/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/241016.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 Wednesday, October 16, 2024, Vol. 25, No. 208 Headlines F R A N C E PARTS HOLDING: Moody's Hikes CFR to B1 & Alters Outlook to Stable I R E L A N D CARLYLE GLOBAL 2014-1: Moody's Ups Rating on Cl. E-R Notes to Ba1 K O S O V O KOSOVO: Fitch Affirms 'BB-' LongTerm Foreign Currency IDR L U X E M B O U R G ADLER GROUP: S&P Upgrades ICR to 'B-', Outlook Negative N E T H E R L A N D S KONINKLIJKE FRIESLANDCAMPINA: S&P Rates EUR300MM Securities 'BB+' U N I T E D K I N G D O M CONNECTING LONDON: Ernst & Young Named as Joint Administrators INIZIO GROUP: Moody's Lowers CFR to B3, Outlook Remains Stable MAMMOTH SIT: Opus Restructuring Named as Joint Administrators MOTION MIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable NIX&KIX: KRE Corporate Named as Joint Administrators NOMIS CONNECTIONS: Ernst & Young Named as Joint Administrators QDOS SBL: Ernst & Young Named as Joint Administrators TRIDENT ENERGY: S&P Affirms 'B-' ICR, Outlook Positive - - - - - =========== F R A N C E =========== PARTS HOLDING: Moody's Hikes CFR to B1 & Alters Outlook to Stable ----------------------------------------------------------------- Moody's Ratings has upgraded car parts distributor Parts Holding Europe S.A.S's (PHE or the company) corporate family rating to B1 from B2 and probability of default rating to B1-PD from B2-PD. Concurrently, Moody's have also upgraded the rating on the existing backed senior secured term loan B issued by Parts Europe S.A. to B1 from B2. The outlook for both entities has changed to stable from positive. RATINGS RATIONALE The rating upgrade reflects the company's continued strong operating performance since the pandemic, driven by strong demand for PHE's products, inflation pass through and cost controls that have also resulted in improvement in margins. Leverage (Moody's adjusted debt/EBITDA) has reduced to 5.0x as of the end of June 2024 from 6.0x as of the end of 2022, while EBITA margin has slightly improved to 9.1% from 8.9% over the same period. Free cash flow (FCF) to debt has improved to 6.4% as of LTM June 2024 mainly because of lower working capital outflows (on a Moody's adjusted basis), which does not include factoring movements. Moody's expect the improvements in operating performance and earnings to continue albeit at a slower pace as inflation cools down. Moody's expect favourable market conditions such as ageing car parc, rising maintenance costs driven by complexity of the vehicles and price increases of spare parts by OEMs to be the drivers of PHE's performance. As a result, Moody's expect PHE will continue growing its top line in mid-single-digit percentage in the next two years and generate Moody's adjusted EBITDA of around EUR330 - 360 million, resulting in leverage of around 4.2x-4.5x over the next 12-18 months. The company's Moody's adjusted FCF/debt will be in the range of 3.5% - 4%, partly due to higher utilization of factoring lines which Moody's add to debt. Moody's expectation is that the company will continue maintaining good liquidity, which is important given volatile working capital movements that have occurred in the past. Moody's recognize that PHE's owner, D'Ieteren Group is a supportive shareholder who is committed to maintaining a conservative financial policy and continue deleveraging the company, focus on business growth, with no plans of dividend distributions or major debt funded acquisitions foreseen at this point in time. RATING OUTLOOK The stable outlook reflects Moody's expectation that the strong operating performance will continue, translating into the adjusted leverage reducing below 4.5x in the next 12-18 months and improvement in FCF/debt. Moody's assume that the company will not execute any major debt-funded acquisitions or shareholder distributions as per the company and the shareholder's stated financial policy. LIQUIDITY PROFILE Moody's consider PHE's liquidity to be good and supported by a cash balance of EUR185 million and an undrawn revolving credit facility (RCF) of EUR242 million as of June 2024. The company also has a EUR200 million factoring line of which around EUR123 million has been drawn as of June 2024. In 2024, Moody's expect the company to generate FCF/debt of around 3.5%, with further improvements thereafter. Moody's also expect an exceptional payment of EUR60 million of earn-outs in 2024 related to acquisitions completed. As part of the documentation, the RCF contains a maintenance springing covenant of senior secured net leverage to EBITDA of less than 7.25x when the RCF is drawn more than 40%. Moody's expect PHE to maintain ample headroom under this covenant. STRUCTURAL CONSIDERATIONS The B1 ratings on the backed senior secured Term Loan B is at the same level as the CFR. The Term Loan B and the RCF are issued at the holding company level and are guaranteed by operating companies that contribute 80% of consolidated EBITDA. Both the RCF and the backed senior secured term loan B benefit from the same security package (i.e. shares, bank accounts and intercompany receivables). FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS While upward pressure is unlikely in the near term, Moody's will consider upgrading the ratings if continued improvement in operating performance, including sustained EBITDA margins, leads to Moody's-adjusted debt/EBITDA reducing to below 4.0x, Moody's-adjusted EBITA/interest increasing above 3x, and if the company maintains a solid liquidity profile including positive Moody's-adjusted FCF/debt towards 10%, all on a sustainable basis. An upgrade would also require a track record of predictable and clearly articulated financial policy from D'Ieteren Group aimed at preserving a stronger credit profile of PHE. Negative rating action could materialise if there is a deterioration in the company's operating performance and cash flow generation, or liquidity materially weakens. This would be evidenced by Moody's-adjusted debt/EBITDA remaining sustainably above 5.0x, Moody's-adjusted EBITA/ interest cover of below 2x, weakening in EBITDA margins or deterioration in positive free cash flow generation. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Distribution and Supply Chain Services published in February 2023. COMPANY PROFILE Headquartered in France, Parts Holding Europe S.A.S is a leading aftermarket light vehicle (LV) spare parts distributor and truck spare parts distributor and repairer in France, Benelux, Italy, and Spain. It also owns Oscaro, the leading online car parts retailer in France, since November 2018. The company generated revenue of around EUR2.6 billion and Moody's adjusted EBITDA of EUR319 million for LTM June 2024. ============= I R E L A N D ============= CARLYLE GLOBAL 2014-1: Moody's Ups Rating on Cl. E-R Notes to Ba1 ----------------------------------------------------------------- Moody's Ratings has upgraded the ratings on the following notes issued by Carlyle Global Market Strategies Euro CLO 2014-1 Designated Activity Company: EUR17,200,000 Class C-1-R Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aaa (sf); previously on Apr 12, 2024 Upgraded to Aa2 (sf) EUR15,800,000 Class C-2-R Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aaa (sf); previously on Apr 12, 2024 Upgraded to Aa2 (sf) EUR24,500,000 Class D-R Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aa3 (sf); previously on Apr 12, 2024 Upgraded to A3 (sf) EUR33,500,000 Class E-R Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Ba1 (sf); previously on Apr 12, 2024 Affirmed Ba2 (sf) Moody's have also affirmed the ratings on the following notes: EUR300,000,000 (Current outstanding amount EUR112,968,927) Class A-R Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Apr 12, 2024 Affirmed Aaa (sf) EUR16,000,000 Class B-1-R Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Apr 12, 2024 Upgraded to Aaa (sf) EUR23,000,000 Class B-2-R Senior Secured Fixed Rate Notes due 2031, Affirmed Aaa (sf); previously on Apr 12, 2024 Upgraded to Aaa (sf) EUR6,000,000 Class B-3-R Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Apr 12, 2024 Upgraded to Aaa (sf) EUR14,500,000 Class F-R Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed B2 (sf); previously on Apr 12, 2024 Affirmed B2 (sf) Carlyle Global Market Strategies Euro CLO 2014-1 Designated Activity Company, issued in March 2014, and refinanced in January 2017 and July 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by CELF Advisors LLP. The transaction's reinvestment period ended in October 2022. RATINGS RATIONALE The rating upgrades on the Class C-1-R, C-2-R, D-R and E-R notes are primarily a result of the significant deleveraging of the senior notes following amortisation of the underlying portfolio since the last rating action in April 2024. The affirmations on the ratings on the Class A-R, B-1-R, B-2-R, B-3-R and F-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-R notes have paid down by approximately EUR118.0 million (39.3%) since the last rating action in April 2024 and EUR187.0 million (62.3%) since closing. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated September 2024 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 180.0%, 148.9%, 132.0%, 114.2% and 107.9% compared to March 2024 [2] levels of 145.1%, 129.6%, 120.1%, 109.1% and 105.0%, respectively. The deleveraging and OC improvements primarily resulted from high prepayment rates of leveraged loans in the underlying portfolio. Most of the prepaid proceeds have been applied to amortise the liabilities. All else held equal, such deleveraging is generally a positive credit driver for the CLO's rated liabilities. 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 Moody's base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR284.3 million Defaulted Securities: none Diversity Score: 42 Weighted Average Rating Factor (WARF): 3138 Weighted Average Life (WAL): 3.38 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.63% Weighted Average Coupon (WAC): 4.08% Weighted Average Recovery Rate (WARR): 44.19% 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 incorporate these default and recovery characteristics of the collateral pool into Moody's 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 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 Moody's other analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =========== K O S O V O =========== KOSOVO: Fitch Affirms 'BB-' LongTerm Foreign Currency IDR --------------------------------------------------------- Fitch Ratings has affirmed Kosovo's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. Key Rating Drivers Fundamental Rating Strengths and Weaknesses: The rating is supported by Kosovo's low and stable public debt/GDP, very low interest/revenue, a record of prudent fiscal policy, sound banking sector, and its net external creditor position. These factors are balanced by its fairly small economy, economic informality, lack of full international recognition, risks from unresolved tensions with Serbia, and reliance on diaspora flows to finance a large structural trade deficit. Fiscal Deficits Within Target: Kosovo has a strong record of compliance with its fiscal rules and IMF stand-by arrangement (SBA). The general government balance outperformed expectations in 8M24, with a surplus near 3% of GDP, helped by 10.8% growth in tax revenue. Fitch forecasts a full-year deficit of 0.4% of GDP in 2024, from 0.2% in 2023, with a ramp up of capex in 4Q24. Fitch projects only a modest increase in the deficit, to 1.1% of GDP in 2026, still well within the fiscal rule deficit ceiling of 2% of GDP (excluding donor financed investment, and privatisation revenues). Low Debt Interest: Net domestic financing fell EUR38 million (0.4% of GDP) in 8M24 (following a near EUR140 million reduction in 2023), with the focus on external concessional funds. Expected financing in 4Q24 includes around EUR30 million budget support from the EU Western Balkans Growth Fund, and a EUR90 million World Bank loan (although this has yet to secure the two-thirds parliamentary majority required for new external borrowing, which complicates the debt management strategy). Fitch expects debt interest/revenue to remain close to 1.5%, which compares favourably with the 'BB' median of 10.5%. Public Debt to Remain Low: Fitch projects general government debt/GDP, which fell 2.6pp in 2023 to 17.5%, to be stable, ending 2026 at 17.3%, well below the peer group median of 54.5%. Fitch treats this debt as 100% foreign-currency denominated, consistent with Kosovo's adoption of the euro since 2002 (it has no domestic currency). However, 94% of debt is euro-denominated and the absence of pressure on the exchange rate regime mitigates currency risk. Fitch forecasts fiscal reserves (including Privatisation Agency holdings) end 2026 at 5.4% of GDP, from 5.5% at end-2023. High Tensions with Serbia: Relations with Serbia have worsened since early last year, including an armed siege by ethnic-Serb militants in September 2023, restrictions on the use of the Serbian dinar in early 2024, and closure of Serbian-run post offices in the north of Kosovo last month. Fitch continues to see weak prospects for a legally binding agreement with Serbia that leads to full normalisation of relations between the two countries. Nevertheless, Fitch views the risk of outright military conflict as low, given costs to EU finance and accession prospects, and ongoing NATO presence. EU Financing Restrictions: EU measures restricting financing for new EU projects and suspending high-level meetings remain in place. The government has advanced remedial steps required by the EU, including reducing the police presence around municipal buildings in northern Kosovo and holding new mayoral elections. However, these were boycotted by the public, and the likely implications for new EU financing remain uncertain. Kosovo continues to pursue bilateral dialogues to address its lack of full international recognition, including by five EU countries. Structurally High CAD: Import growth of 11.7% in 7M24 pushed out the trade deficit, and Fitch forecasts the current account deficit (CAD) widens 2.1pp in 2024 to 9.6% of GDP, before steadily narrowing to 7.0% in 2026. The CAD continues to be fully met by diaspora-supported financial inflows, and foreign direct investment (FDI; which rose 12.9% in 7M24, and 68% of which is in real estate). Foreign-exchange reserves increased USD0.3 billion in 8M24 to USD1.5 billion, and Fitch forecasts they rise to 2.4 months of current external payments at end-2026, from 2.1 months at end-2024, but still well below the 'BB' median of 4.7 months. Net External Creditor Position: The vulnerability of Kosovo's external finances to a sharp fall in diaspora inflows is mitigated by their relative stability over an extended period. Fitch projects Kosovo's net external creditor position improves by 1.5pp in 2024-2026, to 8.1% of GDP, which compares favourably with the peer group median of a debtor position of 15.7% GDP. The Central Bank of Kosovo has a EUR100 million repo line with the European Central Bank, currently due to expire at end-January 2025. Moderate Reform Progress: Kosovo completed the second review of the IMF SBA at end-May, which the government intends to maintain as precautionary. Programme performance was strong, with structural benchmarks met, including publication of a fiscal risk assessment and draft bank law. The administration of Prime Minister Kurti is set to be the first in Kosovo to complete a full term in office, and is ahead in polls for the parliamentary elections set for early February 2025. 1H24 Growth Outperforms Expectations: GDP grew 5.6% in 1Q24 and 4.3% in 2Q24, from 4.1% in 2023, on strong diaspora-fuelled domestic demand. Fitch forecasts GDP growth averages 4.5% in 2024, and near 4% in 2025-2026, slightly above the trend rate. Emigration of skilled workers remains a drag, only partly compensated by favourable demographics from a young population (average age 30) and scope for higher female workforce participation, while there are structural challenges from a sizeable informal economy and fairly low capital stock. Inflation Falls Further: Inflation fell to 1.4% in August, although core inflation has been more persistent at near 3.6%. Fitch forecasts inflation averages 2.1% in 2024-2025, near the lower bound of the 2-3% target. The economy is euroised, with an estimated four-fifths of inflation imported, and Kosovo's policy framework has not been fully tested against a strong domestically-driven inflationary spike. Sound Banking Sector: The sector is profitable, with a return on equity of 19% in August, has a Tier 1 capital ratio of 14.3%, and the non-performing loan ratio remains low, at 2.1%, and is fully provisioned. New lending grew 15% in 8M24, and there has been only a partial pass-through from ECB policy rate rises. 83% of the sector (by assets) is foreign-owned, with EU banks accounting for just over half, supporting prudential standards. ESG - Governance: Kosovo has an ESG Relevance Score of '5' for both political stability and rights, and for the rule of law, institutional and regulatory quality and control of corruption, respectively. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in its proprietary Sovereign Rating Model (SRM). Kosovo has a medium WBGI ranking at the 42nd percentile, broadly in line with the 'BB' median of 44. This reflects a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law, a moderate level of corruption and political risks associated with relations with Serbia. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Structural: Escalation of tensions with Serbia that have a materially negative impact on macro-fiscal metrics - External Finances: A marked increase in external financing risk, for example due to a sizeable drop in the availability of external concessional financing, remittances, or FDI - Public Finances: Deterioration in debt interest/revenue, the availability of finance, or the fiscal balance - for example due to marked fiscal loosening, an economic shock, or greater funding stress potentially due to political gridlock in securing the two-thirds parliamentary approval required for external borrowing Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Structural: Sustained improvement in relations with Serbia, reducing political risks, and underpinning faster international recognition and integration with EU economies - External: Reduction in external finance risk, for example, due to a marked rise in international reserves, potentially reflecting stronger and more diversified capital inflows and further progress with structural reforms boosting trade competitiveness - Macro: Evidence of an increase in trend GDP growth, potentially supported by faster economic diversification, leading to greater income convergence with higher-rated peers Sovereign Rating Model (SRM) and Qualitative Overlay (QO) Fitch's proprietary SRM assigns Kosovo a score equivalent to a rating of 'BB' on the LTFC IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to SRM data and output, as follows: - Structural: -1 notch, to reflect risks from unresolved tensions with Serbia, which also constrain full international recognition, adding to political risk and adversely affecting the business environment. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within its criteria that are not fully quantifiable and/or not fully reflected in the SRM. Country Ceiling The Country Ceiling for Kosovo is 'BBB-', three notches above the LTFC IDR. This reflects very strong constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments. Fitch's Country Ceiling Model produced a starting point uplift of +3 notches above the IDR. Fitch's rating committee did not apply a qualitative adjustment to the model result. ESG Considerations Kosovo has an ESG Relevance Score of '5' for political stability and rights as WBGI have the highest weight in Fitch's SRM and are highly relevant to the rating and a key rating driver with a high weight. As Kosovo has a percentile below 50 for the respective governance indicator, this has a negative impact on the credit profile. Kosovo has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGI have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Kosovo has a percentile rank below 50 for the respective governance indicators, this has a negative impact on the credit profile. Kosovo has an ESG Relevance Score of '4' for human rights and political freedoms as the voice and accountability pillar of the WBGI is relevant to the rating and a rating driver. As Kosovo has a percentile rank below 50 for the respective governance indicator, this has a negative impact on the credit profile. Kosovo has an ESG Relevance Score of '4' for International Relations and Trade as the lack of full international recognition is relevant to the rating and is a rating driver, with a negative impact on the credit profile. Kosovo has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Kosovo, as for all sovereigns. As Kosovo has a track record of 20+ years without a restructuring of public debt and captured in its SRM variable, this has a positive impact on the credit profile. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Kosovo LT IDR BB- Affirmed BB- ST IDR B Affirmed B Country Ceiling BBB- Affirmed BBB- =================== L U X E M B O U R G =================== ADLER GROUP: S&P Upgrades ICR to 'B-', Outlook Negative ------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit rating on Adler Group S.A. (Adler) to 'B-' from 'SD' (selective default) and its subsidiary Adler RE to 'B-' from 'CCC-'. S&P also raised its short-term rating on Adler to 'B' from 'D' (default). S&P assigned a 'B+' issue rating (recovery rating of '1') to the new EUR1,205 million first-lien senior secured notes, a 'CCC+' issue rating (recovery rating of '5') to the new EUR555.6 million and EUR116.7 million second-lien senior secured notes (1.5 lien under the company's classification), and a 'CCC' issue rating (recovery rating of '6') to the new EUR700 million third-lien senior secured notes (second-lien under the company's classification) held by Titanium 2L BondCo S.a.r.l. S&P also raised the rating on Adler RE's EUR300 million second-lien senior secured notes to 'CCC+'. S&P removed the issuer credit rating on Adler RE and the issue ratings of Adler Group and Adler RE from CreditWatch placement. The negative outlook reflects the risk that Adler could fail to address its upcoming debt maturities, including secured bank debt as well as the EUR300 million bond, due in April 2026, in a timely manner or its ability to serve its cash interest deteriorates strongly over the rating horizon. The group's immediate liquidity and debt maturity profile has improved following its completed debt restructuring. S&P estimates that Adler's liquidity needs should be covered by its sources by about 1.0x over the coming 12 months starting June 30, 2024 and the pro forma closing of the restructuring exercise. This is because the company extended its upcoming bond maturities and is supported by cash and equivalents of about EUR408 million (including EUR74 million at Brack Capital Properties N.V. [BCP] level). The group's restructuring included: -- EUR937.5 million nominal first-lien secured bond issued by Adler Financing extended from 2025 to 2028, increased to EUR1.2 billion at payment-in-kind securities (PIK) 12.5%. -- EUR400 million nominal second lien at PIK 4.25%, EUR191 nominal million second lien at PIK 21% (1.5 lien under the company's classification) secured bond refinanced with and extended from 2025 to 2029 for EUR556 million at PIK 14%, and EUR117 million at PIK 4.25% (and 14% from end of July 2025), now issued by Adler Financing. -- EUR2.8 billion nominal third lien (second lien under the company's classification), comprising five senior secured bonds maturing between 2025 and 2029, refinanced through EUR700 million third-lien senior secured bond at PIK 6.25% maturing 2030; as well as EUR2.3 billion perpetual notes at PIK 12.5%. Both instruments are held by Titanium 2L BondCo S.a.r.l., an orphan special purpose vehicle, that in turn issued EUR3.0 billion senior secured bond at PIK 6.25% to the former EUR2.8 billion third lien noteholders (Titanium 2L BondCo). -- S&P notes that Adler RE's EUR300 million bond remains due in 2026 and was not part of the restructuring exercise. S&P understands that the first-lien notes could be increased to refinance these notes in the future. -- Average debt maturity improved to well above three years from 2.3 years as of June 30, 2024. S&P said, "We assess the company's perpetual notes under our Hybrid Methodology and classified them as 100% debt under our criteria, reflecting the instrument's PIK structure. That said, we understand these notes will be treated as equity under International Financial Reporting Standards (IFRS). We have not assigned a rating to the EUR2.3 billion perpetual notes held by Titanium 2L BondCo S.a.r.l. The issuer intends to use the PIK (payment-in-kind) feature on the coupons from the first coupon date, so they will not be paid in cash. The notes have no set maturity date, and any redemption of the instrument will be wholly contingent on refinancing of the group's lien debt instruments (first lien, 1.5 lien and second lien under the company's classification). "We think that Adler's capital structure remains highly levered with substantial maturities over the next 18 months and an increasing debt burden given the PIK interest structure of most of its debt. In our view, Adler's capital structure could remain unsustainable over the short to medium term if the group does not manage to refinance its EUR300 million (due in April 2026) Adler RE bond and existing bank facilities on a timely manner. Of the company's debt, EUR738 million will mature between June 2025 and June 2026, including its EUR300 million bond at the Adler RE level. However, the company has been successful in refinancing its mortgage debt over the last 12 to 24 months and we expect Adler to successfully refinance any upcoming bank facilities in the future. The PIK structure of most of Adler's bonds will help the company's cash flow generation and we anticipate a solid ability to cover any cash interest requirements over the near term. The PIK structure will increase the company's debt burden substantially by an estimated EUR400 million-EUR500 million annually (including accruing interest on the perpetual instrument). Although we have not included any uncommitted asset disposals in our updated base case, we understand that Adler will continue to focus on disposing noncore assets, including development projects and its stake in BCP. If successful, this could help ease the debt burden of Adler and support the stabilization of its rating. "We assigned issue ratings to the newly issued instruments, withdrew the ratings on the former ones, and raised the ratings on Adler Real Estate's bond. We assigned a 'B+' issue rating (recovery rating of '1') to the new first-lien senior secured notes of EUR1.2 billion due 2028 and withdrew our issue rating on the former EUR937.5 million first-lien notes due 2025. Our recovery analysis for the group's second-lien (1.5 lien under the company's classification) senior secured notes and Adler RE's bond led to a recovery rating moving from '4' to '5'. This is because of portfolio devaluations over the last two years, a higher amount of first-lien senior secured notes, and issuance of debt at BCP's level. As a result, we raised our rating on Adler RE's senior secured notes of EUR300 million to 'CCC+' from 'CCC-/WatchPos', and we assigned a 'CCC+' issue credit rating to the group's newly issued EUR673 million second-lien notes. We removed our issue rating on the former EUR191 million and EUR400 million second-lien notes. We also assigned a 'CCC' issue rating to the EUR700 million third lien (second lien under the company' classification – recovery rating of '6'). At the same time, we withdrew our issue credit ratings on the group's former third-lien notes. "The negative outlook reflects the risk that Adler could fail to address its upcoming debt maturities, including secured bank debt as well as the EUR300 million bond, due in April 2026, in a timely manner or its ability to serve its cash interest deteriorates strongly over the rating horizon." S&P could lower its ratings on Adler and Adler RE if: -- The liquidity tightens over the next 12-18 months, e.g., if the company is not able to address its debt maturities in a timely manner, including the refinancing of its 2026 EUR300 million bond maturity; -- Tightening headroom under the company's covenants; -- Any risk that S&P deems to be material to the group's overall credit worthiness materializes, such as legal risk; or -- A substantial drop in the company's ability to cover its cash interest burden. S&P could revise the outlook to stable if the company manages to cover its upcoming debt maturities in a timely manner, improving the long-term sustainability of its capital structure, while maintaining a comfortable headroom under its covenants. ===================== N E T H E R L A N D S ===================== KONINKLIJKE FRIESLANDCAMPINA: S&P Rates EUR300MM Securities 'BB+' ----------------------------------------------------------------- S&P Global Ratings assigned its 'BB+' long-term issue rating to the EUR300 million perpetual capital securities to be issued by Koninklijke FrieslandCampina N.V. (BBB/Stable/A-2). RFC plans to use the proceeds to proactively refinance its EUR300 million hybrid securities, which have a first reset date in December 2025. We understand that the company plans to launch a tender offer to redeem these outstanding securities, with those not tendered to be redeemed afterwards. S&P said, "We understand that RFC remains committed to maintain a hybrid capital stock of EUR300 million to absorb losses or conserve cash when needed. This accounts for about 6.5% of capitalization, well below our 15% maximum criteria threshold. We will assess as having no equity content the existing hybrid securities that will be tendered. "We consider the new securities to have intermediate equity content until their first reset date, because they meet our criteria in terms of subordination, permanence, and deferability during this period. To reflect our view of intermediate equity content, we will treat 50% of the principal amount as equity rather than debt and 50% of the related payments as equivalent to common dividends rather than interest." S&P arrives at its 'BB+' issue rating on the instruments by notching down from its 'BBB' issuer credit rating on RFC. The two-notch difference reflects our notching methodology, which calls for deducting: -- One notch for subordination because S&P's long-term issuer credit rating on RFC is investment grade (higher than 'BB+'); and -- An additional notch for payment flexibility, to reflect that the deferral of interest is optional. The notching to rate the securities reflects S&P's view that there is a relatively low likelihood that the issuer will defer interest. Should its view change, S&P may increase the number of downward notches that we apply to the issue rating. Key factors in S&P's assessment of the instrument's permanence RFC can redeem the instrument for cash on any date from October 2029 up to and including the first interest reset date (January 2030) and at any interest payment date thereafter. S&P said, "We understand that RFC intends to replace the instruments in case of such a redemption, although it is not obliged to. In our view, this statement of intent mitigates the likelihood that it will repurchase the instruments without replacement." This intention is also expressed in respect of the issuer's ability to repurchase the instruments on the open market. Although the instrument has no stated maturity, RFC can call it at any time: for loss of tax deductibility; a requirement to gross-up for withholding tax; loss of rating agency equity assessment; loss of accounting equity treatment; or when less than 25% of the principal amount is outstanding. In addition, RFC can call the instrument any time, other than any optional call date, at a make-whole premium. S&P does not consider that this make-whole clause creates an expectation that the issue will be redeemed during the make-whole period. Additionally, S&P considers that RFC needs to maintain a stable equity cushion, including hybrid securities, because it is more difficult for co-operative groups to raise equity when needed. It also helps them to absorb the impact of volatile commodity milk prices. The interest to be paid on the instruments will increase by 25 basis points (bps) not earlier than the fifth anniversary of the issuance date and by a further 75 bps 20 years after the first reset date. S&P considers the cumulative 100-bps interest increase to be a material step-up, providing RFC with an incentive to redeem the instruments at the latest in 25.25 years. Consequently, S&P will no longer recognize the instrument as having intermediate equity content after its first reset date: January 2030. This is because the remaining period until economic maturity would, by then, be less than 20 years. Key factors in S&P's assessment of the instruments' subordination The securities and interests are direct, unsecured, and subordinated obligations of RFC. They rank senior to ordinary shares, pari passu among themselves and with the member bonds, the cooperative loan, and the existing hybrid securities. They rank junior to all other debt instruments. Key factors in S&P's assessment of the instrument's deferability In S&P's view, RFC's option to defer payment on the notes is discretionary. This means that the issuer may elect not to pay accrued interest on an interest payment date because it has no obligation to do so. However, RFC will have to settle in cash any outstanding deferred interest payment if the company declares or pays an equity dividend on equally ranking securities (including a supplementary cash payment), and if it redeems or repurchases shares or equally ranking securities. S&P sees this as a negative factor, but it remains acceptable under our methodology because once RFC has settled the deferred amount, it can still choose to defer on the next interest payment date. The issuer also retains the option to defer interest throughout the instruments' life. =========================== U N I T E D K I N G D O M =========================== CONNECTING LONDON: Ernst & Young Named as Joint Administrators -------------------------------------------------------------- Connecting London Limited was placed in administration proceedings the High Court of Justice Business and Property Courts in Leeds, Insolvency & Companies List (ChD), Court Number: CR-2024-LDS-000986, and Jonathan Peter Sumpton and Timothy Vance of Ernst & Young LLP were appointed as administrators on Oct. 9, 2024. Connecting London engages in radio broadcasting and other information technology service activities. Its registered office is at 12 Wellington Place, Leeds, LS1 4AP. Its principal trading address is at Gilmoora House, 57-61 Mortimer Street, London, W1W 8HS. The joint administrators can be reached at: Jonathan Peter Sumpton Timothy Vance Ernst & Young LLP 12 Wellington Place Leeds, LS1 4AP For further information, contact: Email: ridgewallgroupadministration@uk.ey.com Alternative contact: Ayse Hassan INIZIO GROUP: Moody's Lowers CFR to B3, Outlook Remains Stable -------------------------------------------------------------- Moody's Ratings downgraded the ratings of Inizio Group Limited ("Inizio"), including its corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD, and senior secured credit facility (including a multi-currency revolving credit facility and first lien term loans under Hunter US Bidco Inc.) ratings to B2 from B1. The outlook remains stable. The ratings downgrade reflects Inizio's high financial leverage, which Moody's calculate being in the mid-8 times range for the twelve months ended June 30, 2024. Moody's expect Inizio's financial leverage to remain high in the face of a number of near-term headwinds, including softness in pharma portfolios and cost rationalizations by pharma customers. Restructuring and cost cutting efforts at Inizio will partially mitigate these pressures, such that leverage will decline to the mid-7 times range, over the next 12 to 18 months. The company's operating performance has softened in the first half of 2024, with top-line revenue declines in the double digits. The downgrade also reflects the company's poor track record of cash generation, with a cumulative cash burn of more than $200 million since the end of 2020. Moody's expect the company to continue to be reliant on its revolver in order to fund near-term cash flow deficits, mandatory amortization on term debt and deferred consideration payments. RATINGS RATIONALE Inizio's B3 CFR reflects its high financial leverage. Moody's expect debt/EBITDA will remain elevated, but decline to the mid-7 times range over the next 12 to 18 months. The rating also reflects the company's high level of customer concentration with the top 10 pharmaceutical customers representing more than 40% of revenues. The rating is constrained by variability around customer product approvals that can create some volatility in demand. Inizio benefits from its significant scale in the provision of communications, marketing, advisory and research services to pharma customers. The company is widely diversified with multiple contracts across most of its segments with its largest customers. Moody's expect Inizio will benefit from longer-term tailwinds including more clinical trial activity by pharmaceutical customers (ahead of certain drug patent cliffs), trends for outsourcing by its pharmaceutical clients and increasing therapeutic complexity. The outlook is stable. Moody's expect leverage will remain high in the mid-7 times range over the next 12 to 18 months. Moody's also expect Inizio to maintain good liquidity with modest cash balances and sufficient access to its revolving credit facility, as the company focuses on generating more consistent free cash flow over the next 12 to 18 months. Moody's expect Inizio will have good liquidity over the next 12 to 18 months. Cash flows have remained weaker than Moody's expectations. Numerous factors have driven this weakness, including working capital seasonality and a high level of costs tied to elevated interest expense, restructuring, and deferred consideration payments. Moody's expect some of these pressures to abate over the next 12 to 18 months, which should support a gradual improvement in cash flows. Moody's expect Inizio to generate modestly positive free cash flow over the next 12 to 18 months. The company has a $425 million revolver that expires in August 2026 that is approximately $92 million drawn as of June 30, 2024. The B2 rating on the first lien credit facility (including revolver and term loans) is one notch higher than the company's B3 CFR, reflecting its seniority in the capital structure to the (unrated) second lien term loans. ESG CONSIDERATIONS Inizio's CIS-4 indicates the rating is lower than it would have been if ESG risk exposure did not exist. Inizio has exposure to both social risks and governance considerations. The social risk (S-3) largely reflects the company's sensitivity to pharmaceutical drug pricing, which could have negative effects on the company. Lower drug pricing could lead to fewer or more limited scope projects for Inizio's as pharmaceutical customers look to trim expenses. Any type of regulation that impacts pharmaceutical companies marketing activities could also impact demand for Inizio's services. Inizio's exposure to governance considerations (G-4) reflects the company's aggressive financial policy under private equity ownership, evidenced in its high financial leverage. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Ratings could be upgraded if liquidity improves, including sustained positive free cash flow generation and a reduced reliance on external financing. Quantitatively, adjusted debt/EBITDA sustained below 6.5 times could support an upgrade. In addition, the ratings could be upgraded if Inizio demonstrates stable organic growth at the same time it effectively executes on its expansion strategy. The ratings could be downgraded if the company's operating performance does not improve. Ratings could also be downgraded if the company were to experience a further weakening of liquidity, reflected in sustained negative free cash flow generation or notably higher utilization of its revolving credit facility. The ratings could be downgraded if the company undertakes significant debt-funded acquisitions or shareholder distributions. Headquartered in London, UK, Inizio Group Limited is a global provider of communications, market access and marketing services, principally to pharmaceutical and biotechnology companies. The company was formed through the combination of UDG's healthcare business (Ashfield) and Huntsworth. Revenues were approximately $2.1 billion for the twelve months ended June 30, 2024. The company is controlled by affiliates of private equity firm Clayton, Dubilier & Rice (CD&R). The principal methodology used in these ratings was Business and Consumer Services published in November 2021. MAMMOTH SIT: Opus Restructuring Named as Joint Administrators ------------------------------------------------------------- Mammoth Sit And Sleep Ltd was placed in administration proceedings in the High Court of Justice Business and Property Courts in Newcastle Upon Tyne, Insolvency and Companies List, Court Number: CR-2024-NCL-000144, and Mark Nicholas Ranson and Emma Mifsud of Opus Restructuring LLP were appointed as administrators on Oct. 4, 2024. Its registered office and principal trading address is at Ye Olde Hundred, 69 Church Way, North Shields, England, NE29 0AE. The joint administrators can be reached at: Mark Nicholas Ranson Emma Mifsud Opus Restructuring LLP 4th Floor, One Park Row Leeds, LS1 5HN For further information, contact: Ellie McEvilly Email: ellie.mcevilly@opusllp.com MOTION MIDCO: Moody's Affirms 'B3' CFR & Alters Outlook to Stable ----------------------------------------------------------------- Moody's Ratings has affirmed the B3 long term corporate family rating and B3-PD probability of default rating of Motion Midco Limited (Merlin or the company), a global operator of visitor attractions. Moody's also affirmed the B2 instrument rating of the backed senior secured notes issued by Merlin Entertainment Limited and the backed senior secured notes, senior secured terms loans (tranche B) and the senior secured revolving credit facility (RCF) issued by Motion Finco S.A.R.L. At the same time, Moody's affirmed the Caa2 instrument rating of the backed senior unsecured notes issued by Motion Bondco DAC. The outlook on all entities was changed to stable from positive. RATINGS RATIONALE Moody's changed the outlook because challenging trading conditions across most geographies, a strong competitive landscape, softer demand, and operating cost pressures all contributed to weaker operating performance. As a result, credit metrics are worse than previously forecasted. Declining consumer discretionary income, intensifying direct competition, and a range of alternative leisure activities vying for consumer spending are putting pressure on the revenues of leisure/theme park market operators. In the first half of 2024, company-adjusted EBITDA fell by 18% to GBP211 million compared to the previous period, driven by wage inflation, rising marketing expenses, and foreign exchange movements. In the twelve months leading up to June 30, 2024, Moody's adjusted EBITDA fell by 10.5% to GBP616 million from the previous period, while Moody's adjusted debt rose to GBP5.5 billion from GBP5.3 billion. Consequently, Moody's adjusted leverage climbed to 8.9x from 7.7x over the same time period. Given Moody's expectation of a continued challenging operating environment into the second half of 2024 and beyond, Moody's now predict Moody's adjusted EBITDA will reach GBP585 million by the end of 2024. This projection leads to a leverage of 9.8x, compared to Moody's earlier forecast of around 7.5x. Moody's expect Moody's adjusted EBITA to interest expense ratio, which stood at 0.9x in the twelve months leading up to June 30, 2024, to improve slightly to 1x by 2025. Previously, Moody's had anticipated this ratio would reach 1.5x by the end of 2024. Moody's also expect Moody's adjusted free cash flow to drop to around negative GBP150 million by the end of 2024, falling short of Moody's previous expectations. The affirmation of the ratings reflects the company's standing as a global leader in the leisure and entertainment industry. Its operations, spanning theme parks and city center attractions, offer a mix of indoor and outdoor activities. Merlin operates more than 120 attractions, hotels, and holiday villages across 23 countries, reducing its dependency on any single market. Its portfolio includes globally recognised brands such as LEGOLAND, Madame Tussauds, and SEA LIFE, attracting significant numbers of visitors. However, credit challenges such as high leverage, historically limited free cash flow generation, and strong seasonality pose risks. The company also faces potential impacts from adverse weather conditions and accidents. ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS When assessing Merlin's credit profile, Moody's consider governance risks, including its concentrated ownership structure, which typically shows a higher tolerance for leverage and a greater appetite for mergers and acquisitions (M&A). However, Moody's regards Merlin's ownership structure as having a longer investment horizon. KIRKBI A/S, owning approximately 50% of Merlin, has partnered with and significantly invested in the company for nearly 15 years. KIRKBI A/S increasingly depends on Merlin as a key channel for promoting its LEGO brand, demonstrating a vested interest in Merlin's long-term development. RATIONALE FOR THE STABLE OUTLOOK The stable outlook is based on the assumption that operating performance will improve over the next 18 months, leading to better credit metrics that align with current rating expectations. Moody's also anticipate the company will implement necessary cost control measures, preserve liquidity, and maintain a disciplined approach to capital expenditure. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade the company's rating if Merlin maintains solid operating performance and profitability leading to (1) Moody's-adjusted Debt/EBITDA towards 7x and (2) Moody's- adjusted EBITA / interest expense above 1.5x. Moody's could downgrade Merlin's ratings if persistently weak operating performance results in (1) materially weaker liquidity, or (2) free cash flow remaining persistently negative, or (3) leverage remaining significantly above 9x or (4) Moody's- adjusted EBITA / interest expense below 1x. LIQUIDITY Merlin has good liquidity, with a cash balance of GBP189 million and GBP398 million available under its GBP428 million revolving credit facility as of June 30, 2024. The company can comfortably manage its significant seasonal working capital fluctuations and capital expenditure programme over the next 18 months. The term loans and notes are subject to incurrence covenants only. Meanwhile, the revolving credit facility (RCF) includes a springing net leverage covenant, tested when 40% of the facility is drawn. Moody's anticipate the company will continue to comply with this covenant. LIST OF AFFECTED RATINGS Issuer: Motion Midco Limited Affirmations: Probability of Default, Affirmed B3-PD LT Corporate Family Rating, Affirmed B3 Outlook Actions: Outlook, Changed To Stable From Positive Issuer: Merlin Entertainment Limited Affirmations: Backed Senior Secured (Foreign Currency), Affirmed B2 Outlook Actions: Outlook, Changed To Stable From Positive Issuer: Motion Bondco DAC Affirmations: Backed Senior Unsecured (Foreign Currency), Affirmed Caa2 Backed Senior Unsecured (Local Currency), Affirmed Caa2 Outlook Actions: Outlook, Changed To Stable From Positive Issuer: Merlin Entertainments Group U.S. Holdings Inc Affirmations: Backed Senior Secured (Local Currency), Affirmed B2 Outlook Actions: Outlook, Changed To Stable From Positive Issuer: Motion Finco S.A.R.L Affirmations: Senior Secured Bank Credit Facility (Foreign Currency), Affirmed B2 Senior Secured Bank Credit Facility (Local Currency), Affirmed B2 Backed Senior Secured (Local Currency), Affirmed B2 Outlook Actions: Outlook, Changed To Stable From Positive PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Services published in November 2021. NIX&KIX: KRE Corporate Named as Joint Administrators ---------------------------------------------------- Nix&Kix Ltd was placed in administration proceedings in the Royal Court of Justice, Court Number: CR-2024-005933, and David Taylor and Paul Ellison of KRE Corporate Recovery Limited were appointed as administrators on Oct. 9, 2024. Nix&Kix Ltd engages in the manufacture of soft drinks; production of mineral waters and other bottled waters. Its registered office is at c/o KRE Corporate Recovery Ltd, Unit 8, The Aquarium, 1-7 King Street, Reading, RG1 2AN. Its principal trading address is at 86-90 Paul Street, London, EC2A 4NE. The administrators can be reached at: David Taylor Paul Ellison KRE Corporate Recovery Limited Unit 8, The Aquarium, 1-7 King Street Reading, RG1 2AN For further information, contact: The Joint Administrators E-mail: info@krecr.co.uk Tel: 01189 479090 Alternative contact: Alison Young NOMIS CONNECTIONS: Ernst & Young Named as Joint Administrators -------------------------------------------------------------- Nomis Connections Limited was placed in administration proceedings the High Court of Justice, The Business and Property Courts in Leeds Insolvency and Companies List (ChD), Court Number: CR-2024-LDS-000985, and Jonathan Peter Sumpton and Timothy Vance of Ernst & Young LLP were appointed as administrators on Oct. 9, 2024. Nomis Connections specialized in telecommunications activities. Its registered office is at 12 Wellington Place, Leeds, LS1 4AP. Its principal trading address is at Gilmoora House, 57-61 Mortimer Street, London, W1W 8HS. The joint administrators can be reached at: Jonathan Peter Sumpton Timothy Vance Ernst & Young LLP 12 Wellington Place Leeds, LS1 4AP For further information, contact: Email: ridgewallgroupadministration@uk.ey.com Alternative contact: Ayse Hassan QDOS SBL: Ernst & Young Named as Joint Administrators ----------------------------------------------------- QDOS-sbl Group Limited was placed in administration proceedings the High Court of Justice, The Business and Property Courts in Leeds Insolvency and Companies List (ChD), Court Number: CR-2024-LDS-000986, and Jonathan Peter Sumpton and Timothy Vance of Ernst & Young LLP were appointed as administrators on Oct. 9, 2024. Qdos Sbl Group engages in activities of other holding companies. Its registered office is at 12 Wellington Place, Leeds, LS1 4AP. Its principal trading address is at Gilmoora House, 57-61 Mortimer Street, London, W1W 8HS. The joint administrators can be reached at: Jonathan Peter Sumpton Timothy Vance Ernst & Young LLP 12 Wellington Place Leeds, LS1 4AP For further information, contact: Email: ridgewallgroupadministration@uk.ey.com Alternative contact: Ayse Hassan TRIDENT ENERGY: S&P Affirms 'B-' ICR, Outlook Positive ------------------------------------------------------ S&P Global Ratings affirmed its 'B-' issuer and issue credit ratings on Trident Energy and its senior unsecured notes and removed the ratings from CreditWatch with positive implications where S&P placed them when it assigned the rating on May 6, 2024. The outlook is positive, reflecting S&P's view that Trident might improve its credit profile in the next 12 months after acquisition of the Congo-Brazzaville assets, provided that production in Brazil stabilizes at about 30 thousand barrels of oil equivalent per day (kboepd), while oil prices support maintenance of funds from operations (FFO) to debt consistently above 30%. Operational underperformance of Brazilian production assets was observed in 2024. The first months of 2024 were promising, with production in Brazil steadily increasing to 28 kboepd (from 22.3 kboepd in 2023). S&P said, "We therefore assumed this would be average for 2024 and expected a further increase of production to 33 kboepd in 2025. However, Trident experienced operational issues with some of its compressors, as we understand, bringing down the production in Brazil to as low as 19 kboepd in some months. This is not the first time Trident has had to resolve the operational issues in Brazil, and we have already highlighted the associated risks to production growth estimations." Trident's credit profile improvement might take longer than expected, even when the Congo-Brazzaville acquisition is completed. S&P said, "We now expect production in Brazil to be 25 kboepd this year and 28 kboepd next year. Given our revised views on Brent oil prices (lowered recently to $75 per barrel (/bbl) for the remainder of 2024 and onward) and somewhat higher capital expenditure (capex) for 2024-2025, we now believe the Congo-Brazzaville acquisition alone will not be sufficient for us to upgrade the company to 'B'. We think that rating upside potential will be dependent not only on finalization of the acquisition in line with the expectations, but also on demonstrating supportive operational performance in Brazil in the upcoming months, raising and then stabilizing output at about 30 kboepd." With the acquisition consolidated, this should be consistent with FFO to debt closer to 30% in 2025. Trident renegotiated discounts to Brent oil prices, which partially offsets the decrease in commodities prices. S&P highlights the positive developments achieved by management in renegotiating the discount to Brent oil prices under which all output in Brazil is sold to Petrobras counterparty. From previous discounts of $12/bbl or more, the new terms envisage discounts of $7.5/bbl-$10/bbl to Brent oil price. At the same time, Trident continues to focus on investments to launch a new floating storage and offloading terminal that will enable it to sell the produced hydrocarbons outside Brazil at market prices, with expected launch date of toward the end of 2026. The acquisition in Congo-Brazzaville will strengthen Trident's production profile, boost earnings and cash flows, and enhance scale and diversification. S&P said, "We understand the acquisition is close to completion. The production of Trident's future Congolese assets exceeded that of its Brazilian assets by about 25% in 2023. We forecast production in Congo-Brazzaville will remain relatively stable and exceed its 2023 production levels by 10% over 2024-2025." After the completion of the acquisition, Trident's production rate will be about 70 kboepd, with the acquisition adding $350 million-$400 million to the company's EBITDA, considering our view of Brent oil price to be $75/bbl. The transaction is financed by secured amortizing reserve-based term loan (RBL) of $360 million at the Congo-Brazzaville subsidiary level. S&P said, "The positive outlook reflects our view that Trident might improve its credit profile in the next 12 months after the announced acquisition of the Congo-Brazzaville assets is completed, provided that the operational issues in Brazil are resolved and the production there is stabilized close to 30 kboepd. We think the increase in the size of reserves and the production scale stemming from the acquisition will enhance the group's scale and diversification of operations, but observed volatility of production in Brazil might hamper overall improvement of the business profile. We see FFO to debt close to 30% in 2025 (with the acquisition consolidated) as commensurate with a 'B' rating. "After the completion of the acquisition, expected in November 2024, we anticipate Trident's adjusted EBITDA will increase to about $900 million in 2025 ($400 million in 2024), from $226 million in 2023." With S&P Global Ratings-assumed annual capex of $400 million-$450 million over 2024-2025, free operating cash flow (FOCF) could be negative $150 million this year and neutral to moderately positive next year. Downside scenario S&P said, "We could revise the outlook to stable if the acquisition does not happen or if the Brazilian assets continue to underperform in the rest of 2024 and in 2025, with FFO to debt consistently below 30%. We also note that a material underperformance of the Brazilian assets might put pressure on the group's cash flow generation and liquidity." Upside scenario S&P could raise the ratings to 'B' if Trident successfully completes the acquisition in the coming quarters, with the financing arranged in line with expectations, which will increase its production profile to about 70.0 kboepd, from 32.5 kboepd in 2023. A ratings upgrade would also require a supportive track record of performance in Brazil with production stabilized at close to or above 30 kboepd. S&P said, "Environmental factors are a negative consideration in our credit rating analysis of Trident. Similar to other oil producers, Trident is exposed to climate transition risk, given the increasing adoption of renewable energy sources that raises concerns about the trajectory of oil supply and demand. In this respect, Trident's lack of exposure to gas may put it at a disadvantage, compared with peers that have a more balanced portfolio, because oil is more polluting. To mitigate its low gas exposure, the group intends to construct a floating liquefied natural gas facility in Congo-Brazzaville. The group's emission intensity of about 42 kgCO2/boe is well above the industry average of about 17 kgCO2/boe-19 kgCO2/boe, so the group will need to deliver on its goal of reducing emissions by 50% by 2030 to reduce the gap with peers. Governance factors are a negative consideration, primarily reflecting Trident's operations in countries with high risk profiles, including risk of bribery and corruption. Our assessment also takes into account private-equity sponsors' generally finite holding periods and focus on maximizing shareholder returns among other factors." ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *