portugues S.A.
Primary credit analyst: Lucia Gonzalez
Rationale
The upgrade reflects easing industry risks in the system and BCP's
improved credit risk profile, both in absolute and relative terms.
Being the largest private bank in Portugal, BCP has halved its NPE
stock since end-2019 (to a 3.4% reported NPE ratio at end-June
2024), while posting solid profitability, enhancing its
capitalization, and maintaining ample liquidity and a balanced
funding profile. S&P said, "We anticipate that BCP will continue
benefiting from a strong earnings capacity and better-than-peers'
efficiency, which in turn should continue supporting its
capitalization, despite higher shareholder distribution and
potential share buybacks. In particular, we project that BCP's
return on equity will stand at about 16% and cost-to-income at 34%
over 2024-2025, while our risk-adjusted capital (RAC) ratio should
hover near 10%. In turn, strong profitability and solid capital
will provide BCP a buffer to accommodate still-high, although
declining, Swiss franc provisions in 2024 and 2025. Meanwhile, we
expect some asset quality deterioration, but within manageable
levels."
The ratings do not benefit from additional loss-absorbing capacity
(ALAC) support. S&P said, "We estimate that BCP's ALAC reached 2.4%
of S&P Global Ratings' risk-weighted assets at year-end 2023, and
it will remain at about 2.2% in 2024-2025, as the bank is already
MREL-compliant and it mostly fills its requirements with
non-subordinated bail-inable debt. We now require an ALAC buffer of
400 and 800 basis points (bps) for the bank to benefit from one and
two notches of ratings uplift, respectively. This threshold is 100
and 200 bps higher than the standard to reflect the concentration
of ALAC in a limited number of instruments, which entails higher
refinancing risks, and it is consistent with the requirements we
have for similar cases."
Outlook
The positive outlook reflects that S&P could raise its long-term
rating on BCP over the next 18-24 months if it keeps growing and
sustainably preserving its capitalization.
Upside scenario: An upgrade could happen if BCP's capitalization
strengthens further, such that S&P anticipates that its RAC ratio
will remain consistently above 10%. Easing economic risks in
Portugal could accelerate this trend.
Downside scenario: S&P could revise the outlook to stable if it
concludes there is little likelihood of the bank operating
sustainably with stronger capital levels, or if BCP's asset quality
deteriorates more than we anticipate.
Banco Comercial Portugues S.A.--Ratings Score Snapshot
TO FROM
ISSUER CREDIT RATING BBB/POSITIVE/A-2 BBB-/POSITIVE/A-3
SACP bbb bbb-
Anchor bbb bbb-
Business position Adequate (0) Adequate (0)
Capital and earnings Adequate (0) Adequate (0)
Risk position Adequate (0) Adequate (0)
Funding Adequate (0) Adequate (0)
Liquidity Adequate (0) Adequate (0)
Comparable ratings
Analysis 0 0
Support 0 0
ALAC support 0 0
GRE support 0 0
Group support 0 0
Sovereign support 0 0
Additional factors 0 0
SACP--Stand-alone credit profile.
Banco BPI S.A.
Primary credit analyst: Marta Escutia
Rationale
S&P said, "The affirmation reflects our view that although we
revised up our assessment of BPI's SACP, reflecting easing industry
risks for banks operating in Portugal, the ratings cannot benefit
from further extraordinary group support. We see BPI as a highly
strategic subsidiary of Caixabank (A-/Positive/A-2), and our
ratings on it stand one notch below those on its parent.
"Our revised SACP assessment reflects that, although BPI is not the
market leader in Portugal, it still holds an attractive market
share and has consistently been profitable while maintaining a
robust track record for asset quality and capital management. We
forecast that BPI will maintain solid profitability and efficiency
that will sustain the upward trajectory in the bank's RAC ratio
despite dividend payments. We expect the RAC to reach levels
11.1%-11.8% over the next 24 months, compared with 10.6% at end
2023 (after incorporating the impact of the Portuguese sovereign
upgrade and the improved assessment in March 2024 of the economic
risks Portugal's banking system faces). At the same time, we
anticipate that BPI will preserve its low-risk profile and continue
displaying sound asset quality metrics.
"We also raised to 'BBB' from 'BBB-' the program rating assigned to
senior subordinated instruments, and to 'BBB-' from 'BB+' the
program rating assigned to subordinated debt, in line with our view
of the bank's improved intrinsic creditworthiness."
Outlook
S&P's positive outlook reflects the potential for a rating upgrade
if the parent's rating, currently on positive outlook, were to be
raised.
Upside scenario: S&P said, "We could raise the ratings over the
next 18-24 months if we upgraded Caixabank, as we could incorporate
a notch of extraordinary group support into the rating. We
currently have a positive outlook on Caixabank, reflecting
potential upside from either stronger stand-alone creditworthiness
or a further ALAC buildup. In case of the latter, an upgrade to
Caixabank could offer upside to our ICR on BPI and senior debt
ratings, but not to the program ratings on the bank's senior
subordinated and subordinated instruments, because the ALAC built
up at the parent is not available to support BPI's bail-inable
instruments."
Additionally, all else being equal, an upgrade to Caixabank would
not by itself lead S&P to raise the RCR on Banco BPI given that the
'A-' long-term sovereign credit rating on Portugal constrains the
rating on the bank.
Downside scenario: S&P could revise the outlook on BPI to stable if
it took the same action on Caixabank.
Banco BPI S.A.--Ratings Score Snapshot
TO FROM
ISSUER CREDIT RATING BBB+/POSITIVE/A-2 BBB+/POSITIVE/A-2
SACP bbb+ bbb
Anchor bbb bbb-
Business position Adequate (0) Adequate (0)
Capital and earnings Strong (+1) Strong (+1)
Risk position Adequate (0) Adequate (0)
Funding Adequate (0) Adequate (0)
Liquidity Adequate (0) Adequate (0)
Comparable ratings
Analysis 0 0
Support 0 +1
ALAC support 0 0
GRE support 0 0
Group support 0 +1
Sovereign support 0 0
Additional factors 0 0
SACP--Stand-alone credit profile.
Banco Santander Totta S.A.
Primary credit analyst: Lucia Gonzalez
Rationale
S&P said, "The affirmation reflects our view that our ratings
already incorporate as much group support as possible from Totta's
parent, Banco Santander, given that the 'A-' sovereign rating on
Portugal acts as a constraint. We consider Totta a strategic
subsidiary of Santander. This would allow it to benefit from up to
three notches of group support, provided the ratings stand one
notch below that on the parent and at maximum the level of our
sovereign rating on Portugal.
"We revised up our assessment of Totta's SACP, reflecting easing
industry risks for banks operating in Portugal, and more in general
the bank's strengthened financial profile. Totta remains a top
player in Portugal--in which it is fully concentrated--displaying
very strong profitability, high efficiency, enhanced
capitalization, and a superior asset quality track record than
peers'. We anticipate that it will maintain above peers'
profitability and efficiency over the next two years, while our RAC
ratio should remain somewhat below 10%, given significant dividends
distribution to its parent. At the same time, we anticipate Totta
will preserve its low-risk profile and continue to post
better-than-peers' asset quality metrics."
Outlook
S&P said, "Our positive outlook on Totta mirrors that on the
sovereign and reflects that, all else being equal, we would raise
the rating on the bank in the event of a sovereign upgrade over the
next 18-24 months. Indeed, owing to its strategic importance to
parent Santander, we could apply an additional notch of group
support to our rating on Totta if it wasn't capped by the sovereign
rating."
Upside scenario: S&P could raise its rating on Totta over the next
18-24 months if it upgrades Portugal and we think the bank remains
strategically important to its parent.
Downside scenario: S&P could revise the outlook to stable if it
revise that on Portugal to stable. This is because, at the current
rating, the long-term sovereign credit rating on Portugal
constrains its long-term rating on Totta.
Banco Santander Totta S.A.--Ratings Score Snapshot
TO FROM
ISSUER CREDIT RATING A-/POSITIVE/A-2 A-/POSITIVE/A-2
SACP bbb+ bbb
Anchor bbb bbb-
Business position Adequate (0) Adequate (0)
Capital and earnings Adequate (0) Adequate (0)
Risk position Strong (+1) Strong (+1)
Funding Adequate (0) Adequate (0)
Liquidity Adequate (0) Adequate (0)
Comparable ratings
Analysis 0 0
Support +1 +2
ALAC support 0 0
GRE support 0 0
Group support +1 +2
Sovereign support 0 0
Additional factors 0 0
SACP--Stand-alone credit profile.
Haitong Bank S.A.
Primary credit analyst: Anais Ozyavuz
Rationale
S&P said, "The affirmation reflects our view that our ratings on
Haitong Bank (HB) are not directly affected by easing industry
risks for Portuguese banks. Even if HB is incorporated and
primarily regulated in Portugal, it is very geographically
diversified outside the country, mostly in countries in which we
see higher economic risks (particularly Brazil, which accounts for
about 40% of the bank's exposure). Our ratings on HB already
incorporate as much group support from its parent Haitong
Securities (HTS) as possible (two notches currently), because at
'BB', our rating on HB stands one-notch below its parent's SACP of
'bb+'.
"Aside from its parent's support, our rating on HB reflects the
bank's strong capitalization, but remains constrained by its strong
reliance on wholesale funding and high--if declining--single-name
concentration. Meanwhile, we continue to view HB as a small player
within the highly competitive investment banking market."
Outlook
S&P said, "The developing outlook reflects our view that we could
raise, lower, or affirm the issuer credit ratings on HB over the
next 12 months. This is because the potential merger between HTS
and Guotai Junan Securities Co. Ltd. raises questions about HB's
strategy and operations following the transaction's completion.
"We could raise our ratings on HB if the merger goes through and
strengthens HTS' credit profile through a financially stronger
merged group and we continue to consider HB a strategically
important subsidiary of the resulting group.
"We would revise the outlook to negative if the merger does not
materialize and HTS continues to face downward trend in business
resilience and earnings quality.
"We could lower our ratings on HB if the merger does not
materialize and the parent's capacity to support its Portuguese
subsidiary decreases. This could occur if HTS' legacy portfolio in
Hong Kong incurs additional losses that weigh on the company's
business stability, earnings capacity, or capitalization. Although
unlikely, we could also lower our ratings on HB if its importance
to HTS or the resulting group diminishes post-merger."
Haitong Bank S.A.--Ratings Score Snapshot
TO
ISSUER CREDIT RATING BB/DEVELOPING/B
SACP b+
Anchor bbb-
Business position Constrained (-2)
Capital and earnings Strong (+1)
Risk position Constrained (-2)
Funding Moderate (-1)
Liquidity Adequate (0)
Comparable ratings analysis 0
Support +2
ALAC support 0
GRE support 0
Group support +2
Sovereign support 0
Additional factors 0
SACP--Stand-alone credit profile.
BICRA Score Snapshot
Portugal
Banking Industry Country Risk Assessment--Portugal
TO FROM
BICRA GROUP 4 5
Economic risk 5 5
Economic resilience Intermediate risk Intermediate risk
Economic imbalances High risk High risk
Credit risk in the
Economy Intermediate risk Intermediate risk
Trend Positive Positive
Industry risk 4 5
Institutional framework Intermediate risk Intermediate risk
Competitive dynamics High risk High risk
Systemwide funding Low risk Intermediate risk
Trend Stable Positive
Banking Industry Country Risk Assessment (BICRA) economic risk and
industry risk scores are on a scale from 1 (lowest risk) to 10
(highest risk).
Ratings List
BANCO COMERCIAL PORTUGUES S.A.
UPGRADED
TO FROM
BANCO COMERCIAL PORTUGUES S.A.
Issuer Credit Rating BB/Positive/A-2 BBB-/Positive/A-3
BANCO COMERCIAL PORTUGUES S.A.
Senior Unsecured BBB BBB-
Subordinated BB+ BB
UPGRADED; RATINGS AFFIRMED
TO FROM
BANCO COMERCIAL PORTUGUES S.A.
Resolution Counterparty Rating BBB+/--/A-2 BBB/--/A-2
BANCO SANTANDER S.A.
RATINGS AFFIRMED
BANCO SANTANDER TOTTA S.A.
Issuer Credit Rating A-/Positive/A-2
Resolution Counterparty Rating A-/--/A-2
BANCO BPI
RATINGS AFFIRMED
BANCO BPI S.A.
Issuer Credit Rating BBB+/Positive/A-2
Resolution Counterparty Rating A-/--/A-2
HAITONG SECURITIES CO. LTD.
RATINGS AFFIRMED
HAITONG BANK S.A.
Issuer Credit Rating BB/Developing/B
===========
R U S S I A
===========
NAVOI MINING: S&P Rates Proposed Senior Unsecured Bond 'BB-'
------------------------------------------------------------
S&P Global Ratings assigned its 'BB-' issue rating to the senior
unsecured bond proposed by Navoi Mining And Metallurgical Company
(NMMC; BB-/Stable/--), in line with the issuer credit rating on
Uzbekistan-based NMMC. The proposed bond will not be subordinated
to the vast majority of NMMC's debt. The company has a simple legal
structure with one legal entity that issues all of its debt,
therefore there will be no structural subordination. On top of
that, only about 6% of the company's debt is secured which means
there is no contractual subordination.
S&P said, "We understand that NMMC will use most of bond proceeds
to repay existing debt. The rest will be used for general corporate
purposes, including capital expenditure. We don't expect the bond
issuance to have an impact on NMMC's financial ratios and continue
to expect funds from operations (FFO) to debt to be comfortably
above 60% in 2024-2025."
===========
T U R K E Y
===========
EMLAK KONUT: Fitch Hikes LongTerm IDRs to 'BB-', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has upgraded Turkish residential developer Emlak
Konut Gayrimenkul Yatirim Ortakligi A.S.'s (Emlak Konut) Long-Term
Foreign-Currency (LT FC) and Local-Currency (LC) Issuer Default
Ratings (IDRs) to 'BB-' from 'B+'. The Outlooks are Stable. Fitch
has also upgraded Emlak Konut's National rating to 'AA+(tur)' from
'AA(tur)' with a Stable Outlook.
The rating actions follow the upgrade of Turkiye's LT FC IDR on
September 6, 2024. Emlak Konut's high exposure to the Turkish
economy means its FC IDR is influenced by the Turkish Country
Ceiling, which was also upgraded to 'BB-'. Fitch assesses Emlak
Konut's Standalone Credit Profile (SCP) at 'bb-'. While the SCP
remains at this level, further upgrades of the Country Ceiling
would not result in an upgrade of Emlak Konut.
Emlak Konut's SCP reflects its beneficial revenue sharing model
(RSM) and continuing priority agreement with Turkiye's Housing
Development Association (TOKI) for land purchases, reinforcing its
strong market position. The RSM transfers almost all development
risk to contractors, and provides defined minimum profit margins
and a share in upside gains for Emlak Konut. The priority agreement
with TOKI allows the company to voluntarily purchase land at
independently appraised values without a tendering process.
Key Rating Drivers
Operating Environment Stabilising; Challenges Remain: The upgrade
of the IDR is in line with the Country Ceiling constraint. Fitch
upgraded Turkiye's sovereign rating following the improvement in
the level and composition of international reserves, the reduction
in dollarisation and FX-protected deposits, and consistency in the
policy mix delivering lower inflation. Nevertheless, the operating
environment remains challenging, with high inflation (61.78% at
end-July 2024) pushing up construction costs and interest rates
(50% at end-March 2024) and tighter regulation reducing access to
mortgages.
TOKI Relationship Continues: Emlak Konut has an exclusive priority
agreement with TOKI, under which it can buy land from TOKI at
independently appraised values with no tendering process. The
ability to acquire large plots in good locations, mainly in and
around Istanbul, is a significant competitive advantage. TOKI is
Emlak Konut's largest shareholder (49.4% shareholding) and is
mandated to provide social housing across the country.
TOKI holds more than 200 million sqm of land. It does not receive
government funding and benefits from land sale proceeds and
dividends from Emlak Konut. The relationship is therefore mutually
beneficial and has minimal risk of termination. If it ended, Emlak
Konut's business model would be substantially weakened, although it
could continue to operate under the turnkey model.
RSM Profitability to Slow with Lower Inflation: Emlak Konut's
successful RSM guarantees minimum profit margins and further upside
gains for itself, while passing on almost all development risk to
contractors. Excluding profit from land sales, almost 80% of 2023
EBITDA was from RSM projects. At end-1H24, Emlak Konut had 33
projects valued at about TRY191.4 billion under implementation,
with about TRY84.1 billion of contracted guaranteed income.
The company measures RSM project profitability using a land
multiplier (Emlak Konut's revenue from the project/land value at
time of tender), as the only cost to Emlak Konut is the value of
land it contributes to the project. The multiplier was 5.39 at
end-2022 (2021: 2.91) as tender values and residential prices
multiplied in line with Turkiye's peak inflation during that year.
At end-2023, the multiplier had fallen to 4.06 with lower
inflation. Emlak Konut also has its own turnkey residential
development business.
Land Sales Boost Profitability: In 2022 and 2023, Emlak Konut
substantially increased sale of land plots that it judges too small
for its type of large-scale developments to other developers,
taking advantage of hyperinflationary increase in land prices. Land
sales contributed to about 70% of EBITDA in 2023 (2022: 35%; 2021:
less than 2%) and boosted revenue and EBITDA margins (2023: 37.2%;
2022: 41.5%; 2021: 26.2%). Emlak Konut has continued to replenish
its land bank through its priority agreement with TOKI. At
end-1H24, Emlak Konut held 2.6 million sqm of land valued at about
TRY22.1 million.
Inflation Heightens RSM Contracts Concentration: The top 10
contractors account for more than 79% of Emlak Konut's revenue,
with about 16% from the largest, exposing it to the risk of
contractor failure. At end-1H24, Turkiye's construction cost index
showed a year-on-year increase of 66.12%. To mitigate this, Emlak
Konut requires the preferred bidder to deposit 10% of minimum
revenue along with guarantees worth 6% of total estimated project
revenue. Emlak Konut also oversees the projects, collects and
distributes all cash flow, including contractor revenue.
Stable Financial Profile: Emlak Konut's debt/EBITDA leverage is
low, at or below 1.0x, commensurate with its 'bb-' SCP. With
adequate unrestricted cash available to cover land purchases, Fitch
expects debt to remain low. Fitch expects gross leverage to remain
below 1.5x during 2024-2027 in the absence of changes in its
business model and the TOKI relationship.
Derivation Summary
Emlak Konut has no direct peers. Its beneficial TOKI relationship
and RSM are unique among Fitch-rated home builders. The TOKI
priority agreement provides access to competitively priced,
well-located land parcels, which no EMEA peers have. Under the RSM,
the company only contributes land to the project with guaranteed
minimum revenue covering the cost of land and upside gains while
transferring development risk to contractors.
In contrast to other EMEA home builders, the TOKI relationship
exposes Emlak Konut to potential political or regulatory risks.
Turkiye's economy continues to be affected by high inflation but
demand for housing is persisting driven by a significant housing
deficit and growing population. Emlak Konut's unique business model
alongside differing operating environments across EMEA makes direct
comparisons difficult.
Since unrestricted cash fully covered debt at end-2022 and
end-2023, Fitch uses gross debt to meaningfully assess Emlak
Konut's leverage. Emlak Konut's debt/EBITDA leverage was about 0.7x
at end-2023, better than Spanish home builders Via Celere
Desarrollos Inmobiliarios, S.A.U. (BB-/Stable) and AEDAS Homes, S.A
(BB-/Stable). Despite better leverage metrics than Via Celere and
AEDAS Homes, Fitch places Emlak Konut alongside them at 'BB-',
reflecting the higher risk from its difficult operating environment
and its expectation that the company would have to operate at a
higher leverage in the absence of the beneficial TOKI
relationship.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Sustainable EBITDA margin at around 10%-15% in 2024-2027
reflecting lower multiple from RSM projects.
- EBITDA gross leverage continuing below 1.5x with no significant
debt drawdown in the medium term.
- Cash on balance sheet used to replenish land bank in 2024 and
2025.
- Stable dividend policy averaging 30% of net income
- Relationship with TOKI unchanged
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
LT LC IDR
- Material improvement in operating environment, assuming
debt/EBITDA leverage remains below 1.0x.
- Reduced volatility of profits derived from the Turkish housing
market
LT FC IDR
- Upgrade of the LT LC IDR to 'BB'
- Turkiye's Country Ceiling is also upgraded to 'BB'
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
LT LC IDR
- Deterioration of the operating environment
- Material changes in the relationship with TOKI, causing
deterioration of Emlak Konut's financial profile and financial
flexibility
- Debt/EBITDA leverage above 2.0x
- Deterioration in the liquidity profile over a sustained period
LT FC IDR
- Downgrade of the LT LC IDR
- A downgrade of Turkiye's Country Ceiling to 'B+'
Liquidity and Debt Structure
At end-1H24, Emlak Konut had about TRY7.2 billion of unrestricted
cash, which covers all of its outstanding debt. The weighted
average debt maturity, at less than three years, is short compared
with other real estate peers and is a result of non-availability of
long-term funding in the Turkish market. Fitch expects Emlak Konut
to use the readily available cash primarily to grow its land bank.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Emlak Konut Gayrimenkul
Yatirim Ortakligi A.S. LT IDR BB- Upgrade B+
LC LT IDR BB- Upgrade B+
Natl LT AA+(tur) Upgrade AA(tur)
MERSIN ULUSLARARASI: Fitch Ups Rating on USD600MM Unsec Debt to BB-
-------------------------------------------------------------------
Fitch Ratings has upgraded Mersin Uluslararasi Liman Isletmeciligi
A.S.'s (MIP) USD600 million senior unsecured debt rating to 'BB-'
from 'B+'. The Outlook is Stable.
RATING RATIONALE
The upgrade follows the upgrade of Turkiye's Long-Term
Foreign-Currency Issuer Default Rating.
The rating also reflects Mersin's dominant market position in its
catchment area, its location and strong connectivity to its
industrial hinterland and its diversified goods mix, which mitigate
the volatility of its domestic and export market. Its weak,
single-bullet debt structure weighs on the rating, although the
refinancing risk associated with the bullet bond is largely
mitigated by its moderate leverage.
MIP's rating remains capped by Turkiye's 'BB-' Country Ceiling and
aligned with the sovereign rating due to the port's linkages to the
country's economic and regulatory environment.
KEY RATING DRIVERS
Industrial Hinterland, Exposed to Macroeconomic Volatility
Mersin is Turkiye's largest export-import port and the largest port
in terms of containerised throughput. The volume mix is diversified
and balanced between imports and exports, but volatile. The port
benefits from an industrial hinterland and has annual container and
conventional cargo capacity of 2.6 million 20-foot equivalent unit
(TEUs) and 10.0 million tons, respectively.
Mersin has lost some of its market share since 2015 to its main
competitor, Limak Iskenderun Uluslararasi Liman Isletmeciligi A.S.,
due to the latter's competitive rates. Mersin's market share has
fluctuated slightly in recent years but Fitch expects it to
stabilise in the coming years.
Revenue Risk - Volume - Midrange
Unregulated US Dollar Tariffs
Mersin's concession provides almost full pricing flexibility, with
restrictions only against excessive and discriminatory pricing, for
which there is no history of enforcement. Historically Mersin has
been able to increase tariffs. The typical contract length with
Mersin's customers is on average short at one to two years and
includes volume-related incentives.
MIP's fees are almost 100% set and largely paid in US dollars. The
remaining local-currency payments are settled weekly in dollars so
depreciation of the Turkish lira does not have a direct impact on
Mersin's tariffs. Most operational expenses are lira-denominated
and Mersin has successfully passed on increased costs of operations
in inflationary periods to customers through tariff adjustments.
However, the operating margin declined in 2023 as a result of
significant inflationary pressures. Fitch considered these factors
in the rating case.
Revenue Risk - Price - Midrange
Extensive Investment Plan
Mersin's current container handling capacity is 2.6 million TEUs.
After the completion of its EMH Phase I in 2016, it began
constructing EMH II, which is scheduled to be completed in 2026.
EMH II will further enhance the company's competitiveness in the
region and increase container handling capacity from 2.6 million
TEUs to 3.6 million TEUs. Management expects additional capacity
from this expansion to start in 2H25 and reach 100% in 2026.
Infrastructure Dev. & Renewal - Midrange
Refinance Risk, Unsecured Debt
Mersin issued a five-year 8.5% yield (coupon 8.25%) USD600 million
US dollar-denominated bullet bond in 2023 to refinance its existing
USD600 million outstanding debt. No material covenants protect debt
holders, apart from a 3.0x net debt/EBITDA incurrence-based
covenant. The senior debt does not benefit from a security
package.
Debt Structure - 1 - Weaker
Financial Profile
Under Fitch's rating case, projected net debt/EBITDA will average
around 1.6x between 2024 and 2028. Leverage is low but Mersin's
rating is capped by Turkiye's Country Ceiling and aligned with the
sovereign rating.
PEER GROUP
Mersin's main peer is Limak (B/Negative), which also operates in
the eastern Mediterranean. Limak is an export-import-oriented port
with lower tariffs than Mersin due to its need to compete on price
versus bigger ports in the region, including Mersin. Limak's debt
structure is fully amortising compared with Mersin's bullet debt
structure, so it is not exposed to refinancing risk.
Limak's operations were temporarily halted after the earthquake hit
Turkiye in February 2023, partially resuming in April. By end-2023,
Limak was operating at 80% of its total port capacity. Limak's
lower rating and Negative Outlook reflect its partial operation and
uncertainties regarding insurance payments to cover the remaining
reconstruction capex.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Negative action on Turkiye's sovereign rating and Country Ceiling.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Positive action on Turkiye's sovereign rating and Country Ceiling.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Mersin Uluslararasi
Liman Isletmeciligi A.S.
Mersin Uluslararasi
Liman Isletmeciligi
A.S./Debt/1 LT LT BB- Upgrade B+
===========================
U N I T E D K I N G D O M
===========================
ASTON MARTIN: S&P Affirms 'B-' ICR & Alters Outlook to Negative
---------------------------------------------------------------
S&P Global Ratings revised its outlook on Aston Martin Lagonda
Holdings PLC to negative from stable and affirmed its 'B-'
long-term issuer credit rating and 'B-' issue rating on its senior
secured notes, with a recovery rating of '3' (rounded recovery
prospects: 50%).
The negative outlook reflects that S&P could downgrade Aston Martin
if it cannot sustainably generate positive FOCF due to
slower-than-expected production ramp-up or soft demand for its
newly introduced cars.
S&P said, "Aston Martin's downward revision of its wholesale volume
target for 2024 marks a material deviation from our previous
expectations. The company will continue to burn cash in the second
half of 2024 after it cut its wholesale volume delivery
expectations by 1,000 units for 2024 due to supply chain issues and
weak demand in China. We understand that Aston Martin is facing
delays in receiving some parts due to major events--such as floods
and fire at some of its blue-chip suppliers--affecting all its core
model range vehicles in production. The production cut also partly
reflects softer demand in China, a market which historically
accounted for about 12% of volumes. Europe and North America remain
the company's most important markets. The realignment of volume
production confirms management's focus on average selling price
(ASP) and brand value. We now assume a moderate decline in revenue
for 2024 as the increase in ASP does not fully offset the expected
decline in volumes. This should lead to an S&P Global
Ratings-adjusted EBITDA (after reclassification of capitalized R&D
as operating expenses) of about breakeven. We have also revised our
cash burn expectations for 2024 to about negative GBP430
million-GBP450 million from about negative GBP150 million-GBP180
million previously."
Aston Martin has the financial flexibility to accommodate this
operating setback for now, but prolonged cash burn beyond 2024
could lead to a liquidity shortfall. Total liquidity at the end of
June 2024 amounted to GBP247 million (including cash balances of
GBP173 million, down from GBP392 million at the end of 2023; and
available facilities). The company's elevated free cash outflow in
the first half of 2024 of about GBP313 million, was due to lower
wholesale volumes and higher inventory levels as the group
transitions its production and distribution to new models, namely
the new Vantage, the Vanquish V12 flagship, and the updated DBX.
Additionally, deposit outflows were highest in the first two
quarters as a result of the delivery of special models (Valour and
Valkyrie). S&P estimates a cash burn of about GBP120 million-GBP130
million in second-half 2024 that can be absorbed by Aston Martin's
available liquidity, also considering that the new money raised in
July 2024 through a tap issuance for GBP135 million-equivalent was
used to repay the drawings under its GBP170 million revolving
credit facility (RCF). However, there is limited liquidity cushion
for continued cash burn beyond 2024, absent any new cash injection.
The successful ramp up of production and continued increase in the
average selling price, supported by customer demand, is now even
more critical, in its view.
S&P said, "We continue to see prospects for positive FOCF
generation from 2025 assuming steady demand for Aston Martin's
cars. Aston Martin's DB12 model is sold out into 2025; we will
monitor progress on order book developments for the new Vantage and
Vanquish as these reach dealers in fourth quarter 2024. We see
fewer risks related to supply chain issues in 2025 since the
production schedule should be more evenly distributed throughout
the year, which reduces the risk of hiccups. We think management
will protect pricing over volumes by adjusting production levels if
necessary. Additionally, in our view, management remains committed
to deliver on its targets to reach an EBITDA margin of about 25%
and positive free cash flow in 2025.
"The negative outlook reflects the risk that weaker-than-expected
demand for its newly introduced car models or execution missteps
could prevent Aston Martin from increasing its wholesale volumes
and average selling price in 2025; translating into its EBITDA
margin remaining below 12% for a prolonged period and continued
cash burn.
"We could lower our rating on Aston Martin if we did not see
prospects for positive FOCF generation in 2025 due to a
slower-than-expected ramp up in production leading to an
unsustainable capital structure or liquidity concerns.
"We could revise our outlook to stable within the next 12 months if
Aston Martin successfully ramps up its production supported by
sound demand for its cars, leading to its funds from operations
(FFO) cash interest coverage recovering to above 1.5x and its FOCF
turning positive; while maintaining adequate liquidity."
COMET BIDCO: Moody's Hikes CFR to 'B2', Outlook Stable
------------------------------------------------------
Moody's Ratings has upgraded Comet Bidco Limited's (Comet Bidco,
Clarion or the company) long term corporate family rating to B2
from B3, following the improvement in the company's operating
performance. Moody's have also upgraded to B2 from B3 the GBP75
million backed senior secured revolving credit facility (RCF), the
GBP385 million backed senior secured term loan B1 facility both
borrowed by Comet Bidco Limited and the $437.5 million backed
senior secured term loan B2 facility, borrowed by Clarion Events
Holdings Inc. The outlook of all entities is stable.
Moody's have also upgraded the company's probability of default
rating (PDR) to B2-PD from B3-PD.
The rating action reflects:
Improvement in operating performance with the majority of events
trading at above pre-pandemic levels
The company's smaller scale compared with its peers
Moodys adjusted debt/EBITDA is expected to be around 6x by January
2025
RATINGS RATIONALE
The B2 CFR reflects (1) Clarion's position as the third largest
international events organiser with a globally diverse footprint
and high-profile brands in both mature and growth markets (2) solid
operating performance with the majority of events trading above
pre-pandemic levels and (3) good revenue and earnings visibility.
The rating also reflects Clarion's smaller scale compared with the
industry leaders and still high interest costs.
Overall, Clarion operates in an industry with positive demand
characteristics, solid margins, and high cash conversion. Clarion
benefits from good geographical reach, a diversity of end markets,
and several high-profile events (ICE, the leading gaming industry
exhibition, and DSEI, a leading defence and security event plus
GS's mobile electronics events). Earnings visibility is high, with
forward contracted revenue from bookings 6 to 12 months ahead.
Moody's expect the company to achieve Moody's-adjusted EBITDA of
around GBP130 million in Moody's base case reflecting a solid 8%
growth rate and margins in the high 20's percentages such that by
the year ending January 2025, Moody's estimate the company will
reduce Moody's-adjusted gross leverage to around 6x. The expected
reduction in leverage is underpinned by the improvement in the
abovementioned operating performance and brings it into line with
Moody's expectations for the B2 rating in the next 12-18 months.
Moody's expect Clarion will generate Moody's-adjusted free cash
flow of around GBP20 million, assuming a working capital release of
around GBP10 million and capital spending of GBP9 million, in line
with the company's guidance.
LIQUIDITY
The company's liquidity is good. As of July 2024, the company
reported cash and cash equivalents of GBP78 million. The company
benefits from a GBP75 million RCF maturing in June 2027, currently
fully undrawn. The RCF is subject to a minimum liquidity covenant
of GBP25 million and a springing leverage covenant when the RCF is
drawn by 40%. The company does not have any material debt
maturities until June 2027.
STRUCTURAL CONSIDERATIONS
The B2 rated GBP75 million backed senior secured RCF and the B2
rated GBP385 million and $437.5 million backed senior secured term
loan facilities are rated the same as the CFR. The GBP225 million
sponsor loan is borrowed by Expo Holding I Limited, an intermediate
holding company above Comet Bidco and outside the restricted group,
and has no security or guarantees from the restricted group. It is
structurally subordinated to the company's senior secured debt,
matures six months after the senior secured facilities and is not
included in Moody's financial metrics for Comet Bidco.
RATING OUTLOOK
The stable outlook reflects Moody's expectations of continued
positive momentum in event and exhibition sponsorships and
attendance leading to solid growth in earnings and free cash flow
over calendar 2024 and 2025. As a result, Moody's expect Moody's
adjusted leverage to be maintained around 6x for the next 12 months
and reduce further, thereafter.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure may arise if Clarion's operating performance is
better than expected and Moody's adjusted debt/EBITDA falls below
4.5x on a sustained basis and Moody's adjusted free cash flow
(FCF)/debt increases to high single digits on a sustained basis,
while the company maintains a good liquidity position. Downward
pressure would arise if the company's operating performance
deteriorates materially from Moody's expectations or Moody's
adjusted debt/EBITDA is greater than 6x on a sustained basis,
Moody's adjusted FCF/debt falls below 5% or the company's liquidity
position weakens.
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Clarion is a UK-based events organiser that runs B2B events
worldwide across diversified sectors, including technology,
defence, gaming, electronics and public safety. For the fiscal year
2024, it ran 150 events worldwide, employed 1900 people in 13
countries and generated revenue of GBP433 million. The company is
privately owned by Blackstone and is the third-largest
international events organizer.
DIVERSITY FUNDING 1: S&P Lowers Class D Notes to 'CC(sf)'
---------------------------------------------------------
S&P Global Ratings lowered to 'CC (sf)' from 'B (sf)' its credit
rating on Diversity Funding No. 1 Ltd.'s class D notes. At the same
time, S&P affirmed its 'D (sf)' ratings on the class E and F
notes.
Rating rationale
The rating actions follow its review of the transaction and the
most recent available data from the servicer.
S&P said, "Since our review in August 2023, 12 loans have repaid
and two loans have been written off, reducing the loan pool to 40
loans from 54. The loan portfolio has experienced further principal
losses and the total principal deficiency ledger (PDL) for the
class E and F notes has since increased to GBP33.3 million from
GBP32.7 million. We expect the class D notes PDL to be utilized in
the next 12 months, considering a number of the loans are being
written off. Of the GBP9.0 million loan pool balance remaining, a
single loan with a loan balance of GBP2.5 million is in arrears
(28% of the outstanding loan pool balance). Several loans are on
the servicer's watchlist for various reasons. However, our latest
review of the remaining loan pool suggests that the class D notes
are now under-collateralized. We consider it a virtual certainty
that these notes will not be repaid in full.
"The class D, E, and F notes are subject to an available funds cap.
If there is unpaid note interest due to margin compression, it does
not accrue and is extinguished. We would typically view a permanent
interest write-off as a breach of the rated promise, unless it is
due to margin compression following prepayments."
Rating actions
S&P said, "Our ratings in this transaction address the timely
payment of interest, payable quarterly, and the payment of
principal no later than the legal final maturity date in February
2046.
"Following our review of the remaining loan pool, we believe that
the class D notes experiencing a principal loss is a virtual
certainty. Therefore, we lowered to 'CC (sf)' from 'B (sf)' our
rating on the notes.
"The class E and F notes' PDLs are currently being used. We
therefore affirmed our 'D (sf)' ratings on these notes."
Diversity Funding No. 1 is a true-sale CMBS transaction initially
backed by 862 U.K. loans secured by 1,685 properties. Of the loans,
40 remain, which are secured by 63 properties. The legal final
maturity date of the notes is in February 2046.
DONT BE SHY: Begbies Traynor Named as Joint Administrators
----------------------------------------------------------
Dont Be Shy Digital Ltd 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-2024-005723, and Bai Cham and Manjit Shokar of Begbies Traynor
(Central) LLP were appointed as administrators on Oct. 2, 2024.
Dont Be Shy is a digital marketing agency. The company's
registered office is at 1 Stevenson Square, Manchester, United
Kingdom, M1 1DN.
The joint administrators can be reached at:
Bai Cham
Manjit Shokar
Begbies Traynor (Central) LLP
Innovation Centre Medway
Maidstone Road, Chatham
Kent, ME5 9FD
For further information, contact:
Ben Parsons
Amber Mapley
Begbies Traynor (Central) LLP
Tel No: 01634-975440
Email: medway@btguk.com
FINNSWORTH LIMITED: MHA Named as Joint Administrators
-----------------------------------------------------
Finnsworth Limited was placed in administration proceedings in the
High Court of Justice, Business and Property Courts of England and
Wales, Company and Insolvency List, Court Number: CR-2024-005432,
and James Alexander Snowdon and Georgina Marie Eason of MHA were
appointed as administrators on Oct. 1, 2024.
Finnsworth is a manufacturer of bespoke premium quality plastic and
metal products for the construction industry.
Its registered office and principal trading address is at Unit 2
Laxcon Close, Drury Way, London, England, NW10 0TG.
The joint administrators can be reached at:
James Alexander Snowdon
Georgina Marie Eason
MHA
6th Floor, 2 London Wall Place
London, EC2Y 5AU
For further information, contact:
The Joint Administrators
Email: alex.timotheou@mha.co.uk
Tel: 020-7429-4100
Alternative contact: Alex Timotheou
FOURPURE LIMITED: FRP Advisory Named as Joint Administrators
------------------------------------------------------------
Fourpure Limited was placed in administration proceedings in the
High Court of Justice, Court Number: CR-2024-005664, and David
Hudson and Philip David Reynolds of FRP Advisory Trading Limited
were appointed as administrators on Oct. 1, 2024.
Fourpure Limited is a beer processing company.
Its registered office is at 22 Bermondsey Trading Estate,
Rotherhithe New Road, London, SE16 3LL in the process of being
changed to c/o FRP Advisory Trading Limited, 2nd Floor, 110 Cannon
Street, London, EC4N 6EU. Its principal trading address is at 22
Bermondsey Trading Estate, Rotherhithe New Road, London, SE16 3LL.
The joint administrators can be reached at:
David Hudson
Philip David Reynolds
FRP Advisory Trading Limited
110 Cannon Street, London
EC4N 6EU
For further information, contact:
The Joint Administrators
Tel: 020 3005 4000
Alternative contact:
Bobby Cotter
Email: cp.london@frpadvisory.com
GHI CONTRACTS: BDO LLP Named as Joint Administrators
----------------------------------------------------
GHI Contracts Limited was placed in administration proceedings in
the Court of Session, No. P841 of 2024, and James Stephen and Lee
Causer of BDO LLP were appointed as administrators on Sept. 27,
2024.
GHI Contracts engages in internal building renovation.
Its registered office is at Belgrave Court, Rosehall Road,
Bellshill, Lanarkshire, ML4 3NR to be changed to BDO LLP, 2
Atlantic Square, 31 York Street, Glasgow, G2 8NJ. Its principal
trading address is at Belgrave Court, Rosehall Road, Bellshill,
Lanarkshire, ML4 3NR.
The joint administrators can be reached at:
James Stephen
BDO LLP
2 Atlantic Square
31 York Street
Glasgow, G2 8NJ
-- and --
Lee Causer
BDO LLP
Two Snowhill
Snow Hill Queensway
Birmingham, B4 6GA
For further information, contact:
The Joint Adminstrators
Email: BRCMTNorthandScotland@bdo.co.uk
Tel No: +44 151-237-4437
Alternative contact: Owen Casey
HOWELLS & JOLLEY: FRP Advisory Named as Joint Administrators
------------------------------------------------------------
Howells & Jolley Limited was placed in administration proceedings
in the High Court of Justice Newcastle upon Tyne Court, Court
Number: CR-2024-NCL-000141, and Steven Ross and Allan Kelly of FRP
Advisory Trading Limited were appointed as administrators on Oct.
2, 2024.
Howells & Jolley, trading as Reydon Pharmacy, is a dispensing
chemist company.
Its registered office is at 129/135 The Broadway, Thorpe Bay, SS1
3EX to be changed to Suite 5, 2nd Floor Regent Centre, Gosforth,
Newcastle Upon Tyne, NE3 3LS. Its principal trading address is at
Sole Bay Health Centre, Teal Close, Reydon, Suffolk, IP18 6GY.
The joint administrators can be reached at:
Steven Ross
Allan Kelly
FRP Advisory Trading Limited
Suite 5, 2nd Floor
Bulman House, Regent Centre
Newcastle Upon Tyne, NE3 3LS
For further information, contact:
The Joint Administrators
Tel No: 0191 605 3737
Alternative contact:
Paul Caisley
Email: cp.newcastle@frpadvisory.com
LYRA ELECTRONICS: Begbies Traynor Named as Joint Administrators
---------------------------------------------------------------
Lyra Electronics Limited was placed in administration proceedings
in the High Court of Justice Business and Property Courts in
Birmingham, Insolvency & Companies List (ChD), Court Number:
CR-2024-000564, and Mark Malone and Gareth Prince of Begbies
Traynor (Central) LLP, were appointed as administrators on Oct. 2,
2024.
Lyra Electronics Ltd. is an electronics manufacturing and software
company offering high efficiency power electronics to facilitate
the move to carbon free transport.
Its registered office is at Carleton House, 266-268 Stratford Road,
B90 3AD. Its principal trading address is at Warwick Enterprise
Centre, Wellesbourne, Warwick, CV35 9EF.
The joint administrators can be reached at:
Mark Malone
Gareth Prince
Begbies Traynor (Central) LLP
11th Floor, One Temple Row
Birmingham, B2 5LG
For further information, contact:
Haydon Watson-Kirk
Begbies Traynor (Central) LLP
Email: birmingham@btguk.com
Tel No: 0121 200 8150
ORCHARD (STAMFORD): CRG Insolvency Named as Administrators
----------------------------------------------------------
Orchard (Stamford) Limited was placed in administration proceedings
in the High Court of Justice, Leeds, Court Number:
CR-2024-LDS-000976, and Charles Howard Ranby-Gorwood of CRG
Insolvency & Financial Recovery was appointed as administrators on
Oct. 4, 2024.
Orchard (Stamford) Limited engages in glazing activities.
Its registered office and principal trading address is at Unit 6a,
Tinwell Business Park, Steadfold Lane, Tinwell, Stamford, PE9 3UN.
The administrators can be reached at:
Charles Howard Ranby-Gorwood
CRG Insolvency & Financial Recovery
Alexandra Dock Business Centre
Fisherman's Wharf, Grimsby, DN31 1UL
For further details, contact:
The Administrators
Tel No: 01472 250001
Alternative contact: Mark Fletcher
PRUMO GROUP: Fitch Assigns 'B+' LongTerm IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has assigned Project Grand Bidco (UK) Limited (Purmo
Group) a final Long-Term Issuer Default Rating (IDR) of 'B+' with a
Stable Outlook. At the same time, Fitch has assigned EUR380 million
senior secured sustainability-linked notes (SSNs) issued by Project
Grand (UK) Plc a final rating of 'B+' with a Recovery Rating of
'RR4'. The SSNs are guaranteed by Purmo Group, and the SSN terms
broadly conform to the information Fitch already received.
Purmo Group's IDR reflects the company's good market position in
climate solutions in Europe, relatively stable and improving
operating margins and, following the proposed refinancing, adequate
liquidity position. The expected rating also factors in a rather
limited business profile, exemplified by modest product and
geographical diversification as well as high opening leverage and
exposure to volatile end-markets.
The Stable Outlook reflects its expectation that key credit metrics
will remain within its rating case assumptions in the near future
and in line with the current rating.
Key Rating Drivers
Restructuring to Improve Earnings/FCF: Fitch expects the company's
restructuring to gradually and sustainably improve its EBITDA and
free cash flow (FCF) margins over the next three to four years.
Fitch forecasts EBITDA margins to exceed 10% in 2024 (up from 9.6%
in 2023) and continue rising to close to 13% by 2028.
Fitch also forecasts the FCF margin, which is likely to be negative
this year owing to one-off restructuring and refinancing costs, to
improve to close to 3.5% in 2025 and further to around 4.5% by
2027. Fitch assumes broadly flat capex of around 2.5% of revenue,
no dividend distributions and some improvement in working capital
management over the same period.
Leading Market Position: Purmo Group enjoys strong market positions
in Europe in both radiators and related components as well as in
the faster-growing solutions market with its comprehensive heating
and cooling offering to customers. Fitch expects the company to
maintain its position in the short-to-medium term through organic
growth and occasional bolt-on acquisitions.
Limited Diversification: The company's ratings are restricted by
its weak diversification. While it offers more products than most
of its direct peers, its product portfolio is nevertheless limited
to heating and cooling solutions equipment and its end-markets are
therefore rather narrow. Similarly, its geographic diversification
is modest, with practically all revenue being derived from the
European market.
Temporarily High Leverage: Fitch expects gross EBITDA leverage of
around 5.5x at end-2024, which is high for the rating, although the
company's cash generation and expected prudent capital-allocation
policy underline its deleveraging capacity in subsequent years.
Fitch expects Purmo Group's gross leverage to fall below its
negative sensitivity of 5x at end-2025 and gradually further to its
positive sensitivity of around 4x in the following two years.
Volatile Market Dynamics: Purmo Group is exposed to the new
residential construction sector as well as the market for
residential renovations. The former shows short term volatility and
is driven by macro factors such as GDP growth and finance
availability while the latter is driven more by consumer
confidence. Both, however, possess long-term structural growth
potential, also reflecting the pressure to lower carbon emissions
from housing.
Regulation Supports Growth: The energy transition in Europe is
supported by favourable financial and regulatory assistance, both
at the EU and more directly at the local level, which provide some
boost to the demand prospects of Purmo Group's products. Any
weakening of the financial subsidies currently provided may have a
negative effect on its growth expectations for Purmo, especially in
the heat exchange segment.
Derivation Summary
Purmo Group's post-refinancing financial profile will be broadly
similar to that of other 'B' category rated industrial entities in
Europe, such as Ahlstrom Holding 3 Oy (B+/Stable), Evoca SpA
(B/Stable), Tarkett Participation (B+/Stable), Victoria PLC
(B+/Stable) and INNIO Group Holding GmbH (B/Positive). Purmo Group
generates EBITDA margins below those companies, except Tarkett
whose margins are slightly lower, but its leverage, and likely
deleveraging profile, are strong relative to all those companies'.
Similarly, its FCF, after the 2024 transition period, will likely
be higher than these peers'.
Purmo Group's scale is smaller than most of these companies, as is
its geographic diversification. This is mitigated by Purmo Group's
strong market position in Europe. Its exposure to volatile
end-markets is similar to many companies in building products.
Key Assumptions
- Mid-single digit annual revenue growth starting in 2024 as new
residential construction activity recovers while demand for
renovation continues at steady pace;
- Gradual earnings margin improvement over the rating horizon as
market dynamics improve and the effects of present restructuring
measures bear fruit;
- Capex stable at around 2.5% of revenue;
- No dividend payments or other shareholder returns through the
rating horizon;
- Some improvement in working capital management with net working
capital / revenue improving to around 20% in 2028 from 24% in
2023;
- Cost of debt at 9% fixed for the new bonds, revolving credit
facility 3.75% margin plus EURIBOR
Recovery Analysis
- The Recovery analysis assumes that Purmo Group will be considered
as Going Concern (GC) rather than liquidated given its strong
market position and the long-term relationship with customers;
- Fitch assumed 10% administrative claim and EUR33 million of
securitisation (drawn amount as per end 2023), which is assumed to
be unavailable during restructuring, hence deducted from the
enterprise value;
- The GC EBITDA of EUR60 million reflects the possibility of the
company to sustain margins in unfavourable market conditions due to
their already implemented cost restructuring and ability to
pass-through increased costs of raw materials;
- Fitch assumes a 5.5x GC EBITDA multiple due to exposure to a
volatile construction sector, although the volatility is lower than
for some of the peers to main exposure to renovation rather than
new build. This exposure is balanced by strong market position and
decent FCF generation; the multiple is in line with peers such as
Ahlstrom Holding 3 Oy, Ammega Group B.V. (B-/Stable), Nova
Alexandre III S.A.S. (B+/Stable), Tarkett Participation and
Victoria Plc.
- Post-refinancing debt consists of EUR100 million super senior
revolving credit facility (SSRCF) due 2028 and EUR380 million SSNs
due 2029. The SSRCF ranks first and Fitch assumes it to be fully
drawn in a situation of restructuring. The SSNs rank second and the
waterfall analysis output percentage on current metrics and
assumptions is 45% which maps to RR4 and 'B+' rating for the SSNs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- FCF margins above 3%
- EBITDA leverage below 4x
- Cash flow from operations (CFO) less capex at above 10% of debt
- Improved geographic and product diversification
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- FCF margins below 1%
- EBITDA leverage above 5x
- CFO less capex below 5% of debt
- EBITDA margins below 8%
Liquidity and Debt Structure
Satisfactory Liquidity: Purmo Group had readily available cash (net
of Fitch-restricted cash of EUR25 million) of EUR65.8 million, as
of end June 2024. By year-end 2024, Fitch expects the company to
have around EUR30 million cash on balance. Out of this amount,
Fitch restricts EUR25 million of cash which deemed by the company
as a minimum cash balance required to run the business. The company
has a new EUR100 million SSRCF, which Fitch does not expect to be
drawn over the rating horizon. The fully available SSRCF, together
with the forecasted positive free cash flow generation from 2025,
will contribute to a satisfactory liquidity position.
Debt Structure: As a result of the transaction, the company has
repaid its outstanding debt and has the EUR380 million SSNs
outstanding, with no debt maturities before 2028 and 2029, when the
SSRCF and the issued SSNs come due, respectively.
Issuer Profile
Purmo Group is a Finnish company that manufactures and distributes
heating products and systems.
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
----------- ------ -------- -----
Project Grand
(UK) Plc
senior secured LT B+ New Rating RR4 B+(EXP)
Project Grand Bidco
(UK) Limited LT IDR B+ New Rating B+(EXP)
*********
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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