/raid1/www/Hosts/bankrupt/TCREUR_Public/241015.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, October 15, 2024, Vol. 25, No. 207
Headlines
F R A N C E
ALTICE FRANCE: $2.50BB Bank Debt Trades at 16% Discount
ALTICE FRANCE: $4.28BB Bank Debt Trades at 20% Discount
ALTICE FRANCE: EUR1.72BB Bank Debt Trades at 19% Discount
FORVIA SE: Fitch Alters Outlook on 'BB+' LongTerm IDR to Negative
FOUNDEVER GROUP: EUR1.00BB Bank Debt Trades at 35% Discount
G E R M A N Y
DYNAMO MIDCO: S&P Assigns 'B' LongTerm ICR, Outlook Stable
NIDDA BONDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
NIDDA HEALTHCARE: S&P Rates 'B' LT Rating on Proposed Secured Notes
I R E L A N D
ARBOUR CLO V: Fitch Alters Outlook on 'B+sf' Rating to Positive
ARES EUROPEAN VII: Moody's Ups Rating on Class E-R Notes to Ba3
BRIDGEPOINT VII: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
CONTEGO CLO XIII: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
ROCKFORD TOWER 2024-1: S&P Assigns B-(sf) Rating on F-2 Notes
I T A L Y
F-BRASILE SPA: Moody's Hikes CFR to B3, Outlook Remains Positive
K A Z A K H S T A N
STANDARD LIFE: Fitch Affirms 'B+' Insurer Finc'l. Strength Rating
L U X E M B O U R G
EOS US FINCO: $534.7MM Bank Debt Trades at 21% Discount
KLEOPATRA HOLDINGS 2: Moody's Lowers CFR to Caa1, Outlook Negative
PG POLARIS: S&P Affirms 'B' ICR & Alters Outlook to Stable
N E T H E R L A N D S
BME GROUP: Moody's Lowers CFR to 'B3' & Alters Outlook to Stable
IGNITION MIDCO: EUR325MM Bank Debt Trades at 47% Discount
UNITED GROUP: S&P Rates New EUR700MM Fixed-Rate Notes 'B'
S P A I N
KRONOSNET CX: Moody's Cuts CFR to 'B3', Outlook Remains Stable
T U R K E Y
ZORLU ENERJI: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable
ZORLU YENILENEBILIR: Fitch Puts 'B-' LongTerm IDR on Watch Positive
U N I T E D K I N G D O M
A3D2 LIMITED: Leonard Curtis Named as Joint Administrators
ADVANZ PHARMA: Fitch Gives B+(EXP) Rating on New EUR725MM Term Loan
CEDAR PARK: Voscap Limited Named as Joint Administrators
CONSTELLATION AUTOMOTIVE: Moody's Alters Outlook on B3 CFR to Neg.
DOWSON PLC 2024-1: S&P Assigns Prelim. B- Rating on F-Dfrd Notes
ELVET MORTGAGES 2023-1: Fitch Affirms 'BB+sf' Rating on Cl. E Notes
FYLDE FUNDING 2024-1: S&P Assigns B(sf) Rating on F-Dfrd Notes
ITHACA ENERGY: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
ITHACA ENERGY: Moody's Ups CFR to 'Ba3', Outlook Stable
ITHACA ENERGY: S&P Assigns 'BB-' ICR on Eni Asset Combination
REDHALO MIDCO: S&P Rates EUR880MM Term Loan B Due 2031 'B'
RND GLOBAL: Quantuma Advisory Named as Joint Administrators
TONY PERRY: Hudson Weir Named as Joint Administrators
TRAFFORD CENTRE: S&P Raises Class D1(N) Notes Rating to 'BB+(sf)'
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F R A N C E
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ALTICE FRANCE: $2.50BB Bank Debt Trades at 16% Discount
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Participations in a syndicated loan under which Altice France SA is
a borrower were trading in the secondary market around 84.1
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The $2.50 billion Term loan facility is scheduled to mature on
August 14, 2026. About $580 million of the loan is withdrawn and
outstanding.
Altice France provides wireless telecommunication services. The
Company offers fiber optic network solutions for all type of media.
Altice France serves customers in France.
ALTICE FRANCE: $4.28BB Bank Debt Trades at 20% Discount
-------------------------------------------------------
Participations in a syndicated loan under which Altice France SA is
a borrower were trading in the secondary market around 80.2
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The $4.28 billion Term loan facility is scheduled to mature on
August 31, 2028. About $4.23 billion of the loan is withdrawn and
outstanding.
Altice France provides wireless telecommunication services. The
Company offers fiber optic network solutions for all type of media.
Altice France serves customers in France.
ALTICE FRANCE: EUR1.72BB Bank Debt Trades at 19% Discount
---------------------------------------------------------
Participations in a syndicated loan under which Altice France SA is
a borrower were trading in the secondary market around 80.7
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR1.72 billion Term loan facility is scheduled to mature on
August 31, 2028. About EUR1.70 billion of the loan is withdrawn and
outstanding.
Altice France provides wireless telecommunication services. The
Company offers fiber optic network solutions for all type of media.
Altice France serves customers in France.
FORVIA SE: Fitch Alters Outlook on 'BB+' LongTerm IDR to Negative
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Fitch Ratings has revised the Outlook on French automotive parts
supplier FORVIA S.E.'s (FORVIA) Long-Term Issuer Default Rating
(IDR) to Negative from Stable, and affirmed the IDR at 'BB+' and
senior unsecured instrument ratings at 'BB+'/'RR4'.
The Outlook revision reflects Fitch's expectation that FORVIA's
EBITDA net leverage will remain above its rating sensitivity of 2x
over the next 12-18 months, despite proceeds from asset disposals
being channeled toward debt repayment. The protraction of the
deleveraging path is a result of expected lower revenue and
profitability erosion driven by declining production volumes. A
downgrade is possible with further underperformance, especially in
free cash flow (FCF) generation, while ratings could be affirmed if
performance aligns with its expectations.
FORVIA's ratings reflect its good liquidity and strong business
profile with larger scale post-Hella acquisition, underpinned by
its market share as a well-diversified Tier 1 supplier for most
auto original equipment manufacturers (OEMs). The latter offsets
lower exposure to a more predictable replacement market. EBIT and
FCF margins are lower compared to similarly or higher rated peers.
Key Rating Drivers
Deleveraging Trajectory Disrupted: Fitch expects FORVIA's EBITDA
net leverage to exceed the 2x downgrade threshold until 2026
following the Hella acquisition and weaker performance. Although
FORVIA is progressing with its second asset disposal program and
using the proceeds for debt repayment, this will not fully offset
the impact of weaker revenue and reduced EBITDA expectations on
leverage metrics. Fitch assumes EUR1 billion in cash proceeds from
the ongoing asset disposals, spread across 2024 to 2026.
Market Softness Hits Profitability: Fitch forecasts FORVIA's 2024
post-restructuring EBIT margin to decline to 4.1%, temporarily
breaching its rating sensitivity threshold of 5%. Weak market
conditions in Europe and China, along with high inventory levels in
North America, have caused product launch delays and led to lower
vehicle production volumes in 2H24 compared to initial
expectations. However, Fitch projects the 2025 post-restructuring
EBIT margin to recover to 5.2%, supported by higher cost synergies
with Hella, despite macroeconomic uncertainties and resultant weak
consumer sentiment.
FORVIA expects profitability upside in 2025 to come from the
stronger-than-expected Chinese market, which makes up 33% of its
order intake as of June 2024, and to benefit from double-digit EBIT
margins in that market. Its assumption is more conservative,
reflecting a slowdown in Chinese battery electric vehicle (BEV)
export sales and further underperformance, which may lead to a
downgrade.
Higher Restructuring Costs: Fitch has included EUR250 million in
restructuring expenses per year above the EBIT line (same as its
treatment of historical statements) during 2024-2026 compared with
its prior assumption of EUR100-150 million annually. This is
reflecting FORVIA's updated guidance as of 1Q24.
The restructuring measures focus on rationalizing the manufacturing
and R&D footprints in Europe, a region accounting for 48% of 1H24
sales with low single-digit EBIT margins. Fitch believes the
efficiency measures are subject to execution risks and do not
expect the management targeted operating margin of 7% to be reached
by the end of forecast period.
Positive FCF: Despite the decline in profitability, Fitch expects
FORVIA to generate FCF in the next 18-24 months that's in line with
its rating sensitivities. FORVIA management expects to release
EUR300 million in working capital through improved inventory
management in 2025, which would accelerate deleveraging beyond its
forecasts and support a revision of the Outlook to Stable.
Solid Business Profile: Fitch considers FORVIA's business profile
strong for its rating. Its traditional product portfolio is
enhanced by Hella's exposure to fast-growing, high-value segments
in lighting and electronics, which strengthens FORVIA's innovation
capabilities in vehicle connectivity, advanced driver assistance
systems and autonomous driving. This improvement enhances FORVIA's
value proposition along the auto supply chain and increases its
importance to OEM customers. The acquisition of Hella boosts
FORVIA's revenue from the aftermarket, which is less cyclical than
the OE business and is viewed as a credit positive.
EV Transition Risk: Slower BEV adoption in Europe reduces FORIVA's
electrification transition risk, particularly in its clean mobility
division, which accounted for 16% of 1H24 sales. The longer
lifespan of internal combustion engines (ICE) and the adoption of
hybrids continue to drive demand for exhaust systems. This should
support the company's profitability and cash flow generation, as
this division delivers high single-digit margins and is less
capex-intensive than other divisions. FORVIA's strong order intake
and new wins in BEVs and fuel cell EVs, especially from Chinese BEV
pure plays expanding overseas, help offset the risk of lost revenue
and earnings due to the powertrain shift.
Derivation Summary
FORVIA's business profile is comparable to that of auto suppliers
at the low-end of the 'BBB' rating category. The company has a
smaller share of aftermarket business, which is less volatile and
cyclical than OEM sales, compared to tire manufacturers such as
Compagnie Generale des Etablissements Michelin (A-/Stable) and
Continental AG (BBB/Positive). FORVIA's portfolio includes fewer
high-value, high-growth products compared to leading and innovative
suppliers such as Robert Bosch GmbH (A/Stable), Continental, and
Aptiv PLC (BBB/Stable).
However, similar to other large global suppliers, FORVIA benefits
from broad and diversified exposure to leading international OEMs
and has a global reach. With an EBIT margin of 6%-7%, excluding the
pandemic impact in 2020-2021, FORVIA's profitability is lower than
that of investment grade-rated peers such as Aptiv or Nemak, S.A.B.
de C.V. (BBB-/Negative) and Schaeffler AG (BB+/Stable). FORVIA's
FCF is weak compared to 'BB+'/'BBB-' rated auto suppliers in
Fitch's portfolio. However, Fitch projects that EBITDA net leverage
will decline to levels in line with Schaeffler and Dana
Incorporated (BB-/Stable), though it will remain higher than that
of Aptiv.
Key Assumptions
- Low single-digit revenue growth in 2025, after a decline in 2024,
followed by mid-single-digit growth to above EUR30 billion by
2027;
- Post-restructuring EBIT margin trending toward 6% by 2026;
- Modest working capital release in 2024 and 2025 from inventory
management;
- Average capex at 7.7% of revenue;
- Successful execution of the second EUR1 billion asset disposal
program over 2024-2026;
- Dividend payout ratio between 20% and 30% of net income;
- No material M&A and no sizable share repurchases.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBIT margin above 7.5%;
- FCF margin above 1.5%;
- EBITDA net leverage below 1.0x.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Protracted automotive volume decline leading to EBIT margin below
5%;
- FCF margin below 0.5%;
- EBITDA net leverage above 2.0x.
Liquidity and Debt Structure
Satisfactory Liquidity: As of June 2024, FORVIA had undrawn
syndicated credit facilities of EUR1.95 billion, of which EUR1.5
billion is attributable to its Faurecia business and EUR450 million
to Hella. The two facilities are due in 2028 and 2026,
respectively, and both carry extension options. FORVIA uses a
commercial paper program and factors for working capital funding.
It also has access to local credit facilities at its operating
subsidiaries.
Diversified Funding: Debt as of June 2024 comprised Schuldschein,
term loans, sustainability-linked notes and bonds. The debt
maturities are evenly spread between 2026 and 2031. The
refinancings in 1H24 have cleared away the maturities due in 2025.
Aided by asset divestment, Fitch expects the debt quantum to
decline to EUR10 billion by end-2027 from EUR12 billion at
end-2022.
Issuer Profile
FORIVA is a global top-10 automotive supplier. It provides
solutions for safe, sustainable, advanced and customized mobility.
FORVIA, composed of six business groups with 24 product lines,
integrates the complementary technological and industrial strengths
of Faurecia and Hella.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
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FORVIA S.E. LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed RR4 BB+
FOUNDEVER GROUP: EUR1.00BB Bank Debt Trades at 35% Discount
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Participations in a syndicated loan under which Foundever Group SA
is a borrower were trading in the secondary market around 65.2
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR1 billion Term loan facility is scheduled to mature on
August 28, 2028. The amount is fully drawn and outstanding.
Foundever Group S.A., domiciled in Luxembourg, is a leading global
provider of CX products and solutions. Foundever generated $3.7
billion revenue for the twelve months ended March 31, 2024. The
company is owned by the Creadev Investment Fund (Creadev), which is
controlled by the Mulliez family of France.
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G E R M A N Y
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DYNAMO MIDCO: S&P Assigns 'B' LongTerm ICR, Outlook Stable
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S&P Global Ratings assigned its 'B' long-term issuer credit rating
to Germany-based Dynamo Midco B.V. (Innomotics), a leading global
manufacturer of low-, medium-, and high-voltage motors,
medium-voltage drive (MVD) systems, and related services and
solutions.
S&P also assigned a 'B' issue rating to the senior secured notes
and euro- and dollar-equivalent B term loans (TLBs) with a '3'
recovery rating, reflecting its expectation of a meaningful
recovery in case of a default (rounded estimate 55%).
The stable outlook on the issuer credit rating reflects S&P's
expectation that Innomotics will generate 1%-4% revenue growth
annually in fiscal 2025-2026, complete all carve-out and
streamlining activities, and further improve its profitability, as
well as improve its S&P Global Ratings-adjusted debt-To-EBITDA
ratio toward 5x and grow its S&P Global Ratings-adjusted EBITDA
margins toward 12% in fiscal 2026 and maintain solid positive free
operating cash flow (FOCF).
Innomotics has completed setting up a new capital structure to
finance the carve-out deal from Siemens. The total debt amount
has not changed compared with the proposed financing. The final
capital structure includes:
-- EUR600 million senior secured notes;
-- EUR700 million TLB;
-- EUR500 million equivalent U.S. dollar-denominated TLB; and
-- EUR400 million multicurrency revolving credit facility (RCF;
expected to be undrawn at closing) and EUR400 million guarantee
facility.
The final capital structure carries lower interest rates and
margins than expected, leading to about EUR13 million annual
interest savings starting from 2025, and moderate improvement in
FFO cash interest coverage to 1.8x in 2025 and 2.3x in 2026. All
the instruments are due in seven years, except the RCF and
guarantee facilities, which mature in 6.5 years. S&P estimates the
company will have a EUR75 million cash balance after the
transaction closes. There will be no other debt obligations in the
new capital structure and it understands there are no shareholder
loans or similar noncommon equity instruments.
The rating on Innomotics is constrained by the high leverage, the
still-meaningful related carve-out costs, and costs related to the
streamlining of its operations in fiscal years 2025 and 2026, which
are burdening the group's profitability and cash flow. S&P saud,
"We anticipate that S&P Global Ratings-adjusted debt to EBITDA will
be 5.5x-6.0x in fiscal 2025 and then reduce to about 5.0x in fiscal
2026. We anticipate gradual deleveraging as the company goes
through independent business set-up and takes initiatives to
improve divisional profitability."
Leading market positions, healthy diversification, and a large
installed base support the rating. Innomotics manufactures a
complementary product portfolio of low-to-high-voltage motors, as
well as MVDs and related services and solutions. This allows the
company to serve a very broad range of industrial customers
globally. It holds market leading positions with No. 1 market
shares in most of its segments, apart from Solutions, where it
ranks behind its main competitor, ABB Ltd. Innomotics built and
sustained its leadership, with ABB being the only company on a
global basis also providing a similar product offering, as well as
similar services and solutions. Innomotics benefits from a healthy
geographical diversification, being only somewhat skewed toward
Europe, with 29% of sales stemming from Germany and the rest of
Europe constituting 21%. This is comparable with that of larger
European capital goods peers. Innomotics has a broad customer range
and large installed base, with the top 15 customers representing
about 30% of the order intake in 2023. Siemens is the largest
customer, representing 7.1% of the total order intake and long-term
agreements. Innomotics demonstrates strong customer retention and a
good track record of project execution, with 70% of clients having
relationships lasting more than 20 years and 90% over 10.
Exposure to cyclical markets and industrial activity is offset by
economic megatrends and a large service portfolio. S&P said, "We
think the group's growth is closely linked to economic cycles and
industrial activity. About 43% of its sales is exposed to cyclical
industries such as oil and gas, and metals and mining. We think
Innomotics will benefit from trends to invest in more efficient
energy solutions. Motors consumes 65%-70% of industrial electrical
energy, and demand for higher efficiency motors is increasing on
tightening regulation and customers' need to meet their energy
efficiency targets." While those standards are more relevant for
low-voltage motors (LVM), customer with exposure to heavy
processing industries, like mining or oil and gas, also use a lot
of energy. Therefore, the Innomotics product suite of high-voltage
motors (HVM) and MVDs are crucial for improving operational energy
efficiency and costs. Demand for the company's products should also
be supported by the replacement cycle opportunity as customers
replace fossil-fuel-powered engines with electric ones. Increasing
demand for hydrogen should also provide some tailwind, because new
technology requires a full suite of Innomotics products. Digital
analytics drive process controls and predictive maintenance and can
improve customer retention, benefiting Innomotics' service and
solutions offerings. Service contracts are profitable and
constitute about 17% of the company's sales.
Visibility is mixed due to the presence of short- and long-cycled
businesses in the portfolio, which offset each other. The largest
LVM division (36.5% of revenue) is a short-cycled business, it is
more prone to market volatility as the product is more
standardized, lacking bundling potential and the service component.
These products are more consumable in nature and have limited
visibility. The order backlog is quite short, at about three
months. About 60% of these products are sold via distributors,
which also tend to destock actively during market weakness. This is
offset by fast availability of the products and ability to deliver
them to the customer with a short lead time. HVMs are more
late-cycle, which provides some offsetting effect, when there is
downward pressure on the LVM division. HVM has more potential for
customization and is used in more specialized applications. This
business unit has better order backlog visibility, at about six
months. Fifty percent of MVDs are usually sold along with HVMs, and
have similar dynamics and visibility. Solutions complement the HVM
and MVD product lines, and are highly correlated with their
installed base.
S&P said, "We expect that Innomotics will return to moderate growth
after a decline in 2024, and profitability is improving given
reduced restructuring costs and measures to boost divisional
margins. We project group sales will decline approximately 3.2% in
2024, mainly due to a soft start to the year, particularly in the
short-cycle LVM division. We expect this segment to see a 7.8% drop
in sales, from destocking and normalizing order intake. We expect
other segments to be stable or show modest growth, with the
services business expanding the most (6%). In fiscal 2025, we
anticipate a rebound in LVM sales, while HVM sales could decline
due to the division's later-cycle nature. We expect the S&P Global
Ratings-adjusted EBITDA margin to improve by 150 basis points to
7.1% in 2024, with further expansion toward 10.0%-11.0% by 2025.
Profitability is projected to improve significantly, mainly due to
the completion of the carve-out and related cost-reduction
activities. Innomotics has undergone substantial restructuring and
preparation for separation, with most of the carve-out expenses to
be settled by the end of 2024. While additional optimization
efforts will continue after the carve-out, we expect these to be
significantly lower than in previous years.
"The stable outlook reflects our expectations that Innomotics will
generate 1%-4% revenue growth annually in fiscal 2025-2026,
complete all carve-out and streamlining activities, and further
improve its profitability. We therefore expect Innomotics' S&P
Global Ratings-adjusted debt-To-EBITDA ratio to improve to near 5x
in fiscal 2026, solid positive FOCF, and S&P Global
Ratings-adjusted EBITDA margins trending toward 12% in fiscal
2026.
"We could lower the rating if profitability weakened due to
higher-than-expected carve-out and restructuring costs or a more
pronounced economic downturn. Debt to EBITDA exceeding 6.5x and FFO
cash interest coverage falling below 2.0x for a prolonged period,
as well as the inability to generate positive FOCF, would also put
downward pressure on the rating.
"We could raise the rating if the group sustainably improves its
S&P Global Ratings-adjusted EBITDA margins above 13%. At the same
time, we would expect Innomotics to maintain adjusted debt to
EBITDA sustainably at or below 5x, supported by a commensurate
financial policy, and deliver constantly meaningful FOCF."
NIDDA BONDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Nidda BondCo GmbH's Long-term Issuer
Default Rating (IDR) at 'B' with a Stable Outlook. Fitch has also
affirmed the senior secured debt issued by Nidda Healthcare Holding
GmbH at 'B+' with a Recovery Rating of 'RR3', and assigned the
planned issuance of senior secured notes a 'B+(EXP)'/'RR3'/
rating.
Nidda's 'B' IDR balances a strong business profile, with scale and
business diversification comparable with higher rated peers and
elevated leverage that offsets otherwise strong free cash flow
(FCF) generation with the high interest burden.
The Stable Outlook reflects Fitch's expectation of mid-single-digit
annual sales growth in 2024-2026, with EBITDA leverage trending
below 7.0x from 2024 onwards. It takes into account the announced
refinancing transaction that will leave around a quarter of its
debt due in 2026, with most maturities having been extended to
2030. Fitch expects Nidda's refinancing risk to further reduce in
2025, due to strong underlying performance, deleveraging capacity
and positive cash flow generation.
The Outlook also considers its assumption that Nidda will continue
to proactively address refinancing and maintain a consistent
financial policy.
Fitch has withdrawn the senior secured rating on the EUR250 million
Term Loan G as the instrument was pre-refunded, defeased, or
cancelled.
Key Rating Drivers
Further Reduction of Refinancing Risk: The announced transaction
reduces refinancing risk with most of the debt maturities extended
into 2030 and leaving around EUR1.7 billion of borrowings out of
total EUR6 billion (including the revolving credit facility; RCF)
due in the next two years, or around 1.9x of 2025 forecast EBITDA.
Total leverage remains high and continues to constrain Nidda's
rating development, but continued solid performance across business
segments and a consistent financial policy lower refinancing risk.
Solid Operating Performance: Performance in 1H24 was strong despite
the mild winter season that resulted in weaker performance of some
consumer healthcare-related products. Fitch forecasts that results
for 2024 will show 8-9% revenue growth, primarily driven by
generics and specialty segments and EBITDA margin improvement
towards 21.4%. This is materially above the Fitch-calculated margin
for 2023, but still below record margins in 2021-2022 of above
22%.
Improving Leverage Headroom: The affirmation and Stable Outlook
reflects the projected restoration of leverage headroom. Healthy
revenue growth across segments, coupled with continuous margin
accretion should help Nidda deleverage towards 6.0x in 2027-2028
from 7.0x in 2024. This deleveraging pace incorporates its
assumption of bolt-on acquisition spend of EUR250 million a year in
2025-2028.
Despite the improving headroom against its negative leverage
sensitivity of 7.5x, material operating underperformance or more
aggressive financial policy that includes higher debt-funded
acquisitions or sizeable dividend distributions could jeopardise
deleveraging and pressure the credit profile.
Solid FCF Generation: The ratings are supported by Nidda's
cash-generative operations, due to contained capex intensity and
profitability initiatives. A growing contribution of high-margin
drugs and an improving capacity to produce in lower-cost
geographies help offset high debt service cost and net
working-capital outflows, leading to mid-single digit FCF. Strong
FCF should be sufficient to fund around EUR250 million of bolt-on
acquisitions a year to 2028 and would allow Nidda to partly fund
the remaining 2026 debt repayment, if needed.
Consistent Financial Policy Assumptions: Nidda's strong cash
generation gives it the ability to deleverage, but until recently
its strategy has been to prioritise acquisitions. Fitch expects
Nidda to continue making opportunistic bolt-on acquisitions, and
entering into business development and in-licencing (BD&L)
agreements as the European pharmaceutical market offers viable
targets. Fitch does not incorporate dividend payments or
transformative acquisitions in its forecast. Large debt-funded
acquisitions and a change in the ownership structure, which could
affect its financial policy, are an event risk.
Specialty Segment Driving EBITDA: Nidda's specialty drug segment
enjoys stronger profitability and revenue growth rate and has some
operational synergies with its consumer health and generic business
segments. Its forecast assumes that the share of the specialty
segment will increase to around 37% in 2027 from 31% in 2023,
supported by mid-to-high single revenue growth and continuous
margin improvement.
Positive Market Fundamentals: Fitch expects overall demand will
continue to grow in the mid-single digits, with higher pricing in
complex product areas, driven by growing ageing populations and the
increasing prevalence of chronic diseases, which will further
support Nidda's deleveraging. Fitch sees continued structural
growth opportunities, given more limited overall generic
penetration in Europe than in the US and the increasing
introduction of biosimilars.
Derivation Summary
Fitch rates Nidda using its Global Rating Navigator Framework for
Pharmaceutical Companies. Under this framework, Nidda's generic,
consumer and specialty business benefits from diversification by
product and geography, with a balanced exposure to mature,
developed and emerging markets.
Nidda's business risk profile is affected by the lack of a global
footprint compared with industry champions such as Teva
Pharmaceutical Industries Limited (BB/Positive), Hikma
Pharmaceuticals PLC (BBB-/Positive), Viatris Inc. (BBB/Stable), and
diversified companies, such as Novartis AG (AA-/Stable). High
financial leverage is a key rating constraint compared with
international peers and is reflected in Nidda's 'B' rating.
In terms of scale and product diversity, Nidda ranks ahead of other
non-investment grade peers, such as Grunenthal Pharma GmbH & Co.
Kommanditgesellschaft (BB/Stable), ADVANZ PHARMA HoldCo Limited
(B/Stable), Cooper Consumer Health (B/Stable) and Roar BidCo AB
(B/Stable). Nidda's business is mainly concentrated in Europe, but
it also has a growing presence in other developed and emerging
markets. This gives Nidda a 'BB' category risk profile. However,
its higher leverage and concentrated debt maturity profile
constrain the rating.
The rating difference between Nidda and higher-rated peers
CHEPLAPHARM Arzneimittel GmbH and Pharmanovia Bidco Limited (both
B+/Stable) reflects their less aggressive leverage and asset-light
business models, despite smaller business scale and higher product
concentration.
Key Assumptions
- Revenue to reach close to EUR4.7 billion by 2028, due to
volume-driven growth of Nidda's specialty product portfolio, the
acquisition of intellectual property rights, and BD&L agreements
- Fitch-defined EBITDA margin at around 21% by 2024, then
increasing towards 22%, underpinned by cost improvements and
ramp-up of higher-margin products
- Working-capital neutral in 2024, then outflow at 1%-2% of revenue
a year in 2025-2028
- Capex at around 3% of sales a year to 2028
- M&A estimated at EUR70 million in 2024, then increasing towards
EUR250 million a year, valued at 10x EBITDA with a 25% EBITDA
contribution share. M&A to be primarily funded from internally
generated funds and supported by its RCF
Recovery Analysis
Nidda would be considered a going concern in bankruptcy and be
reorganised rather than liquidated.
Fitch estimates a going concern EBITDA of around EUR550 million,
unchanged from the previous review. The distressed enterprise
value/EBITDA multiple is 6.5x.
Fitch assumes Nidda's senior unsecured legacy debt (at the
operating company level), which is structurally the most senior, to
rank equally with its senior secured acquisition debt, including
term loans, senior secured notes and privately placed senior
secured notes. This view is based on its principal waterfall
analysis and assuming the EUR365 million RCF is fully drawn in a
default. The remainder of the senior unsecured notes at Nidda has
been repaid in full.
Its principal waterfall analysis, after deducting 10% for
administrative claims, generates a ranked recovery for the senior
secured debt of 53% (57% previously) in the 'RR3' category,
including the proposed senior secured exchange notes, leading to a
'B+' instrument rating, one notch above the IDR.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Sustained Fitch-defined EBITDA margins in excess of 25% and FCF
margins consistently above 5%
- Reduction in EBITDA leverage to below 6.0x on a sustained basis
- Maintenance of EBITDA interest cover above 3.0x
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- M&A shifting towards higher-risk or lower-quality assets or weak
integration resulting in EBITDA leverage trending to 7.5x
- Persistent operating weakness leading to neutral FCF margins and
EBITDA margins below 18%
- EBITDA interest cover below 2.0x on a sustained basis
Liquidity and Debt Structure
Liquidity Remains Comfortable: As of end 1H24, Nidda had EUR107
million of unrestricted cash (excluding post-restructuring EUR100
million cash that Fitch treats as not readily available for debt
service), and EUR295 million available under its EUR365 million
RCF. Fitch projects healthy FCF generation to 2028, which would
support liquidity and should be sufficient to fund operations and
M&A activity. Fitch notes that the current RCF expires in 2026, but
assume that Nidda will address additional liquidity facilities
renewal 12-18 months ahead of their maturities.
Debt Maturity Concentrated in 2030: After the announced
transaction, only around 28% of Nidda's debt matures in 2026,
including its EUR365 million RCF. With the proposed refinancing,
the company will address another part of its 2026 maturities,
extending EUR1,250 million of its debt to 2030. The maturity
profile remains concentrated, now in 2030, but Fitch anticipates
the maturity profile to smooth over the medium term.
Issuer Profile
Nidda is an SPV with indirect ownership of the German-based
pharmaceutical company Nidda Arzneimittel AG.
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
----------- ------ -------- -----
Nidda BondCo GmbH LT IDR B Affirmed B
Nidda Healthcare
Holding GmbH
senior secured LT B+(EXP)Expected Rating RR3
senior secured LT B+ New Rating RR3
senior secured LT B+ Affirmed RR3 B+
senior secured LT WD Withdrawn B+
NIDDA HEALTHCARE: S&P Rates 'B' LT Rating on Proposed Secured Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issue rating to
German pharmaceutical company Nidda Healthcare Holding GmbH's
proposed senior secured fixed- and floating-rate notes.
The proposed notes will be issued by Nidda Healthcare Holding GmbH,
the main operating entity of Germany-based Stada group (holding
company: Nidda Bondco [B/Stable/--]). The new financing package
will likely amount to at least EUR1.25 billion maturing in six
years and rank pari passu with, and benefit from, the same security
package as the existing senior secured debt. The group seeks to
address upcoming maturities, including part of the 7.5% senior
secured notes due in 2026 and the euro-denominated term loan B1, as
well as cover related transaction fees.
The company looks to refinance part of its capital structure before
the contractual maturities and remains focused on debt reduction.
The proposed term loan is leverage neutral and will further improve
the group's debt maturity profile. S&P said, "We view Stada's
liquidity as adequate for the next 12 months. We think the group
can handle its working capital requirements, capital expenditure,
and interest payments over the next year. We anticipate it will
maintain sufficient room to meet its covenant test requirements."
S&P said, "Based on STADA's robust track record and its solid
pipeline in generics, consumer health care, and specialty
(including biosimilars), we expect strong 7%-9% revenue growth in
2024 and 2025. We forecast Stada's S&P Global Ratings-adjusted debt
to EBITDA of 6.5x-6.8x in 2024 before deleveraging to close to 6x
in 2025, assuming no debt-financed acquisitions.
"The recovery rating on the term loan B remains '3', reflecting our
expectation of meaningful recovery prospects (50%-70%; rounded
estimate: 55%) in the event of default. This reflects our valuation
of the business as a going concern, since STADA operates in the
European generics market for which there is an essential need in
the community, meaning that operations will not be stopped."
=============
I R E L A N D
=============
ARBOUR CLO V: Fitch Alters Outlook on 'B+sf' Rating to Positive
---------------------------------------------------------------
Fitch Ratings has upgraded Arbour CLO V DAC's class B-1 and B-2
notes and affirmed the others. The Outlooks on the class C to F
notes have been revised to Positive from Stable.
Entity/Debt Rating Prior
----------- ------ -----
Arbour CLO V DAC
A XS1836409927 LT AAAsf Affirmed AAAsf
B-1 XS1836410693 LT AAAsf Upgrade AA+sf
B-2 XS1836411071 LT AAAsf Upgrade AA+sf
C XS1836411667 LT A+sf Affirmed A+sf
D XS1836412392 LT BBB+sf Affirmed BBB+sf
E XS1836413283 LT BB+sf Affirmed BB+sf
F XS1836413010 LT B+sf Affirmed B+sf
Transaction Summary
Arbour CLO V DAC is a cash flow CLO backed by a portfolio of mainly
European senior secured leveraged loans and bonds. The transaction
is actively managed by Oaktree Capital Management (UK) LLP and
exited its reinvestment period in March 2023.
KEY RATING DRIVERS
Deleveraging Transaction; Performance Exceeds Expectations: The
transaction has repaid another EUR68.4 million of the class A notes
since its last rating action in December 2023. This has led to
increased credit enhancement across the capital structure. The
transaction is 1.2% below par and has defaulted assets of EUR6.9
million based on the last trustee report dated 30 August 2024.
Exposure to assets with a Fitch-derived rating of 'CCC+' and below
is 7.7%, above the limit of 7.5%. Nonetheless, the par loss is well
within its rating-case assumptions. Combined with the deleveraging,
this has led to the rating actions.
Large Default Cushion Supports Outlooks: All notes have large
default-rate buffers to support their ratings. The Positive
Outlooks on the class C to F notes reflect the possibility of
upgrades if the portfolio performance remains stable and
refinancing risk does not materialise.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor (WARF) of the current portfolio is 25.6. For the
portfolio including entities with Negative Outlooks that are
notched down one level as per its criteria, the WARF was 27.0 as of
5 October 2024.
High Recovery Expectations: Senior secured obligations comprise
93.1% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate of the current portfolio was 61.3%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. As reported by the trustee, the
top 10 obligor concentration is 18.5%, with no obligor representing
more than 2.8% of the portfolio balance. Exposure to the
three-largest Fitch-defined industries is 32.6% as calculated by
the trustee. Fixed-rate assets are currently at the maximum limit
of 15%, as reported by the trustee.
Deviation from MIR: The class C, D and F notes are three notches
below their model-implied ratings (MIR) and the class E notes one
notch below their MIR. The deviations reflect the sensitivity of
the MIRs to negative portfolio migration and additional defaults as
a result of refinancing risk. In this sensitivity analysis, Fitch
assumed its top market concern loans (MCLs) and tier 2 MCLs
defaulted, with the standard criteria recovery assumptions. Fitch
also downgraded tier 3 MCLs and issuers with maturities before June
2026 by two notches with a 'CCC-' floor.
Transaction Outside Reinvestment Period: The manager can reinvest
unscheduled principal proceeds and sale proceeds from credit
improved/impaired obligations after the reinvestment period,
subject to compliance with the reinvestment criteria. However, the
manager is currently restricted as the transaction is failing
several covenants, including maximum weighted average life (WAL)
and maximum 'CCC' obligation tests. The manager has not actively
reinvested since March 2024 and the transaction has become static.
As the manager has not been reinvesting and is currently
restricted, Fitch's analysis for downgrades is based on the current
portfolio. For upgrades it is based on the current portfolio,
notching down any obligor with an Issuer Default Rating on Negative
Outlook by one notch (with a 'CCC-' floor) and flooring the
portfolio's WAL at four years.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed, due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
amortisation of notes leading to higher credit enhancement across
the structure.
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 V 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.
ARES EUROPEAN VII: Moody's Ups Rating on Class E-R Notes to Ba3
---------------------------------------------------------------
Moody's Ratings has upgraded the ratings on the following notes
issued by Ares European CLO VII DAC:
EUR29,000,000 Class B-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aaa (sf); previously on Apr 12, 2024
Upgraded to Aa2 (sf)
EUR20,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa2 (sf); previously on Apr 12, 2024
Upgraded to Baa1 (sf)
EUR29,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Baa3 (sf); previously on Apr 12, 2024
Affirmed Ba2 (sf)
EUR12,500,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Ba3 (sf); previously on Apr 12, 2024
Affirmed B2 (sf)
Moody's have also affirmed the ratings on the following notes:
EUR265,000,000 (Current outstanding amount EUR76,291,590) Class
A-1-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa
(sf); previously on Apr 12, 2024 Affirmed Aaa (sf)
EUR52,000,000 Class A-2A-R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Apr 12, 2024 Upgraded to Aaa
(sf)
EUR10,000,000 Class A-2B-R Senior Secured Fixed Rate Notes due
2030, Affirmed Aaa (sf); previously on Apr 12, 2024 Upgraded to Aaa
(sf)
Ares European CLO VII DAC, issued in September 2014, reset in
August 2017 and refinanced in April 2021, is a collateralised loan
obligation (CLO) backed by a portfolio of mostly high-yield senior
secured European loans. The portfolio is managed by Ares European
Loan Management LLP. The transaction's reinvestment period ended in
October 2021.
RATINGS RATIONALE
The rating upgrades on the Class B-R, Class C-R, Class D-R and
Class E-R notes are primarily a result of the significant
deleveraging of the senior notes since the last rating action in
April 2024.
The affirmations on the ratings on the Class A-1-R, Class A-2A-R
and Class A-2B-R notes are primarily a result of the expected
losses on the notes remaining consistent with their current rating
levels, after taking into account the CLO's latest portfolio, its
relevant structural features and its actual over-collateralisation
ratios.
The Class A-1-R notes have paid down by approximately EUR115.3
million since the last rating action in April 2024 and EUR188.7
million (71.2%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the collateral administrator report dated
September 2024 [1] the Class A, Class B, Class C and Class D OC
ratios are reported at 186.66%, 154.30%, 137.82% and 119.34%
compared to March 2024 [2] reported levels of 147.48%, 132.35%,
123.61% and 112.80%, respectively.
The key model inputs Moody's use in Moody's analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on Moody's published methodology
and could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR261,454,256
Defaulted Securities: EUR0.00
Diversity Score: 41
Weighted Average Rating Factor (WARF): 3182
Weighted Average Life (WAL): 3.2 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.47%
Weighted Average Coupon (WAC): 3.47%
Weighted Average Recovery Rate (WARR): 43.07%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
May 2024.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
BRIDGEPOINT VII: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Bridgepoint CLO VII Designated Activity
Company expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
Entity/Debt Rating
----------- ------
Bridgepoint CLO VII
Designated Activity
Company
A Loan LT AAA(EXP)sf Expected Rating
A Notes LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
F LT B-(EXP)sf Expected Rating
Transaction Summary
Bridgepoint CLO VII Designated Activity Company is a securitisation
of mainly senior secured obligations (at least 90%) with a
component of senior unsecured, mezzanine, second-lien loans and
high-yield bonds. Note proceeds will be used to fund a portfolio
with a target par of EUR400 million that is actively managed by
Bridgepoint Credit Management Limited.
The CLO will have a roughly 4.7-year reinvestment period and a
7.5-year weighted average life (WAL) test at closing, which can be
extended by one year, at any time from one year after closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The
Fitch-calculated weighted average rating factor of the identified
portfolio is 25.4.
Strong Recovery Expectation (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate of the identified portfolio is
61.3%.
Diversified Asset Portfolio (Positive): The transaction has a
concentration limit for the 10 largest obligors of 21%. The
transaction also includes various concentration limits, including
the maximum exposure to the three largest Fitch-defined industries
in the portfolio at 40.0%. These covenants ensure the asset
portfolio will not be exposed to excessive concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year on the step-up date, which can be one year after
closing at the earliest. The WAL extension is at the option of the
manager but subject to conditions, including the satisfaction of
the collateral quality tests and that the aggregate collateral
balance (defaulted obligations at Fitch collateral value) is at
least at the reinvestment target par balance.
Portfolio Management (Neutral): The transaction has a 4.7-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash-flow Modelling (Neutral): The WAL used for the transaction's
stress portfolio analysis is 12 months less than the WAL covenant
at the issue date, to account for the strict reinvestment
conditions envisaged by the transaction after its reinvestment
period. These include, among others, passing the coverage tests,
and the Fitch 'CCC' bucket limitation test post reinvestment, as
well as a WAL covenants that progressively steps down over time,
both before and after the end of the reinvestment period. Fitch
believes these conditions would reduce the effective risk horizon
of the portfolio during the stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the current portfolio would have no impact on the class A notes and
lead to downgrades of no more than one notch for the class D and E
notes, no more than two notches for the class B and C notes, and to
below 'B-sf' for the class F notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics of the current portfolio than the Fitch-stressed
portfolio the notes display a rating cushion to a downgrade of up
to two notches.
Should the cushion between the current portfolio and the
Fitch-stressed portfolio erode 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 downgrades of four notches
for the class B and C notes; three notches for the class A and E
notes, one notch for the class D and E notes, and to below 'B-sf'
for the class F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolios would lead to upgrades of no more than four notches for
the notes, except those rated 'AAAsf', which are at the highest
level on Fitch's scale and cannot be upgraded.
During the reinvestment period, based on Fitch-stressed portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, allowing the notes to withstand
larger-than-expected losses for the remaining life of the
transaction. After the end of the reinvestment period, upgrades may
occur in case of stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses on the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CONTEGO CLO XIII: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Contego CLO XIII DAC expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
Entity/Debt Rating
----------- ------
Contego CLO
XIII DAC
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
F LT B-(EXP)sf Expected Rating
Sub Notes LT NR(EXP)sf Expected Rating
Transaction Summary
Contego CLO XIII DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
will be used to fund a portfolio with a target par of EUR400
million that is actively managed by Five Arrows Managers LLP. The
collateralised loan obligation (CLO) will have a 4.5-year
reinvestment period and a 7.5-year weighted average life (WAL) test
at closing, which can be extended by a year one year after
closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B'/'B-' category.
The Fitch weighted average rating factor of the identified
portfolio is 25.0.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 60.6%.
Diversified Portfolio (Positive): The transaction includes a top 10
obligor concentration limit at 20%. The transaction will also have
various concentration limits, including the maximum exposure to the
three largest (Fitch-defined) industries in the portfolio at 40%
and a maximum fixed-rate asset limit of 10%. These covenants ensure
that the asset portfolio will not be exposed to excessive
concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year, to 8.5 years from closing, on the step-up date one
year after closing. The WAL extension is at the option of the
manager, but subject to conditions including the portfolio profile
tests, collateral quality tests, coverage tests and the adjusted
collateral principal balance being greater than the reinvestment
target par.
Portfolio Management (Neutral): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
post-reinvestment period, including the coverage tests and Fitch
'CCC' limitation passing post reinvestment, among others. This
ultimately reduces the maximum possible risk horizon of the
portfolio when combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to downgrades of one notch for
the class B-1, B-2, C, D and E notes, to below 'B-sf' for the class
F notes, and have no impact on the class A-1 and A-2 notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class B-1, B-2, D, E and F notes have a two-notch cushion, the
class C notes have a one-notch cushion and there is no rating
cushion for the class A notes.
Should the cushion between the identified portfolio and the stress
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 stressed
portfolio would lead to downgrades of up to four notches for the
notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of Fitch's stress portfolio
would lead to upgrades of up to three notches, except for the
'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ROCKFORD TOWER 2024-1: S&P Assigns B-(sf) Rating on F-2 Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Rockford Tower
Europe CLO 2024-1 DAC's class A Loan, and class A, B-1, B-2, C, D,
E, F-1, and F-2 notes. At closing, the issuer also issued
subordinated notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which we are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,703.62
Default rate dispersion 604.70
Weighted-average life (years) 4.88
Obligor diversity measure 133.70
Industry diversity measure 25.10
Regional diversity measure 1.24
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.38
Actual 'AAA' weighted-average recovery (%) 37.89
(Identified pool)
Actual weighted-average spread with no floor (%) 4.12
(Identified pool)
Actual weighted-average coupon (%) 4.54
(Identified pool)
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.5 years after
closing.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, S&P has conducted its credit and cash
flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, and the portfolio's covenanted weighted-average
spread (3.95%), covenanted weighted-average coupon (4.00%), and
weighted-average recovery rates based on the identified portfolio
at each rating level. We applied various cash flow stress
scenarios, using four different default patterns, in conjunction
with different interest rate stress scenarios for each liability
rating category.
"Until the end of the reinvestment period on April 15, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our rating is commensurate
with the available credit enhancement for the class A Loan, class
A, B-1, B-2, C, D, E, F-1, and F-2 notes.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1, B-2, C, D, E, F-1, and F-2
notes could withstand stresses commensurate with higher ratings
than those we have assigned. However, as the CLO will be in its
reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned to the notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A Loan and class A to F-1
notes based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F-2 notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and is managed by Rockford Tower Capital
Management LLC.
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
controversial weapons, pornography or prostitution, and tobacco or
tobacco products. Accordingly, since the exclusion of assets from
these industries does not result in material differences between
the transaction and our ESG benchmark for the sector, we have not
made any specific adjustments in our rating analysis to account for
any ESG-related risks or opportunities."
Ratings list
AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%)
A Loan AAA (sf) 150.00 3mE + 1.30% 38.00
A AAA (sf) 98.00 3mE + 1.30% 38.00
B-1 AA (sf) 35.00 3mE + 2.10% 26.75
B-2 AA (sf) 10.00 5.25% 26.75
C A (sf) 23.00 3mE + 2.50% 21.00
D BBB- (sf) 28.00 3mE + 3.65% 14.00
E BB- (sf) 19.00 3mE + 6.59% 9.25
F-1 B+ (sf) 5.00 3mE + 8.08% 8.00
F-2 B- (sf) 5.00 3mE + 8.59% 6.75
Sub notes NR 32.90 N/A N/A
*The ratings assigned to the class A Loan, class A, B-1, and B-2
notes address timely interest and ultimate principal payments. The
ratings assigned to the class C, D, E, F-1, and F-2 notes address
ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to 6mE when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
=========
I T A L Y
=========
F-BRASILE SPA: Moody's Hikes CFR to B3, Outlook Remains Positive
----------------------------------------------------------------
Moody's Ratings has upgraded the long-term corporate family rating
of F-Brasile S.p.A. (Forgital), the parent company of the Italian
manufacturer of forged components for the aerospace and industrial
markets Forgital Group, to B3 from Caa1 and the probability of
default rating to B3-PD from Caa1-PD. Concurrently, Moody's had
upgraded the instrument rating on the EUR80 million backed senior
secured bank credit facility to Ba3 from B1 and the instrument
rating on the $505 million backed senior secured notes to Caa1 from
Caa2. The rating outlook remains positive.
RATINGS RATIONALE
The rating action reflects the continued strengthening of
Forgital's credit metrics, which Moody's anticipate will persist
over the next 12-18 months. Forgital's credit profile has been
significantly impacted by both the pandemic and the energy crisis.
The company's Moody's-adjusted leverage reached a peak of
approximately 14x in Q2 2022, and its cash generation was notably
negative throughout 2022, with a Moody's-adjusted Free Cash Flow
(FCF) of negative EUR44 million. However, a strong recovery in the
aerospace and defense markets, which now constitute around 70% of
the company's revenue, has led to a relatively swift improvement in
its credit metrics. By the end of June 2024, Forgital's leverage
decreased to 6.4x (6.8x including off-balance-sheet factoring).
Additionally, its interest coverage (as measured by
Moody's-adjusted EBITA/Interest) increased to 1x and its FCF turned
positive – all in line with Moody's B3 rating requirements.
Furthermore, Moody's believe that the company is capable of
continuing to improve its credit metrics in the next 12-18 months,
which is reflected in Moody's positive rating outlook. While the
Industrial segment has already begun to experience cyclical
softening in performance, the benign market environment in the A&D
sector, a major component of the business, will be the key driver
of the anticipated improvement. Moody's positively note the more
balanced business mix in recent times, characterized by increased
exposure to narrow-body aircraft (around 20% of A&D sales) and the
military/space end-markets (another 20%). Moody's also expect
Rolls-Royce plc's (Baa3 positive) trading environment to remain
strong in the coming quarters, which is beneficial for Forgital,
given that it is Forgital's largest customer, accounting for 40% of
its sales in the A&D segment.
Moody's believe Forgital's free cash flow (FCF) generation will
remain positive over the next 12-18 months. After being
significantly negative in 2022, FCF improved in 2023 and turned
slightly positive in the last twelve months ending June 2024, with
a Moody's adjusted FCF of EUR+3 million. This improvement has
strengthened its liquidity profile, which Moody's consider robust,
given the cash requirements anticipated over the next 12-18 months.
Nevertheless, Moody's are mindful of the upcoming maturity wall in
August 2026 and emphasize the need for proactive refinancing well
in advance to avoid a deterioration in the liquidity profile.
The rating is mainly supported by (1) the company's market position
as a leading manufacturer of forged aero-engine components in
Europe; (2) good revenue visibility in the Aerospace & Defense
(A&D) segment, underpinned by a EUR4.9 billion backlog as of August
2024; (3) improved diversification in terms of end-markets,
programs and materials, with further diversification through the
industrial division (c. 30% of sales in LTM H1 24), which, however,
tends to be more cyclical; and (4) a high level of profitability,
with an expected Moody's adjusted EBITDA margin of over 20% in
2024.
However, the rating is constrained by (1) Forgital's small size and
its relative concentration on wide-body programs, which, however,
has improved over the past five years; (2) a leveraged capital
structure, with a Moody's adjusted gross debt/ EBITDA ratio of
around 6.4x (6.8x including off-balance sheet factoring) and
interest coverage (Moody's adjusted EBITA/ Interest) of just around
1x as of June 2024; (3) the high energy intensity of the business;
and (4) event risk related to private-equity ownership.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook reflects Moody's expectation that Forgital's
credit profile will continue to improve, primarily due to the
supportive market environment in the aerospace and defense
industry. Moody's also anticipate that its earnings will benefit
from decreasing energy costs, thanks to rolling hedges and
increased plant efficiency. This outlook is contingent on the
company's ability to maintain a good liquidity profile, which
includes addressing upcoming debt maturities well before they
become current.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could arise if:
-- Moody's adjusted gross debt/ EBITDA declines towards 5.5x (6x
including off-balance sheet factoring);
-- Moody's adjusted EBITA/ Interest sustained above 1.5x;
-- Sustainably positive free cash flow generation and good
liquidity.
Conversely, negative rating pressure could arise if:
-- Moody's adjusted gross debt/ EBITDA sustained above 6.5x (7x
including off-balance sheet factoring);
-- Moody's adjusted EBITA/ Interest sustained below 1x;
-- Material deterioration in liquidity profile.
LIQUIDITY
The liquidity position of F-Brasile S.p.A is good. This is
reflected in EUR16 million of cash as of June 2024 and the full
availability under the EUR80 million super senior revolving credit
facility (RCF) maturing in March 2026. The company's liquidity is
further supported by Moody's expectation of continued positive free
cash flow generation over the next 12-18 months. Although there are
no near-term debt maturities, Forgital faces a maturity wall in
August 2026 when its $505 million notes are due. Arranging
refinancing well in advance is crucial to avoid the risk of being
perceived as having inadequate liquidity.
The RCF contains a springing covenant set at 3.0x super senior net
leverage ratio tested quarterly in case of more than 40% drawing
net of cash on balance sheet.
STRUCTURAL CONSIDERATION
The Loss Given Default for Speculative-Grade Companies methodology
(LGD) was used in the assessment for F-Brasile S.p.A, Moody's rank
the $505 million senior secured notes maturing in 2026 behind the
EUR80 million super senior RCF and trade payables. This structural
subordination of senior secured notes results in one notch lower
rating of Caa1 compared to the B3 corporate family rating. Moody's
assume a standard recovery rate of 50% due to the covenant lite
package consisting of bonds and loans. The senior ranking super
senior RCF is rated Ba3, three notches above the CFR, supported by
the material loss absorption provided to super senior creditors by
the senior secured notes. Both instruments share the same security
package and guarantor coverage consisting of subsidiaries
accounting for around 80% of the group's consolidated EBITDA.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Aerospace and
Defense published in October 2021.
COMPANY PROFILE
Headquartered in Vicenza, Italy, F-Brasile S.p.A. is an
intermediate holding company of the Forgital group, a leading
vertically integrated forging company servicing the commercial and
military aerospace industries and various industrial end-markets.
The company operates eight facilities located in Italy, France and
the United States. It is specialized in forging, laminating and
machining of rolled rings and has advanced capabilities across
various materials including carbon steels, alloy steels, stainless
steels, aluminum, nickel and titanium alloys. Founded in 1873,
Forgital Group has been acquired by the private-equity Carlyle
Group in 2019. In the last twelve months ended June 2024, Forgital
generated approximately EUR479 million of revenue and employed
around 1,100 people worldwide.
===================
K A Z A K H S T A N
===================
STANDARD LIFE: Fitch Affirms 'B+' Insurer Finc'l. Strength Rating
-----------------------------------------------------------------
Fitch Ratings has revised the Outlooks on Kazakhstan-based
Joint-Stock Company Life Insurance Company Standard Life's
(Standard Life) Insurer Financial Strength (IFS) Rating and
National IFS Rating to Positive from Stable and affirmed the
ratings at 'B+' and 'BBB(kaz)', respectively.
The Positive Outlooks reflect the significant improvement in
Standard Life's capital position. The ratings continue to reflect
the company's consistent record of strong financial performance,
limited operating scale and prudent investment portfolio.
Key Rating Drivers
Improved Capital Position: Standard Life's capital position
significantly improved in 2023, as measured by Fitch's Prism Global
model score of 'Adequate' at end-2023 (end-2022: 'Somewhat Weak').
This was driven by good financial performance and moderate dividend
pay-outs. The company also remained compliant with local regulatory
Solvency I-based capital requirements, with a solvency margin of
184% at end-2023. This slightly deteriorated to 168% at end-1H24,
pressured by business growth.
Small Operating Scale: Its assessment of Standard Life's company
profile is influenced by its relatively small size compared with
other Kazakh life insurance companies. The company wrote about 3.6%
of Kazakh life insurance sector premiums and its assets accounted
for 4.3% of the market total in 2023. Standard Life's company
profile also benefits from moderate diversification between life,
pension annuity, and obligatory workers' compensation business
lines and adequate business risk profile.
Good Financial Performance: Fitch views the company's financial
performance as strong, with a return on equity of 23% in 2023 and
34% in 2022. This was mostly driven by high investment income of
KZT5.4 billion in 2023 and KZT4.9 billion in 2022. Conversely,
underwriting results remained negative and pressured by high
operating and acquisition expenses. Fitch believes that
underwriting results can be volatile and sensitive to significant
losses, as the company's reinsurance utilisation is very limited.
Prudent Investment Portfolio: Fitch views the company's asset risk
as moderate and conservative relative to most domestic players.
Standard Life's investments are primarily composed of fixed-income
domestic corporate and sovereign bonds. 'BBB' category assets
accounted for 73% of Standard Life's investments at end-2023 and
80% at end-2022. The company's risky asset-to-capital ratio, as
calculated by Fitch, was 91% at end-2023 and 98% at end-2022.
Sizeable Asset-Liability Duration Mismatch: Standard Life has a
substantial asset-liability duration mismatch, similar to other
Kazakh life insurers. Although Standard Life continues to make
efforts to reduce asset/liability management risks by acquiring
long duration government bonds, the difference between liabilities
and assets with durations exceeding five years was a significant
206% of the company's capital, including contractual service
margin, at end-2023 (239% at end-2022). Similar to other Kazakh
life insurers, Standard Life is exposed to reinvestment risk in its
annuity business, particularly in view of the limited investment
opportunities in local capital markets and high guaranteed interest
rates.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
IFS Rating
- The Outlook could be revised if Standard Life's capital position
deteriorated, as measured by a Prism score falling below
'Adequate'
- Significant weakening in financial performance, as reflected in a
net loss on a sustained basis
National IFS Rating
- A downgrade of Standard Life's IFS Rating
- Significant weakening in capital position or financial
performance, both on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
IFS Rating
- Maintenance of the capital position at current levels, as
measured by a Prism score of 'Adequate' on a sustained basis
National IFS Rating
- An upgrade of the IFS Rating
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
----------- ------ -----
Joint Stock Company
- Life Insurance
Company - Standard Life LT IFS B+ Affirmed B+
Natl LT IFS BBB(kaz)Affirmed BBB(kaz)
===================
L U X E M B O U R G
===================
EOS US FINCO: $534.7MM Bank Debt Trades at 21% Discount
-------------------------------------------------------
Participations in a syndicated loan under which EOS US Finco LLC is
a borrower were trading in the secondary market around 79.2
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The $534.7 million Term loan facility is scheduled to mature on
October 9, 2029. The amount is fully drawn and outstanding.
EOS US Finco LLC is a hardware technology company based in the
United States. The Company’s country of domicile is Luxembourg.
KLEOPATRA HOLDINGS 2: Moody's Lowers CFR to Caa1, Outlook Negative
------------------------------------------------------------------
Moody's Ratings downgraded the long term corporate family rating of
Kleopatra Holdings 2 S.C.A. (Klockner Pentaplast or KP) to Caa1
from B3. Moody's also downgraded the probability of default rating
to Caa1-PD from B3-PD. In addition, the instrument ratings of the
senior secured first lien revolving credit facility (RCF) and
senior secured first lien term loan B (TLB), as well as guaranteed
senior secured notes due 2026 issued by Kleopatra Finco S.a r.l.,
were downgraded to Caa1 from B3. Also, the rating of the backed
senior secured first lien term loan B due 2026 issued by Klockner
Pentaplast of America, Inc. was downgraded to Caa1 from B3.
Further, the rating of the guaranteed senior unsecured notes issued
by Kleopatra Holdings 2 S.C.A was downgraded to Caa3 from Caa2. The
negative rating outlook on all entities remains unchanged.
RATINGS RATIONALE
The downgrade reflects KP's challenged performance over a number of
quarters which, combined with a material debt burden of around
EUR2.4 billion (Moody's-adjusted), led to the company's capital
structure becoming unsustainable as measured by KP's
Moody's-adjusted gross leverage of over 12x, coverage below 1.0x
and negative free cash flow. The company has indicated, including
on its second quarter call, that it intends to refinance the
majority of its debt in the fourth quarter of 2024 in a "regular
way" refinancing transaction with support from its sponsor,
Strategic Value Partners (SVP). Moody's believe there is
uncertainty with respect to the terms of any such refinancing, as
well as KP's likely credit profile following such transaction,
which Moody's expect to re-evaluate in due course.
KP's business has seen weakened performance, aligning with industry
trends, over the past two years. The company has consistently made
significant adjustments and incorporated pro forma items in its
EBITDA calculations, which Moody's expect to continue over the next
12-24 months. Still, the second quarter trading showed an uptick
from the previous year (taking into account exceptional items).
In the PHD segment, there was a positive development with a 4%
volume growth in the second quarter, bringing the division's
volumes to a break-even point year-over-year for the first half of
the year. However, this growth was counterbalanced by a 4% volume
decrease in the more commoditized food packaging division, which
experienced a 1% shrinkage in volumes in the first half of 2024
compared to the same period in 2023. Additionally, the company saw
a reduction in the amount of adjustments from EUR40 million in the
2023 to EUR27 million in the twelve months ending June 2024.
Despite these positive developments, the company's credit profile
remains stretched, evidenced by a leverage ratio of 12.6x, a
coverage ratio of 0.9x, and a free cash flow to debt ratio of
negative 2.6% for the last twelve months ending June 30, 2024. For
2024, the company forecasts its EBITDA to reach approximately
EUR325 million, with proforma adjustments between EUR40-65 million,
an improvement from the last twelve months' to June 30, 2024 EBITDA
of EUR322 million, which included higher adjustments of EUR87
million. Lower pro-forma adjustments indicate some improvement in
Moody's-adjusted leverage is likely for 2024, yet it is expected to
stay materially above the 7.5x threshold for achieving a B3 rating
absent a deleveraging refinancing transaction.
ESG CONSIDERATIONS
Moody's assessed the governance of the group to be a key driver for
the rating action given the company's need to address its upcoming
2026 maturities in the next few months.
LIQUIDITY
KP's near-term liquidity is adequate with almost EUR60 million of
cash on balance sheet and an undrawn EUR120 million revolver at
June 30, 2024; however, the majority of the company's debt comes
due in 2026 between January and September.
STRUCTURAL CONSIDERATIONS
KP's capital structure includes senior secured first lien term
loans and revolving credit facility (RCF), senior secured notes and
senior notes. The RCF, senior secured first lien term loans and
secured notes rank pari passu, while the senior notes are
subordinated to them in terms of ranking. The instrument ratings
for the around EUR1.2 billion of senior secured term loans and
EUR400 million of senior secured notes are rated Caa1, in line with
CFR. The senior notes rating at Caa3 reflects the notes'
subordination to a substantial amount of secured debt.
RATING OUTLOOK
The negative rating outlook reflects the uncertainty associated
with the timing and terms of KP's debt refinancing, as well as
potential sustainability of the post-transaction capital structure
and cost of debt.
FACTORS THAT COULD LEAD TO UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, an upgrade is unlikely at this point.
Going forward, KP could be upgraded should it successfully
refinance its upcoming maturities such that its leverage reduces to
below 7.5x, its EBITDA/interest coverage increases to over 2.0x and
its free cash flow becomes positive on a sustained basis.
Any deterioration in liquidity or failure to refinance its upcoming
maturities could lead to a downgrade, as could a likelihood of
restructuring resulting in potentially higher losses. The rating is
also likely to be downgraded if KP's Moody's-adjusted
EBITDA/interest coverage is sustained below 1.0x and the company
continues generating negative free cash flow.
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers published in
December 2021.
Kleopatra Holdings 2 S.C.A, a plastic packaging manufacturer,
produces both flexible and rigid plastic films and trays for
pharmaceutical, health and food sectors. In the 12 months ending
June 2024, the firm reported revenues of EUR1.86 billion and an
adjusted EBITDA of EUR235 million. Since a restructuring and
recapitalisation in June 2012, Strategic Value Partners (SVP) has
been the principal investor.
PG POLARIS: S&P Affirms 'B' ICR & Alters Outlook to Stable
----------------------------------------------------------
S&P Global Ratings revised to stable from positive its outlook on
oil and gas service company PG Polaris Bidco S.a.r.l. (Rosen) and
affirmed the 'B' ratings on the group and its debt. At the same
time, S&P assigned its 'B' issue rating to the proposed term loan B
add-on. The recovery rating on both the existing and new debt is
'3'.
S&P said, "The stable outlook reflects our expectation that Rosen
will maintain adjusted debt to EBITDA of about 6.0x and funds from
operations (FFO) to debt of about 8% over the next 12 months. The
outlook also incorporates our expectation that Rosen will continue
to execute its growth strategy, generating adjusted EBITDA of $250
million-$270 million, resulting in free operating cash flow of $30
million-$40 million.
"We assume that Rosen's demonstrated strong operating performance
in the first half of 2024 sustains the group's credit quality at
our 'B' rating level despite the proposed add-on's weakening effect
on credit metrics. Rosen's reported June 2024 year-to-date
performance exceeded our projections. Considering the group's
successful implementation of the new pricing scheme for the
majority of Electro Magnetic Acoustic Transducer (EMAT) customers,
the roll-out of take-or-pay contracts, and a more favorable service
mix, we have modestly revised up our base-case forecasts. We now
anticipate S&P Global Ratings-adjusted EBITDA margins of about 33%
in 2024 and 2025, versus 29%-31% in our previous base case. As a
result, we expect S&P Global Ratings-adjusted EBITDA of $260
million-$270 million for the full year, up from the $230
million-$250 million we anticipated previously. That said, our core
leverage ratios have deteriorated pro forma the group's proposed
$375 million add-on; S&P Global Ratings-adjusted debt to EBITDA
climbs to about 6.0x in 2024 and 2025, versus our previous
calculation of 5.0x-5.5x in our earlier base case. Consequently, we
no longer envision leverage dropping below 5.0x by end-2025.
Similarly, despite the repricing of the new and existing facilities
by 25 basis points, we expect funds from operations (FFO) to debt
to fall to 7%-8%, from 7%-10% in our previous forecast, due to
overall higher cash interest. The first-half 2024 results support
our longer-term expectation of profitability-driven deleveraging,
albeit slower than previously expected. Moreover, our fundamental
view of the business, underpinned by Rosen's leading market
position, remains unchanged. We therefore consider that the
post-transaction leverage metrics of about 6.0x fit comfortably
within the thresholds for the current 'B' rating.
"However, we also consider the owners' change in financial policy
in our outlook revision. In early 2024, Rosen was acquired by
financial sponsor Partners Group in a transaction comprising a
$1.15 billion term loan B and a $300 million revolving credit
facility (RCF; currently undrawn). Our post-acquisition assessment
was constrained by financial-sponsor ownership, but our base case
did not include near-term re-leveraging nor the payment of
dividends. We recognize the opportunistic nature of the
transaction, with the outstanding term loan B trading above par
amid strong demand from lenders for additional paper. We
nonetheless consider that the deviation in financial policy curbs
rating upside over the next 12 months, underpinning our decision to
revise the outlook to stable from positive."
Positive free cash flow and undrawn facilities should help Rosen to
maintain ample liquidity. The increased profitability, despite a
greater cash interest burden, should help deliver free operating
cash flow (FOCF) of $30 million-$40 million in 2024. Sufficient
cash reserves, coupled with the fully undrawn $300 million RCF and
de minimis annual term loan B amortization of about $15 million
should allow for adequate liquidity with comfortable headroom over
the next 12 months.
S&P said, "The stable outlook reflects our expectation that Rosen
will achieve adjusted debt to EBITDA of about 6.0x and FFO to debt
of less than 10% over the next 12 months.
"We could take a negative rating action if FFO cash interest
coverage falls below 2x on a prolonged basis, because of
lower-than-expected profitability or further increase in debt. We
could also take a negative rating action if such events translated
to a marked deterioration in FOCF and liquidity."
S&P could upgrade Rosen if the company meaningfully outperforms our
base case, thereby improving credit metrics and demonstrating
commitment to maintaining them over time. Specifically, S&P could
raise the rating if Rosen:
-- Sustains a track record of high profitability exceeding $270
million in 2025, leading to FOCF well above $50 million; and
-- Delivers robust credit metrics, with adjusted leverage
declining below 5.0x and FFO to debt well above 10% on a
sustainable basis.
Ratings upside would also hinge on a financial policy that is
consistent with debt to EBITDA below 5.0x and FFO to debt well
above 10% over the next 12 months.
=====================
N E T H E R L A N D S
=====================
BME GROUP: Moody's Lowers CFR to 'B3' & Alters Outlook to Stable
----------------------------------------------------------------
Moody's Ratings has downgraded BME Group Holding B.V. (BME)'s
corporate family rating to B3 from B2 and the probability of
default rating to B3-PD from B2-PD. Concurrently, Moody's have
downgraded the ratings on the EUR1,508 million backed senior
secured first lien term loan B2 due 2029, the EUR195 million backed
senior secured first lien revolving credit facility (RCF) due 2029
and the outstanding EUR177 million backed senior secured first lien
term loan B (TLB) due 2026 to B3 from B2. The outlook has changed
to stable from negative.
RATINGS RATIONALE
The rating action reflects:
-- BME's weaker than expected credit metrics due to a sharp
deterioration in construction activities. Weak demand coupled with
a downward trend in prices has delayed the deleveraging path
compared to Moody's expectations, positioning the company more
appropriately in the B3 rating category.
-- Moody's expectation that credit metrics will improve over the
next 12-18 months, supporting the stable outlook. This includes
Moody's adjusted gross debt/EBITDA declining towards 7.0x in 2026,
after peaking to close to 10.0x in 2024 (up from 7.4x in 2023). The
improvement will be supported by cost-saving initiatives to offset
inflationary cost pressure, primarily driven by branch closures and
workforce reductions, as well as gradually improving market
conditions. Moody's forecast assumes that volumes will stabilize in
2025, with a more meaningful recovery from 2026.
-- Moody's expectations of negative free cash flow (Moody's
Adjusted FCF – after lease and interest payments) in 2024 and
2025, just below negative EUR100 million and EUR50 million
respectively. This will be partly offset by proceeds from asset
disposals over the next 12 months, supporting an adequate liquidity
profile. Liquidity is further supported by a sizeable cash balance,
supported by around EUR750 million of real estate assets, and no
imminent refinancing risk, with the majority of the term loan due
in 2029.
The B3 rating remains supported by BME's good geographical
differentiation and leading market positions; management's solid
track record in executing its strategy, including delivering
cost-saving initiatives and integrating acquired businesses; a high
share of the more resilient renovation activities (70% of gross
profit); solid demand for energy efficient renovation, also in the
near future, and housing shortages across BME's key markets that
will support demand recovery over time. The rating remains
constrained by BME's low profitability, typical of this business
model, and its acquisitive strategy that can increase leverage over
time. At the same time, Moody's expects that given the negative FCF
generation over the next 12-18 months, BME will decelerate its pace
of acquisitions, focusing on deleveraging and preserving cash.
LIQUIDITY
BME's liquidity is adequate supported by around EUR250 million of
cash as of June 2024 and an undrawn RCF of EUR195 million. Sources
of liquidity are further supported by a EUR750 million portfolio of
real estate assets. These sources, together with internally
generated funds from operations, are sufficient to cover intra-year
working capital swings with a peak in working capital consumption
generally between Q1 and Q2. Other uses include annual capital
spending of around 1% of sales, lease payments and spending on
bolt-on M&A.
The RCF contains a springing maintenance covenant of 8.4x leverage
calculated on a first-lien senior secured net debt basis, which is
tested when the facility drawings net of cash exceed 45% of total
commitments. Given the earnings deterioration, the headroom under
the covenant leverage ratio has decreased. However, Moody's expect
the covenant will not be tested, thanks to the sizable cash
balance. Should the covenant be tested, Moody's anticipate the
company will remain compliant.
STRUCTURAL CONSIDERATIONS
BME's senior secured first-lien term facilities comprising the
senior secured term loans B and the RCF share the same security and
are guaranteed by certain subsidiaries of the group, accounting for
at least 80% of consolidated EBITDA. As a result, the loans and the
RCF are rated B3, in line with the CFR.
OUTLOOK
The stable outlook reflects Moody's expectations that Moody's
adjusted gross leverage will reduce towards 7.0x over the next
12-18 months and EBITA / interest coverage will increase to around
1.0x over the same period. The stable outlook also reflects Moody's
expectations that liquidity will remain adequate as the negative
FCF will be partly offset by asset monetization.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if strong earnings growth results in
sustained improvement in credit metrics, including:
-- Moody's-adjusted debt/EBITDA remaining sustainably below 6.0x,
-- FCF remaining sustainably positive;
-- EBITA / Interest sustainably above 1.5x
The ratings could be downgraded if earnings trajectory does not
improve over the next 12-18 months resulting in:
-- Moody's-adjusted debt/EBITDA not declining towards 6.5x, or
-- Moody's-adjusted EBITA/Interest remaining sustainably below
1.0x, or
-- Persistent negative FCF deteriorating the liquidity profile.
The principal methodology used in these ratings was Distribution
and Supply Chain Services published in February 2023.
COMPANY PROFILE
Based in Schiphol, the Netherlands, BME Group Holding B.V. (BME) is
the third-largest European building material distributor operating
in Germany, the Netherlands, Belgium, France, Switzerland, Austria,
Portugal, and Spain. On October 31, 2019, the company was acquired
by Blackstone from CRH plc (Baa1, stable) for EUR1.675 billion. In
the LTM ending June 2024, BME generated EUR5.1 billion of revenue.
IGNITION MIDCO: EUR325MM Bank Debt Trades at 47% Discount
---------------------------------------------------------
Participations in a syndicated loan under which Ignition Midco BV
is a borrower were trading in the secondary market around 53.1
cents-on-the-dollar during the week ended Friday, October 11, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR325 million Term loan facility is scheduled to mature on
July 4, 2025. The amount is fully drawn and outstanding.
Ignition Midco B.V. operates as a special purpose entity. The
Company's country of domicile is the Netherlands.
UNITED GROUP: S&P Rates New EUR700MM Fixed-Rate Notes 'B'
---------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating to the proposed
EUR700 million senior secured fixed-rate notes due 2031 to be
issued by United Group B.V. (B/Positive/--). The rating on the
proposed notes is in line with the rating on the existing senior
secured notes.
The group will use the funds from the new issuance to refinance in
full the existing EUR600 million fixed-rate notes (3.125%) due in
February 2026 and to repay EUR90 million of drawn revolving credit
facility (RCF), as well as to pay transaction costs.
S&P will discontinue the issue rating on the fixed-rate notes due
in 2026 as the debt is replaced.
S&P said, "The proposed transaction will increase United Group's
annual interest expense. However, we do not expect this to
materially impact cash flow generation. Having said that, we expect
United Group's free cash flow to be relatively weaker than our
previous forecast, primarily due to high working capital outflows
and elevated capital spending to fund the buildup of fiber in
Greece and the energy projects.
"We anticipate the group's S&P Global Ratings-adjusted EBITDA
margin will improve to around 38% in 2024, from 35% in 2023, thanks
to declining integration and restructuring costs, cross-selling
actions, cost optimization, and increasing convergence. Therefore,
despite the increased debt in 2024 to fund the T2 acquisition and
working capital needs, we now anticipate the group will report S&P
Global Ratings-adjusted debt to EBITDA at about 5.5x-5.7x for
2024-2025, improving from 6.4x in 2023.
"Our 'B' long-term issuer credit rating and positive outlook on
United Group B.V., the 'B' rating on the existing senior secured
notes, and the 'B-' rating on the payment-in-kind (PIK) notes are
unaffected by this rating action."
Issue Ratings - Subordination Risk Analysis
Capital structure
The group's capital structure at closing mainly consists of EUR4.0
billion of senior secured notes issued by United Group B.V., EUR300
million of PIK notes issued by Summer Bidco B.V., and about EUR400
million bilateral facilities. The EUR200 million outstanding super
senior RCF will be partially repaid at closing
Analytical conclusions
S&P's 'B' issue rating on the existing and the proposed senior
secured notes is at the same level as the issuer credit rating.
This is because the notes are secured and only about EUR400 million
bilateral facilities at the operating company level have structural
priority over the notes upon collateral enforcement, while the
prior-ranking RCF is expected to be mostly undrawn at the
transaction's close.
This is significantly lower than S&P's 50% threshold for notching
down the issue rating.
S&P said, "Our 'B-' rating on the PIK notes is one notch below the
issuer credit rating on United Group. This is because the share of
priority liabilities ranking ahead of these notes is about 90% of
total debt. Furthermore, the notes do not share the security
package or guarantees offered to holders of the group's issued debt
and there is no recourse to that restricted group. Therefore, we
view these notes as structurally subordinated."
=========
S P A I N
=========
KRONOSNET CX: Moody's Cuts CFR to 'B3', Outlook Remains Stable
--------------------------------------------------------------
Moody's Ratings has downgraded KronosNet CX Bidco 2022, S.L.'s
(Konecta or Kronos or the company) corporate family rating to B3
from B2 and its probability of default rating to B3-PD from B2-PD,
as well as the instrument ratings of its EUR870 million guaranteed
senior secured term loan B (term loan) and EUR200 million
guaranteed senior secured revolving credit facility (RCF) to B3
from B2. The outlook remains stable.
"The downgrade to B3 reflects Konecta's higher than expected
leverage resulting from modest revenue growth and higher
integration costs after the acquisition of Comdata, leading to a
prolonged period of negative free cash flow generation" says Lola
Tyl, Moody's Ratings Analyst and lead analyst for Konecta.
RATINGS RATIONALE
Konecta's results were behind Moody's previous expectations due to
a combination of lower than expected revenue growth, higher
integration costs linked with the acquisition of Comdata and
negative foreign-exchange impacts, leading to a higher leverage and
sustained negative free cash flow (FCF) generation.
The rating action also reflects the uncertainties related to the
medium to long term impact of artificial intelligence (AI) on CRM
providers business models, which could affect the value of the
business and reduce the equity cushion. However adapting to the
evolution of the technological environment could also enable new
growth opportunities.
In the next 12-18 months, Moody's expect Konecta's Moody's-adjusted
gross leverage to decrease to around 5.5x from 6.2x in 2023, which
is above Moody's previous expectation that the company would reduce
leverage towards 5x or below. In addition, Moody's expect its free
cash flow generation to remain negative in 2025, compared with
Moody's previous expectation that the company would achieve
positive free cash flow starting in 2024.Moody's-adjusted leverage
calculation is based on a pro forma EBITDA which excludes
exceptional one-off items linked with the integration of Comdata,
which was acquired in the second half of 2022. Moody's assume that
EBITDA will improve in 2024, thanks to modest revenue growth
combined with margin improvements, on the back of corrective
actions that the group implemented throughout 2023 to address some
legacy Comdata business weaknesses.
Despite the downgrade, Konecta's credit profile continues to
reflect the group's scale and geographical diversification, its
long-standing relationships with blue-chip clients, partially
offsetting high customer concentration, its successful acquisitions
since 2016 having driven Konecta to a leading position in the
Spanish-speaking CRM market as well as in Italy and France, thanks
to the acquisition of Comdata in 2022.
LIQUIDITY
Konecta's liquidity has weakened given the limited availability
under its revolving credit facility (RCF), following the ongoing
negative free cash flow (FCF). In addition, the company has a
sizable amount of short-term debt facilities at the level of
operating subsidiaries which need to be rolled over.
Konecta's liquidity at August 31, 2024 was supported by EUR70
million of cash and EUR38 million available under its EUR200
million RCF due in April 2029. In addition, Moody's understand the
company had EUR18 million available under short-term local
facilities.
Moody's expect Konecta's FCF to remain negative in 2024 and 2025,
and to turn slightly positive thereafter.
Konecta also has factoring arrangements, for which the drawn
balance was around EUR153 million at the end of 2023, out of a
maximum amount available of EUR276 million. However, further
utilisation of the line is limited, given the size of Konecta's
trade receivables eligible for the programme.
Konecta's senior secured RCF is subject to a springing financial
maintenance covenant, tested when 40% or more of the facility is
drawn. This covenant is based on net leverage ratio and set at
7.5x. Moody's expect the company to maintain a significant headroom
under this covenant.
STRUCTURAL CONSIDERATIONS
Konecta's probability of default rating is B3-PD, in line with the
CFR, reflecting Moody's assumption of a 50% recovery rate, as is
typical for capital structures with bank debt and a loose
maintenance covenant. The term loan and RCF are rated B3, in line
with the CFR, because they rank pari passu, are secured by pledges
over shares, bank accounts and intercompany receivables, and are
guaranteed by a group of subsidiaries representing at least 80% of
the consolidated group's adjusted EBITDA (as defined in the senior
facilities agreement).
RATIONALE FOR STABLE OUTLOOK
The stable rating outlook reflects Moody's expectation that Konecta
will continue to grow its revenue and earnings over 2024-25,
driving an improvement in Moody's-adjusted gross leverage towards
5.5x. The stable outlook also reflects Moody's expectation that the
company's FCF will turn positive in 2026.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure on Konecta's ratings could develop if the
company reduces its Moody's-adjusted gross leverage towards 5.0x
and increases its Moody's-adjusted FCF to debt towards mid-single
digits in percentage terms, both on a sustained basis. Positive
rating pressure would require Konecta to continue to increase its
customer and sector diversification while demonstrating sustainable
earnings growth, and improving liquidity.
Negative rating pressure could arise if the company's EBITDA margin
fails to improve or weaken such that Konecta's Moody's-adjusted
EBITA-to-interest ratio falls below 1.0x, its Moody's-adjusted
gross leverage remains above 6.0x or its FCF remains negative for a
sustained period. Negative rating pressures could also arise if the
group's liquidity deteriorates or following a significant
debt-funded acquisition.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Konecta is a leading pan-European and Latin American CX-BPO
company, with revenue of around EUR1.9 billion (EUR2 billion as
reported in the company's lenders report) and Moody's-adjusted
EBITDA of around EUR223 million in 2023 pro forma for exceptional
one-off items linked with the acquisition of Comdata (close to
EUR261 million as reported in the company's lenders report). The
company is number one in CX-BPO in the Spanish-speaking countries
such as in Spain, Colombia, Peru and Argentina, as well as in
Italy; and number three in France. The company has more than
118,000 employees who provide services in over 30 languages across
26 countries.
Konecta is 80% owned by Intermediate Capital Group PLC (ICG), and
20% by management.
===========
T U R K E Y
===========
ZORLU ENERJI: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned Zorlu Enerji Elektrik Uretim A.S.
(Zorlu) an expected first-time Long-Term Issuer Default Rating
(IDR) of 'B+(EXP)' with a Stable Outlook. Fitch has also assigned
an expected senior secured rating of 'B+(EXP)' to Zorlu's proposed
USD800 million notes. The Recovery Rating on the senior secured
debt is 'RR4'.
Final ratings are contingent on the receipt of final documentation
conforming materially to information already received and the
implementation of a refinancing scheme as proposed in Zorlu's
business plan.
Zorlu's ratings are supported by the high contribution of regulated
and quasi-regulated businesses to EBITDA (more than 80% based on
its estimates), satisfactory regulatory frameworks for electricity
distribution and contracted renewables, good generation asset
quality and expected positive free cash flow (FCF) generation.
The rating is constrained by the limited scale of operations, with
concentration on a single market (Turkiye, BB-/Stable), increasing
exposure to merchant price as feed-in tariffs (FiTs) gradually
expire, exposure to FX risk and high starting leverage. The IDR
factors in the targeted financial structure, which would guarantee
effective insulation from the parent and an improved liquidity
profile.
Key Rating Drivers
Modestly Sized Integrated Player: Zorlu is a vertically-integrated
utility in Turkiye. Through its subsidiary, Zorlu Yenilenebilir
Enerji Anonim Sirketi (Zorlu RES; B-/Stable), the group operates
several power plants predominantly focused on geothermal power
plants (GPP), with a total installed capacity of 559MW and 51MW
under construction.
The group also holds the exclusive electricity distribution and
supply rights for the Osmangazi region, with more than two million
connections and a regulated asset base (RAB) of TRY9.1 billion at
end-2023. The company is involved in other ventures, including
electric vehicle charging stations, but these segments have a
minimal contribution to EBITDA.
Distribution Regulation: Fitch evaluates the Turkish electricity
distribution regulation as fairly stable compared with other
emerging markets frameworks, but more exposed to political risk
than Western European frameworks. The distribution business
operates under a RAB methodology, with five-year regulatory
periods.
Current Regulatory Period: The current regulatory period, which
lasts until 2025, features a healthy real rate of return (12.3%),
albeit slightly reduced from the previous regulatory period
(13.6%). In addition, the framework includes a 10-year
reimbursement period for investments, efficiency incentives and
full pass-through costs of efficiently incurred costs. However, the
tariff-setting mechanism is not fully transparent, especially in a
high inflation environment, and could lead to some lag in
recovering inflation and high working capital volatility.
Supportive Power Generation: Zorlu RES generates the majority of
its revenue and net generation volumes (72%) from its GPP plants,
which benefit from more stable generation and lower dependence on
weather conditions than solar or wind plants. At end-2023, 74% of
Zorlu RES's EBITDA benefited from a renewable energy support
mechanism (YEKDEM), a law that provides US dollar-denominated FiTs
for 10 years.
Assets under the YEKDEM framework benefit from no price risk and
low counterparty risk as all renewable generation is purchased by
the Energy Market Regulatory Authority. Fitch expects this share to
gradually drop to 54% by end-2027, leading to increasing exposure
to merchant prices. New plants constructed after 2021 are expected
to benefit from a new US dollar FiT mechanism. However, Zorlu
currently has limited capacity under construction.
Revenue Visibility: Fitch anticipates Zorlu will derive
approximately 84% of its 2024 EBITDA from regulated (47%) and
contracted (37%) activities, ensuring satisfactory earnings
predictability. Fitch expects this portion to slightly drop to
almost 75% by end-2027, as the YEKDEM framework expires for some
generation plants. An increase in the share of merchant exposure
above 25% of consolidated EBITDA would increase the business risk
profile, possibly leading to a revision of the company's debt
capacity.
Operating Environment, FX Risks: The rating considers the risks
related to Turkiye's operating environment, especially high
inflation and exposure to political interference. Moreover,
following the bond issuance, Zorlu's debt will be almost fully US
dollar-denominated, while a significant portion of EBITDA is
generated in Turkish lira. Fitch views FX risk as somewhat
mitigated as 34% of 2023 EBITDA is directly US dollar-linked
through YEKDEM, whereas profits in the regulated business are
largely CPI-linked. However, there could be some mismatch between
Turkish CPI inflation and FX trend against US dollars.
Significant Divestments: Zorlu completed the sale of its stake in
Zorlu Enerji Dagitim AS in 1H24 and plans to divest its entire
international generation portfolio in Pakistan, Israel, and
Palestine. These divestments align with the company's strategy to
focus on its core market in Turkiye. Fitch expects total proceeds
from these sales of around USD330 million between 2024 and 2026.
They will be allocated towards debt repayment and capex, supporting
deleveraging.
Improving Leverage Trend: Assuming earnings growth mainly deriving
from inflation, limited capex needs and no dividends, Fitch
forecasts funds from operations (FFO) net leverage of 4.2x in 2024,
averaging 3.8x in 2024-2027, within the rating sensitivities for a
'B+' rating. Fitch understands that management's financial policy
is to reduce and maintain net debt/EBITDA below 3.0x.
Modest Capex Drives Positive FCF: Fitch forecasts capex will
represent almost 28% of Zorlu's EBITDA in 2024- 2027, which is
relatively low compared with other integrated utilities. Zorlu's
capex plan includes one GPP project (Alkan), and three hybrid
(solar + GPP) power plants. Fitch understands from management that
several power generation projects are on hold and will only be
started after meeting certain operational and financial criteria.
These projects are not included in its rating case, and could lead
to slower deleveraging if not conservatively funded.
Standalone Profile Drives Rating: Fitch's assessment of the links
between Zorlu and its parent, Zorlu Holding A.s under its Parent
Subsidiary Linkage Criteria leads to a standalone rating
construction. Fitch expects the final terms of the notes to include
leverage and ring-fencing covenants that will support its view of
insulated legal ring-fencing around Zorlu. Fitch also views access
and control factors as 'Porous', due to public listing (free float
37.4%) and its independent external funding.
Bond Documentation Protection: Fitch expects bondholders to benefit
from a comprehensive set of covenants. These include a cumulative
cap on dividend payments (restricted to 50% of consolidated net
profit) and additional debt incurrence with specific net debt to
EBITDA ratio (3.75x in year 1, 3.5x in year 2, 3.25x in year 3, and
3.0x thereafter) and a non-guarantor restricted group subsidiary
indebtedness cap of the greater of 45% of consolidated EBITDA or
USD150 million. The draft prospectus also includes ring-fence
covenants and certain restrictions on transactions with other
affiliates.
Derivation Summary
ENERGO-PRO a.s. (BB-/Stable), a utility company headquartered in
the Czech Republic with operating companies in Bulgaria, Georgia,
Turkiye and Spain, has higher debt capacity than Zorlu and a
stronger business risk profile. This is mainly driven by better
geographical diversification (operations in three countries),
slightly larger scale, and share of regulated and quasi regulated
businesses and explains the rating differential.
Public Power Corporation S.A. (PPC; BB-/Stable) is the incumbent
integrated utility in Greece and one of the largest in Romania.
Fitch assesses its Standalone Credit Profile at 'bb-'. The
one-notch difference with Zorlu mainly reflects its much larger
scale and generation capacity as incumbent in Greece. This is
partially offset by Zorlu's higher percentage of EBITDA from
regulated and quasi-regulated businesses.
TAURON Polska Energia S.A. (BBB-/Stable) is the second-largest
electric utility in Poland by EBITDA and its rating reflects
operations in a robust regulatory framework, high earnings
percentage generated from regulated and quasi regulated businesses,
and scale. However, Zorlu has better asset quality, especially on
the power generation (almost fully renewables) compared with high
exposure to hard coal.
Key Assumptions
- CPI inflation (end-year) of 43% in 2024, 23% in 2025 and 18% in
2026-2027
- Exchange rate (average) of TRY33.4/USD in 2024 increasing to
TRY45/USD in 2027
- Wholesale price of electricity of USD74/MWh in 2024 increasing to
USD79/MWh by 2027
- Electricity generation volumes 3% to 5% below management
forecasts over 2024-2027
- Allowed weighted average cost of capital of 12.3% for electricity
distribution in 2024-2027
-Change in working capital assumed at -1% of revenues over
2024-2027
- Average annual capex of TRY3.7 billion over 2024-2027
- No dividend distribution over 2024-2027 in line with management
forecast
Recovery Analysis
The recovery analysis assumes that Zorlu would be a going concern
in bankruptcy and that the company would be reorganised rather than
liquidated.
- A 10% administrative claim is assumed.
- The going-concern (GC) EBITDA estimate reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level upon which Fitch
bases the valuation of the company.
- Zorla's GC EBITDA takes into account the fact that bondholders do
not have full access to the restricted group EBITDA, especially
considering that the distribution company OEDAS is not a guarantor.
While OEDAS contributes almost to 39% of group EBITDA, bondholders
only have an assignment under the loan provided from the issuer to
this opco (in the range of USD 70 million).
- The GC EBITDA is estimated at around USD147 million
- An enterprise value (EV) multiple of 5x EBITDA is applied to the
GC EBITDA to calculate a post-reorganisation EV considering the
company's business profile in Turkiye.
These assumptions result in a recovery rate for the senior secured
instrument in the 'RR3' range. However, this is capped at 'RR4',
resulting in a rating of 'B+(EXP)', due to the application of the
Country-Specific Treatment of Recovery Ratings Criteria, where
Turkiye is in Group D. The principal and interest waterfall
analysis output percentage on current metrics and assumptions is
also capped at 50%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Increased scale of operation and strong record of supportive
regulation
- Improved FFO net leverage below 3.7x and EBITDA net leverage
below 3.0x on sustained basis
- FFO interest coverage above 3.0x on sustained basis
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A reduction in profitability and cash generation leading to an
increase in FFO net leverage above 4.7x and EBITDA net leverage
above 4.0x on a sustained basis
- FFO interest coverage below 2.3x on a sustained basis
- Deterioration of the business mix with regulated and contracted
activities representing less than 75% of EBITDA on a structural
basis could lead to a tightening of rating sensitivities
- Lower than expected proceeds deriving from asset sales
Liquidity and Debt Structure
Manageable Liquidity Post-Bond Issuance: At end-2023, Zorlu had
TRY1.9 billion (USD65 million) of readily available cash and
TRY16.8 billion (USD569 million) of debt maturities in 2024. The
company aims to simplify its capital structure through the expected
new bond issuance of USD1 billion. Zorlu expects to refinance
USD790 million of opco debt and USD210 million of Zorlu Enerji's
debt with bond proceeds and to become the group's principal
borrowing entity.
Following the refinancing, Fitch expects Zorlu to maintain a
satisfactory liquidity position. Fitch forecasts positive FCF after
acquisitions and divestiture of TRY5.9 billion (USD175 million) in
2024 and TRY2.7 billion (USD69 million) in 2025. This compares with
TRY1.8 billion (USD44 million) of debt maturing in 2025.
Issuer Profile
Zorlu is a vertically-integrated utility company with electricity
production, distribution, and electrical retail segment, operating
mainly in Turkiye. The company was established in 1993, and has
been listed on the Istanbul Stock Exchange since 2000.
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
Fitch does not provide ESG relevance scores for Zorlu Enerji
Elektrik Uretim A.S..
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.
Entity/Debt Rating Recovery
----------- ------ --------
Zorlu Enerji Elektrik
Uretim A.S. LT IDR B+(EXP)Expected Rating
senior secured LT B+(EXP)Expected Rating RR4
ZORLU YENILENEBILIR: Fitch Puts 'B-' LongTerm IDR on Watch Positive
-------------------------------------------------------------------
Fitch Ratings has placed Zorlu Yenilenebilir Enerji Anonim
Sirketi's (Zorlu RES) 'B-' Long-Term Issuer Default Rating (LT IDR)
and USD300 million 9% notes due 2026 senior secured on Rating Watch
Positive (RWP).
The RWP follows the announcement by direct parent, Zorlu Enerji
Elektrik Uretim A.S. (Zorlu; B+(EXP)/Stable) that it is targeting
issuing senior secured notes that will be largely used to repay all
debt at the Opco level. This includes repayment of Zorlu RES's 2026
notes and the rest of the debt at Zorlu RES's subsidiaries,
including Zorlu Doğal. The notes expected to be issued by Zorlu
will be guaranteed by Zorlu RES.
Fitch expects to resolve the RWP upon closing of the transaction.
Key Rating Drivers
Rating Construction: Following completion of the transaction, Fitch
will equalise Zorlu RES's IDR with the IDR of its parent Zorlu, as
per its Parent and Subsidiary Linkage Rating Criteria, following
the stronger parent path. Fitch views the legal and operational
incentives as 'high' and the strategic incentives as 'medium'.
Repayment of 2026 Notes: The parent will use part of the proceeds
to repay Zorlu RES's 2026 notes and all debt at Zorlu Doğal.
Following this, Zorlu RES will be debt free, and the company will
be a guarantor of the upcoming Zorlu notes. Fitch expects the
company to incur additional debt in 2025 to finance its new power
plant. Zorlu's bonds will include specific covenants for the
additional indebtedness of the restricted group, such as net
leverage ratio.
2023 Performance Below Expectations: Deconsolidated EBITDA for 2023
was 7% lower than its forecast. The main reasons were delays in
capex (mainly installing new pumps for Kızıldere II Power plant),
lower electricity merchant prices than forecast and a minor impact
on operations from the February 2023 earthquake. Deconsolidated
EBITDA gross leverage for 2023 of 6.7x was higher than its
forecast, but still within the negative rating sensitivity of
7.7x.
2024 IPO: The shareholder is planning to divest a share in Zorlu
RES through an initial public offering (IPO) in 2024, but this is
not included in its rating case. Fitch believes that the majority
of the IPO proceeds would be injected into Zorlu RES as equity, to
be potentially used to fund capex.
Limited Growth Capex Plan: The company's capex plan for 2024-2027
is around USD91 million, mainly focused on its electrical
submersible pump project, hybrid power plants (Hybrid SPP
Kızıldere III Unit 1, Hybrid SPP Kızıldere II Unit 1) and Alkan
geothermal power plant (GPP) project. However, Zorlu RES has other
projects on hold that will only start after meeting certain
operational and financial criteria. Fitch takes a conservative view
and increase capex by around USD10 million per year in 2026 and
2027.
Increasing Merchant Exposure: Fitch expects US dollar feed-in
tariffs (FiT)-linked revenue for Zorlu RES to drop to 62% of total
revenue in 2024-2025 and 54% by 2027 from 74% in 2023. This is due
to the expiration of FiT for GPP capacities of 80MW, 45MW, and
165MW at the end of 2023, 2025, and 2027, respectively. The
increasing exposure to merchant prices, coupled with FX mismatch,
will increase the company's business risk profile.
Derivation Summary
Fitch assesses the renewable energy producer Aydem Yenilenebilir
Enerji Anonim Sirketi (Aydem; B/Stable) as Zorlu RES's closest
peer. The companies share the same operating and regulatory
environment and have similar scale. In addition, both benefit from
FiT under the renewable energy support mechanism, which contributes
to their revenue visibility and mitigates FX risks.
However, FiT will gradually expire and lead to higher merchant
exposure at both companies. Zorlu RES's GPPs provide more stable
generation volumes than Aydem's hydro plants, but this is balanced
by the latter's greater geographical diversification across
Turkiye. The rating differential reflects Aydem's lower forecast
leverage.
Zorlu RES has a slightly weaker business profile than its Turkish
peer Enerjisa Enerji A.S. (A(tur)/Negative). Zorlu RES generates
its earnings from a mix of quasi-regulated FiT and merchant
exposure, while Enerjisa operates in regulated electricity
distribution and consequently has fairly predictable cash flows.
Zorlu RES's business profile is also comparable with that of
Uzbekistan-based hydro power generator Uzbekhydroenergo JSC
(BB-/Stable; Standalone Credit Profile: b+), which operates under
an evolving regulatory regime with a limited record in Uzbekistan.
Key Assumptions
Fitch's Key assumptions within its Rating Case for the Issuer:
- GDP growth in Turkiye of 3.5% in 2024, 3% in 2025 and 3.2% in
2026
- CPI inflation (end-year) in Turkiye of 43% in 2024, 23% in 2025
and 18% in 2026
- Electricity generation volumes 3% to 5% below management
forecasts over 2024-2026
- US dollar-denominated tariffs approved by the regulator and
merchant prices in the range of USD74/MWh77/MWh between 2024 and
2026
- No dividends received from Zorlu Dogal over 2024-2026
- Capex of USD4 million in 2024, USD41 million in 2025 and USD10
million in 2026
- No dividend distribution as guided by management and also
reflecting bond covenants
Recovery Analysis
Key Recovery Rating Assumptions
For issuers with IDRs of 'B+' and below, Fitch performs a recovery
analysis for each class of obligations of the issuer.
The issue rating is derived from the IDR and the relevant Recovery
Rating (RR) and notching, based on the going-concern enterprise
value (EV) of the company in a distressed scenario or its
liquidation value.
- The recovery analysis assumes that Zorlu RES would be a going
concern in bankruptcy and that it would be reorganised rather than
liquidated
- A 10% administrative claim
- The assumptions cover the guarantor group only and include Zorlu
Jeotermal AS and Rotor Elektrik Uretim AS
Going-Concern Approach
- The going-concern EBITDA estimate reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level on which Fitch bases
the valuation of the company
- The going-concern EBITDA is estimated at around USD33 million
- Fitch assumes an enterprise value (EV) multiple of 5x
- These assumptions result in a recovery rate for the senior
secured debt at 'RR4'. The recovery output percentage is 49%
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Successful completion of the Zorlu Enerji transaction, leading to
the likely equalisation with the rating of Zorlu
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- As the rating is on RWP, Fitch does not expect negative rating
action in the short term. Fitch would consider removing the RWP,
affirming the ratings and assigning a Stable Outlook if the Zorlu
transaction fails to proceed as planned.
If the transaction fails to proceed:
- Liquidity ratio falling below 1x
- Generation volumes well below current forecasts, a sustained
reduction in profitability or a more aggressive financial policy
leading to EBITDA gross and net leverage above 7.7x and 6.7x,
respectively, and EBITDA interest cover below 1x on a sustained
basis
- Disruption of payments from Energy Market Regulatory Authority,
reduction of FiT or cancellation of FiT's hard-currency linkage or
assets switching to merchant prices faster than assumed in the
existing business plan
Liquidity and Debt Structure
Manageable Liquidity: At end-2023, Zorlu RES had TRY439 million of
available cash on a deconsolidated basis. Fitch expects the company
to generate positive FCF of TRY388 million in 2024 but negative FCF
of TRY1.2 billion in 2025 due to TRY2 billion capex planned for its
Alkan GPP project, which Fitch expects to be financed with debt.
The company repaid the first tranche of its outstanding bond (USD38
million; equivalent to TRY1.6 billion) in June 2024 from its
internal cash and through a shareholder loan of USD15 million. The
next debt maturity is in 2025 when the second tranche of USD38
million is due. The current plan is that outstanding debt at Zorlu
RES will be repaid from the new bond proceeds of its parent Zorlu,
which would improve Zorlu RES's liquidity position.
Zorlu RES's FX exposure will gradually increase as the share of US
dollar-linked revenue falls over the forecast horizon. This will
limit the company's financial flexibility and increase its exposure
to the volatile US dollar/Turkish lira exchange rate.
Issuer Profile
Zorlu RES is a small renewable energy producer founded in 2020 with
geothermal, hydro and wind power plants across Turkey. The company
at end-2023 had an installed capacity of 563 MW.
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
----------- ------ -------- -----
Zorlu Yenilenebilir
Enerji Anonim Sirketi LT IDR B- Rating Watch On B-
senior secured LT B- Rating Watch On RR4 B-
===========================
U N I T E D K I N G D O M
===========================
A3D2 LIMITED: Leonard Curtis Named as Joint Administrators
----------------------------------------------------------
A3D2 Limited was placed in administration proceedings in the High
Court of Justice Business and Property Courts of England and Wales,
Insolvency & Companies List (ChD), Court Number: CR-2024-005682,
and Dane O'Hara and Neil Bennett of Leonard Curtis were appointed
as administrators on Sept 30, 2024.
A3D2 Limited, trading as Tiger Tiger London, operates licensed
clubs.
Its registered office and principal trading address is at Haymarket
House, 28-29 The Haymarket, London, SW1Y 4SP.
The joint administrators can be reached at:
Dane O’Hara
Neil Bennett
Leonard Curtis
5th Floor, Grove House
248a Marylebone Road
London, NW1 6BB
For further information, contact:
The Joint Administrators
Tel No: 020 7535 7000
Email: recovery@leonardcurtis.co.uk
Alternative contact: Aron Williams
ADVANZ PHARMA: Fitch Gives B+(EXP) Rating on New EUR725MM Term Loan
-------------------------------------------------------------------
Fitch Ratings has assigned ADVANZ PHARMA HoldCo Limited's proposed
EUR725 million Term Loan B (TLB) a 'B+(EXP)' expected rating. The
Recovery Rating is 'RR3'. Fitch has also affirmed ADVANZ's
Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook
and senior secured instrument ratings at 'B+' with a Recovery
Rating of 'RR3'.
The final TLB rating is subject to the successful completion of its
issuance, replacing the existing EUR305 million TLB, and the
documentation being in line with the information Fitch has already
received.
The IDR remains constrained by ADVANZ's scale and moderate
execution risks in implementing its strategy as an asset-light
multinational pharmaceutical company focused on niche and
specialist drugs. The rating also reflects the company's increased
focus on specialized products, as well as its growing
diversification across drugs, treatment areas and geographies.
The Stable Outlook reflects Fitch's expectation of continued solid
profitability, which results in strong free cash flow (FCF)
generation with available funds to be reinvested in the business to
accelerate growth. Despite the proposed increased debt, Fitch
forecasts ADVANZ will keep ample leverage headroom under its
negative sensitivities.
Key Rating Drivers
Comfortable Rating Headroom: Fitch forecasts gross EBITDA leverage
to increase to 5.1x after the proposed TLB issuance from 4.1x at
end-2023, which remains comfortable for the rating. Fitch expects
leverage to reduce to slightly above 4.5x by 2027, driven by
contributions from recently acquired treatments, which should
support the company's investments in growth. Fitch therefore
expects leverage to remain comfortably within the 'B' rating
sensitivities in the medium term.
Fitch notes a substantial amount of overfunding as a result of the
proposed refinancing. However, Fitch assesses it as rating neutral
in the context of the currently uncertain commercial success of
ADVANZ's pipeline products, strategic refocusing on increasingly
specialized products, which will likely require additional capital
resources, and heightened litigation risks.
Acquisitions Drive Growth: Fitch expects ADVANZ's organic growth
will be driven in the short term by recently acquired
margin-accretive products Tostran, Progynova, and Androcur. The
contribution from these drugs should support investments in
marketing of targeted specialized treatments, driving ADVANZ's
medium- to longer-term growth. Fitch projects the company will
spend GBP175 million-GBP200 million a year in 2025-2027, mainly
funded by internally-generated cash. Fitch would treat
higher-than-expected M&A and large debt-funded transactions during
this period as event risk.
Reinvesting Robust FCF: ADVANZ's moderately high financial leverage
is supported by strong, albeit gradually reducing profitability,
with EBITDA margins under its rating case trending towards 38%
(from 43% in end-2023). This is predicated on cost increases and
investments in its pipeline and marketing infrastructure to support
projected revenue growth. The asset-light manufacturing set-up
supports strong cash generation, with FCF margins likely to remain
in double digits, which Fitch assumes will be fully reinvested in
external growth opportunities.
Moderate Execution Risks: Fitch assesses ADVANZ's initiatives in
in-licensing and distribution agreements as having moderate
execution risk, as the strategy entails increased investments in
the pipeline and associated product development and
commercialisation risks. Nevertheless, Fitch estimates this will
help offset the steady decline of its established off-patent drug
portfolio, subject to life-cycle management. Fitch views the focus
on bringing specialized drugs to market as a differentiator with
some European leveraged-finance asset-light peers, resulting in
greater organic growth potential.
Growth Opportunities in Generic Market: Structural volume growth in
generic drug markets is driven by an ageing population, higher
prevalence of chronic diseases and an increasing number of drugs
losing patent protection. Smaller groups like ADVANZ have
significant inorganic growth opportunities stemming from larger
innovative pharma companies divesting smaller off-patent drugs to
optimize portfolio. However, Fitch expects generic drug pricing to
remain under pressure, spurring investments in scale, low-cost
manufacturing and more specialist products to protect growth and
profitability.
Litigation Heightens Event Risk: Fitch assumes continued regulatory
pressure on pharmaceutical groups as the focus on the value of new
treatments to healthcare systems increases, particularly as
governments face fiscal consolidation post-pandemic. Fitch
acknowledges that risks for ADVANZ have heightened, given the mixed
results of the Competitions and Markets Authority investigation
into possible past competition infringements, as well as the recent
revocation of marketing authorisation for Ocaliva.
Fitch currently views the negative resolution on all these cases as
event risk. Consequently, Fitch includes the legal costs within its
rating case as well as the revenue contribution from Ocaliva, but
do not include fines or other related payouts.
Derivation Summary
Fitch rates ADVANZ and conducts peer analysis using its Global
Navigator Framework for Pharmaceutical Companies. Fitch considers
its 'B' rating against other asset-light scalable specialist
pharmaceutical companies focused on off-patent branded and generic
drugs such as CHEPLAPHARM Arzneimittel GmbH (B+/Stable),
Pharmanovia Bidco Limited (B+/Stable) and European generic drug
manufacturer Nidda Bondco GmbH (Stada; B/Stable).
ADVANZ's business model focuses not only on life-cycle and
intellectual property management of off-patent branded and generic
drugs, as is the case for CHEPLAPHARM and Pharmanovia, but is also
involved in bringing new niche, specialist and complex treatments
to market through in-licencing and distribution agreements, which
is more similar to Stada's strategy in the specialty
pharmaceuticals segment.
In contrast to CHEPLAPHARM and Pharmanovia, ADVANZ's growth will be
driven by organic growth opportunities related to the company's
pipeline and inorganic growth through acquisition and in-licensing
of niche branded and generic drugs. Nevertheless, ADVANZ will have
a structurally lower margin than these peers, albeit still strong
for the rating category. This is partly driven by its decision to
develop a sales channel in certain therapeutic areas targeting
European hospitals, which in turn calls for higher in-house
marketing and distribution expenses.
Compared with Stada, the company has a weaker business risk profile
due to significantly smaller size and scale, which is compensated
by a less aggressive financial policy.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue slightly above GBP700 million in 2024, driven by organic
revenue. Fitch expects growth to be in double digits in 2025 as the
company integrates the contribution from its latest acquisitions,
mid-single digits in 2026, and double digits in 2027
- EBITDA margin around 42% in 2024, moderating to 38% by 2027
- Maintenance capex of 0.5%-0.7% through 2027. Fitch considers
milestone payments and GBP80 million of acquisitions annually as
capex, as it views the latter as necessary to offset the organic
portfolio decline
- Acquisition of GBP150 million in 2024, and GBP95 million per year
over 2025-2027, of which Fitch considers GBP80 million as capex
- Working-capital outflow at around 1.5% of sales in 2024, due to
the ramp-up of the commercialisation of recently acquired products.
Fitch expects it will moderate towards 1% in 2025-2026, increasing
in 2027
- No dividends to 2027
Recovery Analysis
The recovery analysis is based on a going-concern (GC) approach.
This reflects the company's asset-light business model supporting
higher realisable values in financial distress compared with
balance-sheet liquidation. Distress could arise primarily from
material revenue-and margin contraction, following volume losses
and price pressure, given its exposure to generic competition. For
the GC enterprise value (EV) calculation, Fitch continues to
estimate a post-restructuring EBITDA of about GBP180 million, which
reflects organic earnings post-distress and implementation of
possible corrective measures.
Fitch continues to apply a 5.5x distressed EV/EBITDA multiple,
which would appropriately reflect the company's minimum valuation
multiple before considering value added through portfolio and brand
management.
After deducting 10% for administrative claims, and assuming the
committed revolving credit facility (RCF) of EUR170million will be
fully drawn prior to distress, its principal waterfall analysis
generated a ranked recovery in the 'RR3'/69% band for all senior
secured instruments, ranking equally among themselves. The recovery
rate increases to 69% from 68% previously due to foreign-exchange
rate movements.
Once the proposed TLB issuance and RCF upsizing to EUR214 million
have been finalised, the estimated Recovery Ratings would remain
'RR3', with a recovery rate around 58%, reflecting the increased
TLB and RCF amounts, as well as assuming a slightly higher GC
EBITDA of EUR200 million reflecting the contribution from new drugs
being acquired.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Successful implementation of the organic growth strategy,
complemented by selective and carefully executed acquisitions
leading to:
- EBITDA margin sustained above 40% as well as continued strong
cash generation with FCF margins comfortably in double digits
- EBITDA leverage at or below 4.5x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Unsuccessful implementation of the organic growth strategy or
acquisitions that lead to:
- A sustained decline in the EBITDA margin, translating into
weakening cash generation, with the FCF margin declining towards
low single digits or zero
- A more aggressive financial policy leading to EBITDA leverage
above 6.0x on a sustained basis
Liquidity and Debt Structure
Adequate Liquidity: Fitch views ADVANZ's liquidity as adequate,
based on the Fitch-defined readily available cash position of
around GBP89 million at July 2024 (excluding GBP50 million that
Fitch treats as not readily available for debt service), further
supported by full availability under its EUR170 million RCF
maturing in December 2027. ADVANZ's capital structure benefits from
long-dated maturities, with no debt repayment until April 2028.
The proposed upsize of the TLB and RCF should improve liquidity and
refinancing risk, as the TLB adds GBP216 million in cash to the
balance sheet, while extending the maturity of its multiple
instruments.
Issuer Profile
ADVANZ is a pharmaceutical company with focus on specialty
medicines distributed in Europe and Canada.
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
----------- ------ -------- -----
Cidron Aida
Finco S.a.r.l.
senior secured LT B+(EXP)Expected Rating RR3
senior secured LT B+ Affirmed RR3 B+
ADVANZ PHARMA
HoldCo Limited LT IDR B Affirmed B
CEDAR PARK: Voscap Limited Named as Joint Administrators
--------------------------------------------------------
Cedar Park Schools Limited was placed in administration proceedings
in the High Court of Justice Business and Property Courts of
England and Wales, Insolvency & Companies List (ChD), Court Number:
CR-2024-005767, and Ian Goodhew and Abigail Shearing of Voscap
Limited were appointed as administrators on Oct. 3, 2024.
Cedar Park Schools specializes in general secondary education --
day nursery for babies and children.
Its registered office is at 67 Grosvenor Street, Mayfair, London,
W1K 3JN (formerly Acre House, 11-15 William Road, London, NW1 3ER).
Its principal trading address is at The Grange, 15 High Street,
Hoddesdon, Hertfordshire, EN11 8SX.
The joint administrators can be reached at:
Ian Goodhew
Abigail Shearing
Voscap Limited
67 Grosvenor Street
Mayfair, London
W1K 3JN
For further information, contact:
Anthony Voskou
Email: Anthony.voskou@voscap.co.uk
Tel No: 020 3709 7972
CONSTELLATION AUTOMOTIVE: Moody's Alters Outlook on B3 CFR to Neg.
------------------------------------------------------------------
Moody's Ratings has affirmed the B3 long term corporate family
rating and B3-PD probability of default rating of Constellation
Automotive Group Limited (CAGL), a leading operator of B2B and C2B
used light vehicle marketplaces in the UK and Continental Europe.
At the same time, Moody's affirmed the B2 backed senior secured
instrument ratings of the EUR400 million and GBP400 million
first-lien term loans and the GBP250 million backed senior secured
first-lien revolving credit facility (RCF) issued by Constellation
Automotive Limited and the B2 rating of the GBP695 million backed
senior secured notes issued by Constellation Automotive Financing
PLC. Moody's also affirmed the Caa2 rating of the GBP325 million
backed senior secured second-lien term loan borrowed by
Constellation Automotive Limited.
The outlook on all entities was changed to negative from stable.
RATINGS RATIONALE
CAGL's stretched capital structure means it remains weakly
positioned in the B3 rating category. However, the ratings
affirmation takes into account the company's solid business profile
which benefits from clear market leadership and Moody's base case
expectations that strong earnings growth will be sustained over at
least the next year. Less positively, the change of the outlook to
negative from stable reflects the absence of any scope for
underperformance or indeed a slowdown in the positive trading
trajectory if CAGL is to be successful in refinancing its debt
comfortably ahead of maturities, which begin in 2027.
Despite CAGL achieving strong year-on-year earnings growth during
its fiscal 2024, ended March 31, and maintaining momentum into its
fiscal 2025, the company's Moody's-adjusted gross debt/EBITDA
leverage remains elevated at 9.5x the end of its Q1 fiscal 2025. In
Moody's base case Moody's expect this ratio to improve to 8.5x by
the end of the fiscal year and further towards 8.0x in fiscal 2026
but these levels are very high in the context of refinancing needs
that will have to be addressed during 2026. Moody's also expect the
company's Moody's-adjusted free cash flow to remain at best
moderately positive over the next 12-18 months.
CAGL's weak current and forecast credit metrics, which include
Moody's-adjusted EBITA/interest which is presently only around
1.0x, lead us to believe that the company may need to rely on
support from its shareholders to effect a timely and cost effective
refinancing, unless it materially outperforms Moody's base case.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects the risks that weaker results and/or
a slowing growth trajectory could make a timely and cost effective
refinancing difficult. The outlook could return to stable on the
basis of a sustainable capital structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that positive rating pressure is
unlikely over the next 12-18 months. Beyond that for an upgrade to
be considered it would likely be necessary for the company's:
-- financial leverage, as measured by Moody's-adjusted
debt/EBITDA, to be sustained below 6x, with Moody's expectations of
ongoing profit growth; and
-- cash generation to be meaningful, with a Moody's adjusted free
cash flow (FCF)/debt sustainably above 5%.
Conversely, downward rating pressure could develop if:
-- it seems likely the company will underperform against Moody's
current base case expectations; or
-- the company's liquidity deteriorates; or
-- Moody's consider it likely that the company's capital structure
will become unsustainable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
PROFILE
CAGL is the largest operator of B2B digital used car remarketing
marketplaces in Europe, owning the BCA brand in the UK, and the
leading operator of C2B vehicle buying marketplace in the UK via
the WeBuyAnyCar brand. It also has a C2B vehicle buying marketplace
division in Continental Europe. In fiscal 2024 ended March 31, the
company reported GBP5.8 billion of revenue and GBP194 million of
after-rent EBITDA (post-IFRS 16: GBP247 million). The company is
present throughout the post-factory automotive value chain,
offering a complete suite of services including vehicle storage and
movement and has been owned since 2019 by funds advised by TDR
Capital.
DOWSON PLC 2024-1: S&P Assigns Prelim. B- Rating on F-Dfrd Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Dowson 2024-1 PLC's asset-backed floating-rate class A, B, C, D, E,
F-Dfrd, and X-Dfrd notes. The class X-Dfrd notes will be excess
spread notes. The proceeds from the class X-Dfrd notes will be used
to fund the initial required cash reserves, the premium portion of
the purchase price, and pay certain issuer expenses and fees.
Dowson 2024-1 is the seventh public securitization of U.K. auto
loans originated by Oodle Financial Services Ltd. (Oodle). S&P also
rated the first six Dowson securitizations issued between September
2019 and September 2022.
Oodle is an independent auto lender in the U.K., with a focus on
used car financing for prime and near-prime customers.
The underlying collateral will comprise fully amortizing fixed-rate
auto loan receivables arising under hire purchase (HP) agreements
granted to private borrowers resident in the U.K. for the purchase
of used and new vehicles. There will be no personal contract
purchase agreements in the pool. Therefore, the transaction will
not be exposed to residual value risk.
Of the underlying collateral, 12.6% is currently securitized in
Dowson 2021-2 PLC and will be called prior to the close of Dowson
2024-1 PLC.
Collections will be distributed monthly with separate waterfalls
for interest and principal collections, and the notes amortize
fully sequentially from day one.
At closing, a combination of note subordination and any available
excess spread will provide credit enhancement for the rated notes.
The class A notes also benefit from credit enhancement and
liquidity provided by the class A reserve fund from the closing
date, while a dedicated reserve fund ledger for each of the class B
to F-Dfrd notes will provide liquidity support to each of the
respective notes from closing. The class A reserve fund is sized at
2% of the class A notes' balance at closing, while the
class-specific reserve funds for the class B to F-Dfrd notes is are
sized at 1% of the respective classes closing balance.
Commingling risk is partially mitigated by sweeping collections to
the issuer account within two business days, and a declaration of
trust is in place over funds within the collection account.
However, due to the lack of minimum required ratings and remedies
for the collection account bank, S&P has assumed one week of
commingling loss in the event of the account provider's
insolvency.
Oodle will remain the initial servicer of the portfolio. A moderate
severity and portability risk assessment along with a low
disruption risk assessment results in no cap on the transaction
ratings.
The assets pay a monthly fixed interest rate, and all notes pay
compounded daily sterling overnight index average plus a margin
subject to a floor of zero. Consequently, the notes will benefit
from an interest rate swap with a fixed amortization profile, with
an option to rebalance subject to satisfaction of certain
conditions.
S&P said, "Our structured finance operational risk and sovereign
risk criteria do not constrain the assigned preliminary ratings. We
expect the remedy provisions at closing will adequately mitigate
counterparty risk in line with our counterparty criteria. We expect
the legal opinions to adequately address any legal risk in line
with our criteria."
Preliminary ratings
PRELIMINARY PRELIMINARY
CLASS RATING* AMOUNT (MIL. GBP)
A AAA (sf) TBD
B AA (sf) TBD
C A+ (sf) TBD
D A (sf) TBD
E BBB (sf) TBD
F-Dfrd B- (sf) TBD
X-Dfrd† B- (sf) TBD
*S&P's preliminary ratings on the class A, B, C, D, and E notes
address the timely payment of interest and ultimate payment of
principal, while its preliminary ratings on the class F-Dfrd and
X-Dfrd notes address the ultimate payment of both interest and
principal no later than the legal final maturity date.
†The class X-Dfrd notes will be excess spread notes not backed by
collateral.
TBD--To be determined.
ELVET MORTGAGES 2023-1: Fitch Affirms 'BB+sf' Rating on Cl. E Notes
-------------------------------------------------------------------
Fitch Ratings has upgraded two tranches and affirmed three tranches
of Elvet Mortgages 2023-1 PLC.
Entity/Debt Rating Prior
----------- ------ -----
Elvet Mortgages
2023-1 PLC
Class A XS2706345167 LT AAAsf Affirmed AAAsf
Class B XS2706345670 LT AA+sf Upgrade AA-sf
Class C XS2706345910 LT Asf Upgrade A-sf
Class D XS2706346058 LT BBB+sf Affirmed BBB+sf
Class E XS2706346132 LT BB+sf Affirmed BB+sf
Transaction Summary
The transaction is a securitisation of owner-occupied residential
mortgages originated in England, Wales, Scotland and Northern
Ireland by Atom Bank plc, which originated its first mortgage loan
in December 2016. This is the fifth UK residential mortgage
securitisation originated by Atom.
KEY RATING DRIVERS
Credit Enhancement Build-Up: The transaction is amortising
sequentially and credit enhancement (CE) has continued to increase.
CE has risen by 1.6%, 1.2%, 0.9%, 0.8%, 0.6% since closing for the
class A, B, C, D and E notes, respectively. The increased CE has
driven the upgrades of the class B and C notes.
Strong Asset Performance: Arrears greater than one-month total
0.15% and there have been no repossessions or defaults in the pool,
although the weighted average (WA) seasoning of the pool is only at
19 months. The transaction has so far performed better than the
prime mortgage index average. This reflects the prime nature of the
collateral pools. The pool has full income verification, full or
automated valuation model (AVM) property valuation, the bank's
clear lending policy, and no adverse credit history. The WA
original loan-to-value (LTV) for the pool is 81.0% and the WA debt
to income (DTI) is 29.7%.
Material AVMs, Strong Controls: AVM account for 41.4% of all
valuations in the pool. Atom Bank's lending policy allows the use
of AVMs for loans secured on property (house or low rise flat) with
standard construction, with tiering based on LTV and the difference
between the AVM valuation and loan application value. As a material
proportion of the pool (8.6%) was valued via the use of an AVM and
had a an original LTV greater than 90%, Fitch applied a 5% haircut
to the valuation of these loans as per its UK RMBS Rating
Criteria.
SVR Criteria Variations: Fitch's asset modelling used a bank base
rate (BBR) input of 4% rather than using the criteria-defined rate,
which is BBR as at the pool-cut-off date of 5% as at September
2024. This ensures the interest rate applied when calculating
borrower DTI is not lower than but equal to Atom's standard
variable rate (SVR) of 6.99% as at the pool cut-off date.
Fitch used the SVR margin applied at closing in its cash flow
analysis when determining the SVR margin over SONIA in stable and
decreasing interest rate scenarios. Fitch deemed this rate
reflective of the SVR margin in a decreasing interest rate
scenario. Both adjustments represent a variation to the UK RMBS
Rating Criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Material increases in the frequency of defaults and loss severity
on defaulted receivables producing losses greater than Fitch's base
case expectations may result in negative rating action on the
notes. Fitch's analysis revealed that a 15% increase in the WA
foreclosure frequency (FF), along with a 15% decrease in the WA
recovery rate (RR), would imply downgrades of up to one notch for
the class A and C notes and two notches for the class B notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE and potentially upgrades.
Fitch tested an additional rating sensitivity scenario by applying
a decrease in the WAFF of 15% and an increase in the WARR of 15%.
The impact on the notes could be upgrades of up to one notch for
the class B and D notes, three notches for the class C and four
notches for the class D notes.
The class A notes are already at the highest rating level and
therefore cannot be upgraded.
CRITERIA VARIATION
Fitch applied an asset level criteria variation to ensure the
stress rate modelled is not below Atom Bank's current SVR. It also
applied a Multi Asset Cash Flow Model criteria variation to model a
margin in stable/decreasing interest-rate scenarios that is
representative of expectations in a scenario where margin
compression due to rate rises is not present. Both adjustments are
variations to the UK RMBS Rating Criteria.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information at closing, and concluded that
there were no findings that affected the rating analysis.
Fitch conducted a review at closing of a small targeted sample of
the originator's origination files and found the information
contained in the reviewed files to be adequately consistent with
the originator's policies and practices and the other information
provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
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.
FYLDE FUNDING 2024-1: S&P Assigns B(sf) Rating on F-Dfrd Notes
--------------------------------------------------------------
S&P Global Ratings assigned its ratings to Fylde Funding 2024-1
PLC's class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, and X-Dfrd
notes. At closing, Fylde Funding 2024-1 also issued unrated class Z
notes, certificates, and a VRR loan note.
This is an RMBS transaction originated by Tandem Home Loans (a
related arm of Tandem Bank Ltd.) that securitizes a portfolio of
GBP276.09 million second-lien mortgage loans secured over
properties in the U.K. 4.16% of the loans in the pool are on
buy-to-let properties.
This is the first RMBS transaction originated by Tandem Home Loans
that S&P has rated. S&P previously rated Polo Funding 2021-1 PLC,
where Oplo HL Ltd. originated the collateral. Oplo Group merged
with Tandem Bank in 2022. This transaction's collateral differs
significantly from Polo Funding 2021-1 in terms of loan to value
and underwriting criteria.
The assets backing the notes are U.K. second-lien mortgage loans,
which are positively selected from the lender's book post the
strengthening of its lending criteria since 2020. All of the loans
in the pool were originated post April 2022.
The transaction benefits from liquidity provided by a liquidity
reserve fund (unfunded at closing), and principal can be used to
pay senior fees and interest on the notes subject to various
conditions.
Day 1 credit enhancement for the rated notes consists of
subordination.
At closing, the issuer used the issuance proceeds to purchase the
full beneficial interest in the mortgage loans from the seller. The
issuer grants security over all of its assets in the security
trustee's favor.
There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Tandem Home Loans is also the servicer in the transaction. S&P
reviewed Tandem Home Loans' servicing and default management
processes, and S&P believes it is capable of performing its
functions.
In S&P's analysis, it considered its current macroeconomic
forecasts and forward-looking view of the U.K. residential mortgage
market through additional cash flow sensitivities.
Ratings
CLASS RATING* CLASS SIZE (MIL. GBP)
A AAA (sf) 196.715
B AA (sf) 20.983
C-Dfrd A (sf) 13.114
D-Dfrd BBB (sf) 11.802
E-Dfrd BB (sf) 9.179
F-Dfrd B (sf) 6.556
X-Dfrd BB (sf) 5.245
Z NR 3.933
Certs NR N/A
VRR Loan Note NR 14.085
*S&P said, "Our ratings address timely receipt of interest and
ultimate repayment of principal on the class A and B notes, and the
ultimate payment of interest and principal on all other rated
notes. Our ratings also address timely interest on the rated notes
when they become most senior outstanding." Any deferred interest is
due immediately when the class becomes the most senior class
outstanding.
NR--Not rated.
N/A--Not applicable.
ITHACA ENERGY: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has upgraded Ithaca Energy plc's Long-term Issuer
Default Rating to 'BB-' from 'B' following the completion of the
merger with Eni UK. The Outlook is Stable. Fitch has also upgraded
the senior unsecured notes issued by Ithaca Energy (North Sea) plc
to 'BB-'/RR4 from 'B+'/RR3.
Simultaneously, Fitch has assigned an expected senior unsecured
rating of 'BB-'(EXP)/RR4 to Ithaca Energy (North Sea) plc's
proposed USD700 million note offering due 2029.
The upgrade reflects Fitch's view that Ithaca's merger with Eni
SpA's (A-/Stable) UK assets is credit positive. The assets increase
Ithaca's scale and operational diversification without adding any
debt. Fitch expects the combined Ithaca to benefit from improved
financial flexibility, aided by its low leverage and conservative
financial policy. Fitch forecasts Ithaca's EBITDA net leverage to
remain low on average at 1x in 2024-2027.
These strengths are counterbalanced by combined Ithaca's short
reserve life relative to peers at around six years on a 1P basis,
concentrated exposure to the mature UK Continental Shelf (UKCS)
with high operating costs of over USD20 per barrel of oil
equivalent (boe) and high taxation and a less predictable tax
regime.
Fitch rates Ithaca on a standalone basis given its diluted
shareholding structure.
Key Rating Drivers
New Issuance: The bond is guaranteed on a senior unsecured basis by
Ithaca Energy (E&P) Limited and on a senior subordinated basis by
certain subsidiaries that guarantee and secure the RBL facility.
The newly acquired Eni assets will also guarantee the senior
unsecured bond on a senior subordinated basis at the earliest of
the assets acceding as guarantors to the RBL facility or 90 days
following issuance.
Proceeds together with cash on hand will be used to repay existing
unsecured notes of USD625 million due 2026, repay amounts drawn
under an existing loan and pay fees and transaction costs.
The assignment of a final rating is subject to the receipt of final
documentation conforming to the information reviewed
Assets Boost Business Profile: The merger boosts Ithaca's business
profile by increasing its scale and operational diversification.
The projected 2024 pro-forma production is 100-110 thousand barrels
of oil equivalent per day (kboe/d) with no single asset/hub
accounting for more than 20%. The target assets' gas-weighted
production will provide a better balance between Ithaca's exposure
to oil and gas prices with liquids/gas mix of around 60%, versus
65% before the merger. Further, the target assets' lower operating
costs of around USD15/boe will stabilise Ithaca's unit operating
expenses.
Moderate Reserve Life: The combined reserve base will increase to
219 million barrels of oil equivalent (mmboe) on a proved (1P)
basis and to 368 mmboe on a proved and probable basis (2P) due to
the merger. However, Fitch expects the reserve life to be unchanged
from Ithaca's reserve life of around six years on a 1P basis, which
is lower than at peers.
Greenfield Projects: This is mitigated by substantial contingent
(2C) resources including greenfield projects (e.g. Cambo) that
could support Ithaca's business profile in the long term and also
brownfield projects linked to existing assets that offer short
payback periods. Ithaca's low leverage should also allow for M&A to
replenish reserves.
Decommissioning Obligations Diluted: The Eni UK assets carry some
decommissioning obligations (USD8/1P boe), but these are lower and
longer term than Ithaca's (USD12/1P boe). This, combined with the
lower capital intensity of the Eni assets owing to their mostly
developed status (around 85% of 2P), should enable strong cashflow
generation in the short term.
Costs Remain High: Although typical for the UKCS, Ithaca's
pre-merger cost position of USD27/boe in 1H24 is high relative to
peers' and may be a disadvantage if oil prices fall. Beyond 2024,
Fitch expects operating spending to improve and average around
USD22/boe in 2025-2027 as a result of the lower-cost Eni assets,
brownfield production growth absorbing fixed costs and
decommissioning of older high-cost fields.
Standalone Production to Increase: Ithaca's production fell sharply
to 53kboe/d in 1H24 from 76kboe/d in 1H23 as a result of extended
turnaround activity in the wider UKCS in light of the UK
government's energy profit levy but also operational issues in
non-operated assets. Ithaca expects production to resume to around
60kboe/d as operational issues are resolved in 2H24.
For 2025-2026, excluding the merger impact, Fitch anticipates
production to be maintained at around 60kboe/d as brownfield
projects such as Captain contribute to production and around
70kboe/d in 2027 as Rosebank reaches first oil. Fitch expects the
combined business to maintain production at over 100kboe/d in
2025-2027.
Supportive Shareholders: Fitch views the addition of Eni as
Ithaca's shareholder a positive development. Eni now owns around
39% of Ithaca's shares, reducing Delek's ownership to around 51%
from around 90%. Ithaca will also benefit from Eni's industry
expertise and capabilities as Eni has appointed the CEO, two
non-executive board members and other senior technical management
roles.
Fitch believes the shareholders are both supportive of Ithaca's
independent strategy and financial policy. Fitch rates Ithaca on a
standalone basis without any credit links to its shareholders due
to the diluted shareholding structure.
Disciplined Capital Allocation: Ithaca's capital-allocation
priorities have remained consistent since its IPO, with no changes
announced as part of the Eni UK deal. Fitch views these priorities
as credit positive given management's commitment to low leverage
and a flexible dividend policy tied to cashflow and operational and
market conditions.
It prioritises capex to maintain production over 100kboe/d,
followed by a strong balance sheet with a debt ceiling of below
1.5x EBITDAX and common dividends at around 15%-30% of post-tax
cash flow from operations (CFO). Excess cash flow may be used for
special dividends or inorganic business growth.
Low Leverage: Fitch forecasts Ithaca's EBITDA net leverage to
remain low at around 0.7x in 2024-2025 and to rise to 1.3 in 2026
as Fitch assumes hydrocarbon prices to decline towards mid-cycle
levels. Increased capex for Rosebank, decommissioning costs, tax
charges and dividend payments in line with Ithaca's dividend policy
will turn free cash flow mostly negative until 2027. Nonetheless,
Fitch expects Ithaca to maintain adequate rating headroom.
Tax Burden Is Manageable: Fitch believes the UK government's
combined tax rate of 78% following revisions in July 2024 will be
manageable for Ithaca, due to its material tax losses, which should
allow Ithaca to offset future profits. Fitch estimates annual tax
charge to average about USD290 million in 2024-2027 (or about 23%
of Fitch-defined EBITDA). However, the pending tax changes and lack
of clarity over their evolution reduce its longer-term cash flow
visibility. It can also affect its ability to secure partners for
large projects, such as Cambo, and influence investment decisions
on non-operated assets.
Derivation Summary
Following completion of the Eni transaction, Ithaca's scale (2023:
70.2kboe/d) will increase to around 100kboe/d for 2024 (on a
pro-forma basis) and its reserve base will increase to 219 mmboe
from 156 mmboe on a 1P basis and to 368 mmboe from 242 mmboe on a
2P basis. This yields a reserve life of around six years on a 1P
basis and around nine years on a 2P basis. Its operating costs will
improve due to the Eni UK assets' lower cost at around USD15/boe
based on 2024 guidance versus Ithaca's USD20.5/boe for 2023.
Ithaca's scale as measured by production will be larger than Kosmos
Energy Ltd.'s (B+/Stable; 2023: 63kboe/d) even after the latter
will ramp up production towards 80kboe/d at end-2024. Kosmos's 1P
reserves of around 280 mmboe and 1P reserve life of 11 years is
higher than that of Ithaca. However, Ithaca maintains lower
leverage metrics through the cycle than Kosmos.
Ithaca will be smaller by production than Harbour Energy plc
(BBB-/Stable) with pro-forma production of around 480kboe/d.
Harbour's 2P pro-forma reserve life of around eight years is
similar to that of Ithaca at around nine years after the Eni UK
transaction. Harbour's pro-forma operating cost is lower at
USD13-USD14/boe versus Ithaca's.
Following divestitures, Energean plc's (BB-/Stable) scale (2023:
123kboe/d) is now comparable with Ithaca's. Energean benefits from
a longer reserve life of around 21.2 years on a 2P basis and 2024
pro-forma guidance production and lower production costs in the low
teens. However, it is less diversified by resources (mainly gas
after disposals) than Ithaca's balanced liquids/gas product mix.
Fitch expects Ithaca to maintain lower leverage in 2024-2025 than
Energean.
Key Assumptions
Fitch's Key Assumptions within Its Rating Case for the Issuer
- Brent oil prices at USD80/bbl in 2024, USD70/bbl in 2025,
USD65/bbl in 2026-2027
- Title Transfer Facility gas prices at USD10/mcf in 2024-2025,
USD8/mcf in 2026, USD7/mcf in 2027
- Production increasing to 78kboe/d in 2024 on half-year
consolidation of Eni UK assets, averaging 104kboe/d in 2024-2027
including Rosebank full-year contribution in 2027
- Operating costs (excluding over/under lift, tariff income and
tanker costs) averaging USD23/boe in 2024-2027
- Annual capex averaging about USD610 million in 2024-2027
- Annual decommissioning costs averaging around USD130 million in
2024-2027
- Dividends in line with public dividend policy at 15%-30% of CFO
in 2024-2027 and at 30% in 2024-2025
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Substantial increase in scale (production and/or reserve levels)
or business diversification while maintaining EBITDA net leverage
below 1x or funds from operations (FFO) net leverage below 1.5x
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA net leverage above 2x or FFO net leverage above 2.5x on a
sustained basis
- Production falling significantly below 100kboe/d on a sustained
basis or inability to replenish reserves to current levels
Liquidity and Debt Structure
Comfortable Liquidity: Ithaca held USD288 million of cash and
USD740 million available under undrawn committed facilities as of
end-1H24 against USD30 million of current debt. The contemplated
refinancing will push the next upcoming bond maturity from 2026 to
2029 and the amortisation of the RBL to 2027. If the transaction
goes ahead Ithaca will have no external financing needs until
2027.
Issuer Profile
Ithaca is an exploration and production company focusing on the
North Sea.
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
Ithaca Energy plc has an ESG Relevance Score of '4' for Waste &
Hazardous Materials Management; Ecological Impacts due to high
decommissioning obligations relative to global peers, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Ithaca Energy plc has an ESG Relevance Score of '4' for GHG
Emissions & Air Quality due to the company's operations in a
stringent climate-related regulatory environment, high cost of
production and energy transition strategies focusing only on Scope
1 and 2 emissions. This has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Ithaca Energy
(North Sea) Plc
senior
unsecured LT BB-(EXP)Expected Rating RR4
senior
unsecured LT BB- Upgrade RR4 B+
Ithaca Energy plc LT IDR BB- Upgrade B
ITHACA ENERGY: Moody's Ups CFR to 'Ba3', Outlook Stable
-------------------------------------------------------
Moody's Ratings has upgraded Ithaca Energy plc's long term
corporate family rating to Ba3 from B1. Concurrently, Moody's
upgraded to Ba3-PD from B1-PD Ithaca's probability of default
rating and assigned a B1 instrument rating to the proposed backed
senior unsecured notes to be issued by Ithaca Energy (North Sea)
plc, a wholly-owned subsidiary of Ithaca. The rating of the
existing $625 million backed senior unsecured notes due July 2026
has also been upgraded to B1 from B3. The outlook is stable for
both entities.
This concludes the review for upgrade initiated on May 3, 2024.
RATINGS RATIONALE
Moody's rating action follows Ithaca's completion of the
combination with substantially all of Eni S.p.A.'s UK upstream oil
and gas assets announced on October 3, 2024 [1].
The Ba3 long term CFR reflects Ithaca's: expected production of
around 100 thousand barrels of oil equivalent per day (kboepd)
through 2026-27; maintenance of robust financial metrics at
mid-cycle pricing conditions and despite rising outflows for taxes,
capital expenditure and dividends; track record of delivering
against a clearly articulated and conservative capital allocation
framework; and a committed and more diversified shareholding
structure that includes the Italian oil major Eni S.p.A. (Eni, Baa1
stable).
Ithaca's Ba3 long term CFR is nevertheless constrained by the
exposure to fiscal uncertainty, natural decline rates and high
operating costs as a result of the company's exclusive operational
concentration in the UK. As an oil and gas producer on the UK
Continental Shelf, Ithaca needs to weather the effects of Energy
Profits Levy (including any potentially adverse future iterations).
Sizeable available tax loss positions mitigate the near-term
implications of higher taxation on Ithaca's cashflows.
Nevertheless, the diminished attractiveness of the UK fiscal
environment casts uncertainty around Ithaca's future ability to
monetise its undeveloped resources, and therefore address its small
scale and short proved reserve life. Ithaca's Ba3 long term CFR
also reflects the modest degree of direct operational control and
substantial decommissioning liabilities, albeit with limited
near-term cash implications.
Moody's also expect Ithaca to successfully refinance its capital
structure. Proceeds from the announced senior unsecured issuance
(net of transaction fees and expenses) alongside cash at hand and
modest drawings under a new reserve-based lending facility will
refinance Ithaca's existing notes due 2026 and a $100 million
bilateral loan from BP p.l.c. (A1 stable). Ithaca's existing
reserve-based lending facility (RBL) due May 2026 is expected to be
replaced by a new RBL with maturity in 2029 whose commitments stood
at $1.235 billion (inclusive of a $0.5 billion facility for letters
of credit) at the date of the refinancing announcement [2]. The
refinancing transaction strengthens Ithaca's liquidity by means of
an extended debt maturity profile.
ESG CONSIDERATIONS
Governance considerations were a key driver of the rating action
and primarily reflect the prudent funding of Ithaca's
transformational business combination with Eni's UK upstream
assets. Besides the acquisition of debt-free assets and the
all-share consideration for the transaction, governance
considerations also extend to Ithaca's greater diversification of
shareholding structure and board composition.
That said, Ithaca's Credit Impact Score of 4 (CIS-4) continues to
indicate that the assigned rating is lower than it would have been
if ESG risk exposure did not exist. The score primarily reflects
exposure to environmental and social risks because Ithaca's
earnings and cashflow generation capacity rely upon demand for oil
and gas in the context of carbon transition. Social risks also
include exposure to increased taxation on O&G upstream activities
in the UK.
LIQUIDITY
Ithaca's liquidity is good pro forma for the planned refinancing.
Moody's assessment considers:
-- Expected retention of cash balances that are commensurate with
the needs of the business
-- Good availability under the new committed RBL. At this stage,
Moody's analysis is based on a borrowing base of currently up to
$735 million, which takes full account of the current EPL regime
but excludes future and not yet known amendments to the regime that
would potentially alter Ithaca's borrowing capacity
-- Ample headroom under the Net Debt/EBITDAX covenant of below
3.5x attached to the RBL facility
-- Potential to raise some liquidity from disposals of interests
in undeveloped acreage (ex. Cambo), subject to investment sentiment
in the context of the EPL
STRUCTURAL CONSIDERATIONS
Ithaca's pro forma capital structure includes a $1.235 billion
secured RBL facility (of which $0.5 billion is reserved for letters
of credit) and backed senior unsecured notes with a 5-year
maturity. The B1 rating on the backed senior unsecured notes is one
notch below the CFR, reflecting the substantial secured liabilities
ranking ahead of the notes.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that Ithaca will
successfully integrate the acquired assets, maintain production
sustainedly above 100 kboepd and strengthen its proved developed
reserve base while adhering to its stated conservative financial
policies. The stable outlook also incorporates no material impact
arising from further potential adverse changes to the UK fiscal
regime.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While unlikely, the rating could be upgraded to Ba2 if Ithaca:
-- Significantly increases its scale to support a material
improvement in its proved reserve life profile and production
volumes, and
-- Retains competitive cost structures and returns on projects,
and
-- Maintains Moody's-adjusted retained cash flow to debt
(RCF/debt) sustainedly above 60% at mid-cycle price conditions,
debt/proved developed reserve below $5/boe and a strong liquidity
Conversely, the CFR would be downgraded to B1 should Ithaca fail
to:
-- Maintain production volumes above 100 kboepd whilst addressing
its short proved reserve life, resulting in Moody's-adjusted
leverage rising above $15,000/boe
-- Maintain RCF/debt sustainably above 40%
-- Generate positive FCF as a result of large shareholder
distributions, capital outspending or substantial abandonment
expenditure, or
-- Maintain an adequate liquidity position
Given the current geographic concentration in the UK, detrimental
implications arising from further adverse amendments to the EPL
would also exert negative pressure on Ithaca's ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Independent
Exploration and Production published in December 2022.
COMPANY PROFILE
Ithaca is a UK-focused independent oil and gas exploration and
production company. It produced on average 53 thousand barrels of
oil equivalent per day (kboepd; 69% liquids and 31% natural gas) in
the first six months of 2024, generating revenue of $842 million
and Moody's-adjusted EBITDA of $493 million.
On October 3, 2024, Ithaca acquired substantially all of the UK
upstream assets of Eni S.p.A. (Eni, Baa1 stable) for an all-equity
consideration of GBP759 million. The Italian oil major is therefore
Ithaca's second-largest shareholders behind Delek Group Ltd.
(around 37% and 51% stake, respectively). The remainder of the
company's capital is free float listed on the London Stock
Exchange.
ITHACA ENERGY: S&P Assigns 'BB-' ICR on Eni Asset Combination
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S&P Global Ratings assigned its 'BB-' issuer credit rating and
issue rating to Ithaca Energy PLC and its proposed unsecured bonds.
The recovery rating on the bonds is '4'.
The stable outlook reflects S&P's expectation that Ithaca will
exhibit average funds from operations (FFO) to debt of well above
45%, within its current scope, and based on its assessment of Brent
oil price assumptions of $75 per barrel (/bbl) in 2024, remaining
at $75/bbl in 2025 onward, and TTF price to average at $12 per
million Btu (/mmBtu) for 2024 and 2025 before decreasing to
$10/mmBtu in 2026.
Ithaca Energy is an independent exploration and production (E&P)
company focusing on production and development exclusively in the
U.K. North Sea.
Following the combination with Eni's U.K. Continental Shelf (UKCS)
assets, the company's portfolio will consist of working interests
in 37 producing fields and a total portfolio of more than 40
fields. It disclosed $1.72 billion of adjusted EBITDAX in 2023 on a
stand-alone production of 70.2 thousand barrels of oil equivalent
per day (kboepd).
S&P said, "Our assessment of Ithaca's business profile reflects our
view of the company's smaller scale of production and lower
diversity of operations than peers. Ithaca is an independent
exploration and production company operating within the UKCS. Its
strategy is to focus on production and development, rather than
riskier exploration activities, and has been expanding its
portfolio of assets through both organic investment programs and
acquisitions. Ithaca has limited geographical diversification
because it primarily operates on the UKCS with a portfolio of over
40 fields, 37 of which are producing and all of which predominantly
lie in the Central North Sea and West of Shetland areas. We
understand the U.K. government remains somewhat supportive of
efforts to invest in and stimulate production in the UKCS."
However, a lack of fiscal stability remains a risk for Ithaca and
UKCS peers, with a UK Budget Statement from the recently installed
government due Oct. 30."
The addition of Eni SpA's U.K. assets will provide a meaningful
uplift to Ithaca's production profile and reserve base. Production
guidance is over 100 kboepd over the medium term. This gives Ithaca
a sufficient proved and probable (2P) reserve life (reserves
divided by annual production) of eight-to-nine years, which is
lower than rated peers like EnQuest (B/Stable/--), which has a
reserve life of about 11 years. Ithaca has midsize commercial
reserves of 156 million proven (1P) and 254 million proven plus
probable (2P) barrels of oil equivalent as of year-end 2023. It
anticipates this to be 219 million and 368 million barrels of oil
equivalent, respectively, after the transaction's completion.
Production is 65%-70% oil-weighted and diversified across fields in
the North Sea, but S&P anticipates an ultimate weighting of about
58% oil.
S&P said, "We think the enlarged portfolio will support the 'BB-'
rating and higher FFO. We project Ithaca will post strong credit
metrics over 2025-2026 because of our assumed oil and gas prices.
Although the company's hedging policy will moderate benefits from
high spot prices, we do not see this as negative because it smooths
cash flow. At the same time, high profits will result in
significant tax payments in U.K. through the energy project levy
(the windfall tax on U.K. oil and gas production introduced in
2022), which limits the positive effect of strong commodity prices
on FFO. However, we still forecast FFO to debt to remain well above
45% over 2025-2026, which is in line with the rating.
"After the transaction's completion, we anticipate similar cost per
barrel metrics. Costs per barrel currently are modestly above those
of peers. Ithaca posted a reported $20.5 of operating expenditure
(opex) per barrel in 2023, with the expectation to remain above
$20/bbl for the next year. We view this negatively against
comparable U.K. E&P peers, such as Harbour or Energean, who
consistently deliver costs under $20/bbl.
"The stable outlook reflects our expectation that Ithaca will
exhibit average FFO to debt of above 45%. Our assessment includes
Brent oil price assumptions of $75/bbl for the rest of 2024
remaining at $75/bbl in 2025 onward, and TTF price to average at
$12/mmBtu for 2024 and 2025 decreasing to $10/mmBtu from 2026."
S&P could lower the rating if:
-- FFO to debt would fall below 45% for a sustained period. This
can, for example, follow much lower oil and gas prices than its
assumptions or if production falls, translating into higher
operating costs per barrel.
-- Aggressive debt finance acquisitions or dividend distributions
beyond the company's financial policy.
S&P could consider an upgrade if:
-- Ithaca were to significantly increase reserves while achieving
sustainable production growth without deviating from its leverage
financial policy.
-- FFO to debt remained well above 60% for a prolonged period and
operating resilience strengthened, for example opex stepped down
below $20 per barrel of oil equivalent.
-- S&P saw a track record showing limited risk of intervention
from its majority shareholder, with continued effectiveness of the
independent directors and U.K. governance framework.
S&P said, "Environmental factors are a negative consideration in
our credit rating analysis on Ithaca, in common with its industry
peers. Climate and pollution are structural risks for Ithaca. It
also has to contend with the uncertainty of an accelerating energy
transition and adoption of substitute energy sources. We expect
environmental regulations and policies to tighten further,
prompting industry peers to reevaluate flexibility for capital
deployment."
The limited diversification outside of upstream further exposes
Ithaca to energy transition risks. To address this, the group
formed an energy transition team in 2022 to lead its emission
reduction activities.
REDHALO MIDCO: S&P Rates EUR880MM Term Loan B Due 2031 'B'
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S&P Global Ratings assigned its 'B' issue rating and '3' recovery
rating to the EUR880 million term loan B (TLB) to be issued by
Redhalo Midco (Uk) Ltd. (B/Stable/--), the owner of European web
hosting provider group.one, and its subsidiaries One.com Group AB
and sotus 860.GmbH. The '3' recovery rating indicates its
expectation of meaningful (50%-70%; rounded estimate: 60%) recovery
of principal in the event of a payment default.
The TLB is part of Redhalo Midco (Uk)'s plans to reprice its
existing TLB3 facility and issue a EUR80 million TLB add-on to
refinance current drawings under the revolving credit facility
(RCF). The proposed new EUR880 million TLB will carry an interest
margin of 3.75%, versus 4.0% previously. S&P said, "We think the
transaction is largely neutral for Redhalo Midco (Uk)'s cash flow
and leverage. We continue to forecast free operating cash flow
(FOCF) improving to more than EUR60 million in 2024, from our
estimate of less than EUR30 million in 2023 on a pro forma basis."
S&P said, "We think Redhalo Midco (Uk) will continue to benefit
from the strong uptick in digitalization of small and midsized
enterprises and its end-to-end online presence through proprietary
product suite and in-house technology platform. This should result
in cross-selling opportunities and pricing upside, considering the
company's expanded product offering following the dogado
acquisition closed in fiscal 2023 (ended Sept. 30, 2023) and its
relatively low-price value proposition compared with that of major
competitors like team.blue. We therefore estimate the group's pro
forma revenue will have increased by about 7% to EUR350 million in
fiscal 2024, with an S&P Global Ratings-adjusted EBITDA margin of
about 35%-37%, compared with 33.5% in fiscal 2023. At the same
time, the group has recently delayed some budgeted price increases
and we have revised slightly downward our revenue and EBITDA margin
expectations for fiscal 2024, which remains constrained by high
one-off integration costs, still limited synergies, and
larger-than-previously-planned capitalized development costs that
we expense. We now forecast that the EBITDA margin will further
expand toward 45%-50% in fiscal 2025 thanks to sound operating
leverage, tight cost control, expected synergies, and diminishing
one-off costs. It results in our expectations of an S&P Global
Ratings-adjusted debt to EBITDA of about 6.0x for fiscal 2024. We
believe leverage will improve to about 5.5x in fiscal 2025 -- one
of our thresholds for a 'B+' rating; the other being FOCF to debt
above 10% -- although there is no track record so far of the group
sustaining such ratios. We also think that the group could continue
deleveraging further in 2026, absent any major debt-funded
acquisitions or sizable shareholder returns."
Redhalo Midco (Uk) Ltd. forecast summary
INDUSTRY SECTOR: SOFTWARE & SERVICES
(MIL. EUR) 2024E 2025F 2026F
Revenue 350 380 413
EBITDA (reported) 137 178 206
Plus/(less): Other (10) (10) (10)
EBITDA 127 168 196
Less: Cash interest paid (55) (52) (55)
Less: Cash taxes paid (3) (17) (23)
Funds from operations (FFO) 68 99 119
Free operating cash flow (FOCF) 67 98 119
Debt (reported) 757 880 880
Plus: Lease liabilities debt 20 20 20
Plus/(less): Other -- -- --
Debt 777 900 900
ADJUSTED RATIOS
Debt/EBITDA (x) 6.1 5.4 4.6
FFO/debt (%) 8.8 11.0 13.2
FOCF/debt (%) 8-9 c. 10 12-14
Annual revenue growth (%) 7.0 8-9 8-9
EBITDA margin (%) 35-37 43-45 46-48
All figures include S&P Global Ratings adjustments' unless stated
as reported.
e--Estimate.
f--Forecast.
Issue Ratings--Recovery Analysis
Key analytical factors
-- The proposed EUR880 million TLB and the EUR120 million pari
passu RCF raised by Redhalo Midco (Uk) Ltd. and its subsidiaries
One.com Group AB and sotus 860.GmbH are rated 'B' with a '3'
recovery rating.
-- The '3' recovery rating indicates our expectation of meaningful
(50%-70%; rounded estimate: 60%) recovery in the event of default.
This reflects that no prior-ranking debt in the current capital
structure and our valuation of Redhalo Midco (Uk) Ltd. as a going
concern, with an established and leading market position in the
Nordics, Benelux, Germany, Austria, and Switzerland shared hosting
markets, as well as its own proprietary software solutions.
-- The recovery rating is constrained by the asset-light nature of
the business and the group's high leverage resulting in a high
amount of same-ranking debt at the hypothetical point of a
default.
-- In its hypothetical default scenario, S&P assumes a severe
economic downturn, increased competition resulting in pricing
pressures, and a drop in revenue.
Simulated default assumptions
-- Simulated year of default: 2027
-- Minimum capex: 2.5% of forecast revenue in 2024
-- Cyclicality adjustment factor: 5% (standard assumption for the
technology, software, and software services sectors)
-- Emergence EBITDA: about EUR100 million
-- Implied enterprise value multiple: 6.5x
-- Jurisdiction: U.K.
Simplified waterfall
-- Gross recovery value: about EUR670 million
-- Net value available to creditors after administrative expense
(5%): EUR635 million
-- Estimated first-lien debt claims: about EUR1.02 billion
--Recovery expectations: 50%-70% (rounded estimate: 60%)
--Recovery rating: 3
All debt amounts include six months of prepetition interest. The
RCF is assumed to be 85% drawn at default. The recovery range is
rounded down to the nearest 5%.
RND GLOBAL: Quantuma Advisory Named as Joint Administrators
-----------------------------------------------------------
RND Global Ltd was placed in administration proceedings in High
Court of Justice Business and Property Courts of England & Wales,
Court Number: CR-2024-005833, and Kelly Mitchell and Carl Jackson
of Quantuma Advisory Limited were appointed as administrators on
Oct. 4, 2024.
RND Global engages in business support service activities.
Its registered office is at 99 3 Riverlight Quay, London, England,
SW8 5BE and it is in the process of being changed to Office D,
Beresford House, Town Quay, Southampton, SO14 2AQ. Its principal
trading address is at 99 3 Riverlight Quay, London, SW8 5BE.
The joint administrators can be reached at:
Kelly Mitchell
Carl Jackson
Quantuma Advisory Limited
Office D, Beresford House
Town Quay, Southampton
SO14 2AQ
For further information, contact:
Jude Whitlingum
Email: Jude.Whitlingum@quantuma.com
Tel No: 023 82356931
TONY PERRY: Hudson Weir Named as Joint Administrators
-----------------------------------------------------
Tony Perry Limited was placed in administration proceedings in the
High Court of Justice, Business and Property Courts of England and
Wales, Insolvency and Companies List (ChD), Court Number:
CR-2024-005901, and Nimish Patel and Hasib Howlader of Hudson Weir
Limited were appointed as administrators on Oct. 8, 2024.
Tony Perry engages in forging, pressing, stamping and roll-forming
of metal; powder metallurgy.
Its registered office is at 62-66 Bermondsey Street, London,
England, SE1 3UD.
The administrators can be reached at:
Nimish Patel
Hasib Howlader
Hudson Weir Limited
58 Leman Street
London, E1 8EU
For further details, contact:
Hudson Weir
Tel No: 02070996086
TRAFFORD CENTRE: S&P Raises Class D1(N) Notes Rating to 'BB+(sf)'
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S&P Global Ratings raised its credit ratings on Trafford Centre
Finance Ltd.'s class A2 and A3 notes to 'A+ (sf)' from 'A (sf)',
class B and B2 notes to 'A- (sf)' from 'BBB+ (sf)', and class D1(N)
notes to 'BB+ (sf)' from 'BB (sf)'.
Rating rationale
S&P said, "The upgrades follow our updated review of the
transaction's credit and cash flow characteristics. Our S&P Global
Ratings value has remained relatively unchanged since our previous
review in October 2023, because the increase in our S&P Global
Ratings net cash flow (NCF) is offset by a higher cap rate
assumption. However, the transaction has deleveraged following the
redemption of class B3 and D3 notes in April 2024, as well as
through scheduled amortization. We have therefore raised the
ratings on all classes of notes."
Transaction overview
The Trafford Centre Finance is a single loan transaction secured on
the Trafford Centre, a regional shopping center on the outskirts of
Manchester.
The loan within this transaction is divided into five outstanding
sub-tranches that match each class of notes issued. Two of the
tranches (A2 and B) have been issued on a fixed interest rate
basis, while the remaining (A3, B2, and D1(N)) notes pay a floating
interest rate. The notes' legal final maturity dates range between
January 2029 and July 2038.
The loan benefits from scheduled amortization over the
transaction's life. The class A2, B, and D1(N) notes are fully
amortizing notes, and the class A3 notes have partial amortization
with a bullet payment at maturity. The class B2 notes are
interest-only. Since our previous review, the class B3 and D3
notes, totaling GBP90.0 million, have fully repaid.
Table 1
Capital structure
PREVIOUS
CURRENT REVIEW
PREVIOUS S&P OCT 2023
PREVIOUS REVIEW IN GLOBAL S&P GLOBAL
REVIEW IN CURRENT OCT 2023 RATINGS RATINGS
CURRENT OCT 2023 LTV LTV LTV LTV
NOTIONAL NOTIONAL RATIO RATIO RATIO RATIO
CLASS (MIL. GBP)(MIL. GBP) (%)* (%)§ (%)† (%)†
A2 203.4 220.1 42.3 45.7 56.8 59.4
A3 188.5 188.5 42.3 45.7 56.8 59.4
B 35.0 41.6 48.3 54.8 64.8 71.3
B2 20.0 20.0 48.3 54.8 64.8 71.3
B3 0.0 20.0 N/A 54.8 N/A 71.3
D1(N) 26.1 27.8 51.1 65.7 68.6 85.5
D3 0.0 70.0 N/A 65.7 N/A 85.5
Total 473.1 588.0 51.1 65.7 68.6 85.5
*Based on the most recent reported market value, dated December
2023 (GBP926.0 million). §Based on the then most recent reported
market value, dated December 2022 (GBP895.0 million).
†Before recovery rate adjustments.
LTV--Loan to value.
N/A—Not applicable.
Transaction performance
The shopping center's market value as of December 2023 increased by
3.5% to GBP926.0 million, from GBP895.0 million in December 2022.
Over the same period, the estimated rental value (ERV) increased by
1.8% to GBP75.1 million from GBP73.8 million. Rental income for the
period to end-June 2024 increased to GBP71.5 million, including
turnover rents, from GBP69.4 million in the previous year. Between
June 2023 and June 2024, the reported physical vacancy decreased to
2.0% from 6.0%. According to the June 2024 rent roll, total passing
rent now stands at GBP62.1 million, up from GBP60.3 million in
2023.
The tenant profile is diversified and comprises a combination of
nationally and internationally recognized retailers. The shopping
center is anchored by department stores Marks & Spencer, John
Lewis, and Selfridges, and the largest retail tenants include Zara,
Watches of Switzerland, JD Sports, Next, Boots, River Island, and
H&M. The top 10 tenants account for 32.8% of contracted rent and
occupy 45.1% of gross internal area.
S&p SAID, "In light of the property performance, we have updated
the assumptions used to arrive at our S&P Global Ratings value. We
have assumed rent fully let of GBP75.1 million equal to the
property's ERV as of December 2023. We have lowered our vacancy
assumption to 13% from 15%, which considers the 17.7% market
vacancy rate for U.K. shopping centers, the property's current
vacancy level, and lower lease rollover risk. Our non-recoverable
expenses assumption remains unchanged at 25%. This results in S&P
Global Ratings NCF of GBP49.0 million.
"The increase in our S&P Global Ratings NCF is offset by a higher
cap rate assumption. We increased our cap rate to 6.75% from 6.50%
in light of the higher retail yields that have persisted for a few
years now and that had already widened before the interest rate
increases in 2022-2023. We applied this cap rate against the S&P
Global Ratings NCF, and deducted 5% of purchase costs to arrive at
the S&P Global Ratings value."
Table 2
S&P Global Ratings' key assumptions
PREVIOUS REVIEW
REVIEW CURRENT IN OCTOBER 2023
Rent fully let (mil. GBP) 75.1 73.8
Vacancy (%) 13.0 15.0
Non-recoverable expenses (%) 25.0 25.0
Net cash flow (mil. GBP) 49.0 47.0
Value (mil. GBP) 689.7 687.6
Cap rate (%) 6.75 6.50
Haircut-to-market value (%) 25.5* 23.2§
*Based on the most recent reported market value, dated December
2023 (GBP926.0 million).
§Based on the then most recent reported market value, dated
December 2022 (GBP895.0 million).
Other analytical considerations
S&P's analysis also covers the transaction's payment structure and
cash flow mechanics. It assesses whether the cash flow from the
securitized assets would be sufficient, at the applicable rating
levels, to make timely payments of interest and ultimate repayment
of principal by the legal maturity date for each class of notes,
after considering available credit enhancement and allowing for
transaction expenses and external liquidity support.
The risk of interest shortfalls is mitigated by an GBP80 million
facility that provides liquidity support to service the interest
and certain scheduled principal repayments on the class A and B
notes, if needed. The class D1(N) notes also benefit from the same
facility. However, they are subject to a GBP15 million utilization
cap, which may be drawn to cover a shortfall of interest only.
The reported debt service coverage ratio (DSCR) as of June 30, 2024
was 0.34x, down from 0.69x in June 2023. This ratio includes the
repayment of the class B3 and D3 notes of GBP90.0 million in total.
Excluding this principal repayment, the DSCR would be 0.87x. As of
June 2024, the interest coverage ratio was 1.49x, up from 1.21x in
June 2023.
S&P said, "We believe that Canada Pension Plan Investment Board
(CPPIB) continues to cover cash flow shortfalls to meet debt
service payments on the notes. We also continue to believe that the
class D1(N) notes are vulnerable to interest shortfalls due to the
liquidity facility utilization cap.
"Our analysis also considers hedge break costs, which would result
from the termination of interest rate swaps after the default or
enforcement of a loan. In this transaction, three swaps cover the
class A3, B2, and D1(N) notes. Our calculated hedge break costs are
lower than at our previous review given the current interest rate
environment. Hedge break costs are generally lower in a high
interest rate environment because a smaller swap termination fee is
due to the swap provider. The shorter remaining term under the
swaps also has a positive impact on the calculation.
"Furthermore, our analysis included a full review of the legal and
regulatory risks, operational and administrative risks, and
counterparty risks. Our assessment of these risks remains unchanged
since our previous review and is commensurate with the ratings
assigned."
Rating actions
S&P said, "Our ratings in this transaction address the timely
payment of interest, payable quarterly in arrears, and the payment
of principal no later than the legal final maturity dates.
"The transaction's credit quality has remained relatively stable.
Our opinion of the property's long-term sustainable value is
largely unchanged since our previous review.
"However, the transaction has deleveraged substantially since our
previous review. This is due to the full GBP90.0 million repayment
of the class B3 and D3 notes in April 2024, as well as scheduled
amortization totaling GBP24.6 million or approximately 4.2% of the
securitized loan balance at our previous review. In addition, the
assumed hedge break costs, which could reduce recovery from the
property sale in our analysis, are now lower due to the higher
interest rate environment and shorter remaining time to maturity.
This is credit positive, in our view.
"The S&P Global Ratings loan-to-value ratio has decreased to 68.6%
from 85.5% since our previous review. Based on the credit metrics
only, the ratings on the notes could be higher. However, the retail
sector remains vulnerable to subdued consumer spending and
increased operating costs. Furthermore, our rating on the class A3
notes is constrained by the resolution counterparty rating on the
swap provider, NatWest Markets PLC (A+/--/A-1). Additionally, the
class D1(N) notes are subject to a liquidity facility utilization
cap and are therefore exposed to interest shortfalls. Therefore, we
raised the ratings on the class A2 and A3 notes to 'A+ (sf)' from
'A (sf)', the ratings on the class B and B2 notes to 'A- (sf)' from
'BBB+ (sf)', and the rating on the class D1(N) notes to 'BB+ (sf)'
from 'BB (sf)'."
*********
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