/raid1/www/Hosts/bankrupt/TCREUR_Public/241017.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, October 17, 2024, Vol. 25, No. 209
Headlines
F R A N C E
HOLDING D'INFRASTRUCTURE: Fitch Gives BB+(EXP) on EUR500MM Bond
I R E L A N D
ARES EUROPEAN IX: Moody's Ups Rating on EUR11.1MM F Notes to Ba3
ARES EUROPEAN X: Fitch Hikes Rating on Class F Notes to 'BB-sf'
CONTEGO CLO XIII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes
HARVEST CLO XV: Moody's Hikes Rating on EUR23.1MM E-R Notes to Ba1
HARVEST CLO XVIII: Moody's Affirms B1 Rating on EUR10.5MM F Notes
I T A L Y
LA DORIA: Fitch Affirms 'B' LongTerm IDR, Outlook Positive
SAMMONTANA ITALIA: Fitch Rates EUR800MM Floating Rate Notes 'BB-'
K A Z A K H S T A N
BEREKE BANK: Fitch Lowers LongTerm IDRs to 'B+', Outlook Stable
SAMRUK-ENERGY: Fitch Affirms 'BB+' LongTerm Foreign Currency IDR
P O L A N D
SYNTHOS SPOLKA: Fitch Alters Outlook on BB LongTerm IDR to Negative
R O M A N I A
MAS PLC: Moody's Lowers CFR to 'B1', Outlook Negative
T U R K E Y
GDZ ELEKTRIK: Fitch Assigns BB- Final LongTerm IDR, Outlook Stable
U N I T E D K I N G D O M
10463817 LIMITED: RSM Restructuring Named as Joint Administrators
ELITE FLEETCARE: CG & Co Named as Joint Administrators
HODGKINSON BUILDERS: Opus Restructuring Named as Administrators
MANGO SOLUTIONS: Moorfields Named as Joint Administrators
MARKET BIDCO: Fitch Gives BB(EXP) on GBP1-Bil. A&E Term Loans
NEWSPAPER HOUSE: MHA Named as Joint Administrators
OAKLAND GLASS: FRP Advisory Named as Joint Administrators
S4 CAPITAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
SPORE LONDON: FRP Advisory Named as Joint Administrators
STICKER GIZMO: PKF Smith Named as Joint Administrators
WFC CONTRACTORS: Quantuma Advisory Named as Joint Administrators
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F R A N C E
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HOLDING D'INFRASTRUCTURE: Fitch Gives BB+(EXP) on EUR500MM Bond
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Fitch Ratings has assigned Holding d'Infrastructures des Metiers de
l'Environnement's (SAUR) proposed EUR500 million benchmark senior
unsecured bond with a five-year tenor an expected rating of
'BB+(EXP)' with a Recovery Rating of 'RR4'.
The proposed issuance is rated in line with SAUR's 'BB+' Issuer
Default Rating (IDR) and outstanding senior unsecured notes (EUR300
million due 2027, EUR450 million due 2025 and EUR500 million due
2028). The draft terms of the proposed notes largely mirror the
terms and conditions of the outstanding notes.
The proceeds resulting from the issuance of the notes will be fully
applied to the repayment of existing debt, including the 0.125%
EUR450 million bond due in 2025 and to general corporate purposes.
The final instrument rating is subject to the receipt of final debt
documentation confirming the information already received.
Key Rating Drivers
Instrument Rating in Line with IDR: The rating on the proposed
senior unsecured bond is in line with SAUR's 'BB+' IDR and the
outstanding notes (totalling EUR1,250 million), as the proposed
notes would constitute unconditional, unsubordinated and unsecured
obligations of the company, and would, at all times, rank at least
equally with all SAUR's other present and future unsecured and
unsubordinated indebtedness.
The draft offering circular reviewed by Fitch mirrors the
provisions included for the existing bonds, which supports the same
outcome for the instrument rating.
Recovery Progressing in 2024: SAUR's 1H24 results were showing
strong profitable growth across all segments, with growth in both
reported revenue (11.1%, including inorganic growth) and EBITDA
(11.6%) compared to 1H23. This is driven by gradual implementation
of tariff increases, commercial dynamism and initial cost savings
from SAUR's efficiency plan (chiefly in Water Services France).
Working Capital Cash Absorption: Fitch viewed working capital as a
cash drain in 1H24. SAUR's working capital absorption had an
outflow of EUR93 million in 2023, and a large EUR145.8 outflow has
been reported in 1H24, similar to that in 1H23 (EUR143.0 million).
Underperformance in 2023 was mainly driven by the Water France
segment, due to a combination of reduction of outstanding days
payable, a temporary peak in inventory, and a lag in collecting
2023 tariff indexation from customer invoices. This was accompanied
by industrial water growth, which requires a higher level of
working capital, and some additional bad debt at Water France.
Fitch expects a partial recovery as seasonality effects unwind;
however, there will have been similar drivers in the first six
months of 2024 as there were in 2023.
Cash Management Is Key: SAUR is implementing working-capital
optimisation initiatives, which include a more stringent
procurement policy, streamline invoicing and collections processes,
and promoting advance payments from industrial clients. Fitch
expects some recovery in 2H24 due to the seasonality effect hitting
the 1H24 figure, but the company's goal of a largely neutral
working capital impact in 2024, included in its forecasts, is a
challenging one.
Deleveraging in Progress: Fitch expects SAUR to deleverage below
5.0x over the four-year forecast horizon from the peak funds from
operations (FFO) net leverage of 8.2x in 2023, although this will
be slowed by the lower-than-expected recovery in the Water France
business, affected by weather conditions and more gradual
productivity gains, as well as Working Capital evolution.
The deleveraging path will be supported by organic growth, reducing
cost pressures from inflation, coupled with stricter focus on
efficiency and better cash management. SAUR has reinforced its
commitment to deleveraging in the 1H24 results presentation.
Focus on Efficiencies: Following changes at managerial level and
the reorganisation of the French business in 2023, SAUR has
launched a cost-optimisation plan for 2024, mainly focused on
personnel expenses, external expenditures and procurement. The
company anticipates annual savings of approximately EUR56 million,
which Fitch has largely incorporated in its forecasts.
Strong Commercial Dynamics: SAUR has good organic growth momentum,
with around 8% year-on-year (yoy) growth in the past three years,
supported by industrial water development and the good commercial
dynamics of Water France. The company has a strong backlog (EUR7.4
billion excluding industrial water in 2023, up 14% on 2022),
bringing good visibility of future revenues, supported by a
historically low churn rate. This is accompanied by a consistent
record of securing contracts in recent years.
Shareholder Support: Fitch assumes SAUR's main shareholders, EQT
Infrastructure, PGGM and DIF, to be supportive of SAUR's growth
strategy by providing equity for M&A and avoiding dividend
distributions. The shareholders' commitment to deleveraging is a
key consideration for the Stable Outlook, notwithstanding the
expected high leverage over 2023 to 2025.
Derivation Summary
SAUR is France's third-largest water and wastewater management
company in France, behind Veolia Environnement S.A. and Suez. The
completion of Veolia's tender offer on Suez made Veolia the world's
biggest operator in water and wastewater management. Suez has
retained its second position in the French water distribution
market and continues to run, although to a lesser extent,
wastewater and hazardous waste management. Both companies are
larger than SAUR, and have a greater presence outside the domestic
market.
These peers also have larger and more profitable contracts in the
water segment, which leads to their higher profitability, even
though they operate under the same contractual framework as SAUR.
This drives Veolia and Suez's higher debt capacity than SAUR.
FCC Aqualia, S.A. (BBB-/Stable), the Spanish water concessions
operator, is SAUR's closest peer in business mix and scale.
Aqualia's municipal business accounts for about 90% of EBITDA,
above the 70% expected for SAUR at end-2023. Overall, Fitch views
Aqualia's business risk as slightly better than that of SAUR, with
a longer average concession residual life, higher renewal rates,
better profitability due to higher capex intensity, and a
contractual framework that includes financial equilibrium
mechanisms. This allows Aqualia to have a higher debt capacity,
with an investment-grade threshold at 5.0x for FFO net leverage,
compared with 4.5x for SAUR.
Key Assumptions
- Strong revenues growth yoy in 2024 (13.6%), followed by revenue
CAGR of about 6% for 2024-2027, supported by organic development
(mainly industrial and municipal water in France and Spain), stable
renewal rates at 75%, and tariffs indexed to inflation;
- Fitch-calculated consolidated EBITDA margin to gradually increase
to about 10% by 2026 (2023: 7.1%; 2024: 7.8%; 2025F: 9.1%);
- Average capex of about EUR210 million a year over 2024-2027, and
net M&A-related cash flows of EUR65 million in 2024;
- 2024 M&A to be equity-funded; and
- No dividends over the period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade
- FFO net leverage below 4.5x on a sustained basis, accompanied
with tangible recovery of EBITDA margin.
Factors that could, individually or collectively, lead to negative
rating action/downgrade
- Failure to show a credible deleverage pattern towards 5.2x FFO
net leverage by 2026, at the latest.
- Persisting earnings volatility due to changes in public contract
agreements or regulatory frameworks, or to a business mix that is
less contracted, or contracted with higher-risk counterparties, for
example with industrial water rising to 35%-40% of total EBITDA
(2023E: 27%), could lead Fitch to review SAUR's debt capacity for
the current rating.
Liquidity and Debt Structure
Adequate Liquidity: SAUR's liquidity position was EUR524 million as
of December 2023. This included EUR324 million of cash and EUR200
million of an unused committed revolving credit facility. Fitch
views liquidity as sufficient to cover short-term debt maturities
and capex needs for the next 12 months. SAUR will have to refinance
a EUR450 million bond maturing in September 2025, which is the
target of the tender offer.
Issuer Profile
SAUR is an integrated water and wastewater treatment and
distribution operator for households and a water services provider
for industries. It also provides engineering and procurement and
other water-related works for municipalities, and serves more than
20 million residents and 9,200 municipalities.
Date of Relevant Committee
April 24, 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery
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Holding d'Infrastructures
des Metiers de
l'Environnement
senior unsecured LT BB+(EXP) Expected Rating RR4
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I R E L A N D
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ARES EUROPEAN IX: Moody's Ups Rating on EUR11.1MM F Notes to Ba3
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Moody's Ratings has upgraded the ratings on the following notes
issued by Ares European CLO IX DAC:
EUR26,800,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aaa (sf); previously on Feb 9, 2024
Upgraded to Aa1 (sf)
EUR22,400,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa3 (sf); previously on Feb 9, 2024
Upgraded to A3 (sf)
EUR23,100,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Baa3 (sf); previously on Feb 9, 2024
Affirmed Ba2 (sf)
EUR11,100,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Ba3 (sf); previously on Feb 9, 2024
Affirmed B1 (sf)
Moody's have also affirmed the ratings on the following notes:
EUR228,000,000 (Current outstanding amount EUR63,983,586) Class A
Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf);
previously on Feb 9, 2024 Affirmed Aaa (sf)
EUR29,800,000 Class B-1 Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Feb 9, 2024 Upgraded to Aaa
(sf)
EUR30,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Feb 9, 2024 Upgraded to Aaa (sf)
Ares European CLO IX DAC, issued in April 2018, is a collateralised
loan obligation (CLO) backed by a portfolio of mostly high-yield
senior secured/mezzanine European loans. The portfolio is managed
by Ares European Loan Management LLP. The transaction's
reinvestment period ended in April 2022.
RATINGS RATIONALE
The rating upgrades on the Class C, Class D, Class E and Class F
notes are primarily a result of the deleveraging of the Class A
notes following amortisation of the underlying portfolio since the
last rating action in February 2024.
The affirmations on the ratings on the Class A, Class B-1 and Class
B-2 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 notes have paid down by approximately EUR78.5million
(34.44%) since the last rating action in February 2024 and EUR164.0
million (71.94%) 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 and Class E OC ratios are reported
at 185.97%, 152.87%, 133.07% and 117.40% compared to January 2024
[2] levels of 140.1%, 127.39%, 118.41% and 110.39%, 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: EUR233.93m
Diversity Score: 40
Weighted Average Rating Factor (WARF): 3246
Weighted Average Life (WAL): 3.26 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.63%
Weighted Average Coupon (WAC): 3.68%
Weighted Average Recovery Rate (WARR): 43.5%
Par haircut in OC tests and interest diversion test: 1.82%
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 as account bank and swap providers,
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.
ARES EUROPEAN X: Fitch Hikes Rating on Class F Notes to 'BB-sf'
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Fitch Ratings has upgraded Ares European CLO X DAC's class B-1-R to
D-R notes and class F notes and affirmed the others.
Entity/Debt Rating Prior
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Ares European CLO X DAC
A-R XS2347648706 LT AAAsf Affirmed AAAsf
B-1-R XS2347649340 LT AAAsf Upgrade AA+sf
B-2-R XS2347650199 LT AAAsf Upgrade AA+sf
C-R XS2347650785 LT AAsf Upgrade A+sf
D-R XS2347651247 LT A-sf Upgrade BBB+sf
E XS1859496645 LT BB+sf Affirmed BB+sf
F XS1859495670 LT BB-sf Upgrade B+sf
Transaction Summary
Ares European CLO X DAC is a cash flow CLO mostly comprising senior
secured obligations. The transaction is actively managed by managed
by Ares European Loan Management LLP and exited its reinvestment
period in April 2023.
KEY RATING DRIVERS
Stable Performance; Amortising Transaction: As of the latest
payment date in September 2024, the class A-R notes had paid down
by EUR70 million since its last review in November 2023. The rating
actions reflect notable increases in credit enhancement and the
transaction's stable performance since the last review. The
transaction is currently below par but the losses are lower than
its rating case. Exposure to assets with a Fitch-derived rating of
'CCC+' and below is 9.9%, according to the September trustee
report.
Manageable Refinancing Risk: The transaction has manageable
exposure to near- and medium-term refinancing risk, in view of the
large default-rate cushions for each class of notes. The CLO has no
portfolio assets maturing in 2024 and 2025, and a total of 2.12%
maturing until June 2026, as calculated by Fitch. The transaction's
comfortable break-even default-rate cushions supports the Stable
Outlooks.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The
weighted-average rating factor (WARF), as calculated by Fitch under
its latest criteria, is 27.4.
High Recovery Expectations: The portfolio comprises senior secured
obligations. Fitch views the recovery prospects for these assets as
more favourable than for second-lien, unsecured and mezzanine
assets. The weighted average recovery rate, as calculated by Fitch,
is 61.7%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 14.8%, and the largest
obligor represents 1.8% of the portfolio balance. Exposure to the
three largest Fitch-defined industries is 26.7% as calculated by
the trustee. Fixed-rate assets are reported by the trustee at 6.3%
of the portfolio balance, versus a limit of 7.5%.
Cash Flow Modelling: The transaction is currently failing Fitch's
'CCC' and another agency's 'CCC' test, which need to be satisfied
for the manager to reinvest. The weighted average life (WAL) test
and WARF test are also failing. The manager has not made any
purchases since April 2024. Given the manager has not been
reinvesting and is currently restricted from reinvestment, Fitch's
analysis is based on the current portfolio to test for downgrades
and 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 when testing
for upgrades.
Deviation from MIR: The class D-R and F notes' ratings are two
notches below their model-implied ratings (MIR), and the class C-R
and E notes are one notch below their MIR. The deviation reflects
limited default-rate cushion at the MIR.
The MIR deviations also 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.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Ares European CLO X
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.
CONTEGO CLO XIII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes
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Fitch Ratings has assigned Contego CLO XIII DAC final ratings.
Entity/Debt Rating Prior
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Contego CLO XIII DAC
A-1 XS2887783707 LT AAAsf New Rating AAA(EXP)sf
A-2 XS2895698988 LT AAAsf New Rating AAA(EXP)sf
B-1 XS2887783376 LT AAsf New Rating AA(EXP)sf
B-2 XS2887783889 LT AAsf New Rating AA(EXP)sf
C XS2887786718 LT Asf New Rating A(EXP)sf
D XS2887785157 LT BBB-sf New Rating BBB-(EXP)sf
E XS2887785314 LT BB-sf New Rating BB-(EXP)sf
F XS2887785587 LT B-sf New Rating B-(EXP)sf
Sub Notes XS2887786049 LT NRsf New Rating NR(EXP)sf
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
have been 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) has a 4.5-year reinvestment
period and a 7.5-year weighted average life (WAL) test at closing,
which can be extended by 12 months 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 weighted
average rating factor (WARF) of the identified portfolio is 25.0.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 60.6%.
Diversified Portfolio (Positive): The transaction includes four
Fitch test matrices, all effective at closing, with two matrices
corresponding to a 7.5-year WAL and two corresponding to a 8.5 year
WAL. All the matrices correspond to a top 10 obligor concentration
limit at 20%, and for each WAL there can be two different
fixed-rate limits, 5% and 10%.
The transaction also has various concentration limits, including a
maximum exposure to the three- largest Fitch-defined industries in
the portfolio at 40%. These covenants ensure that the asset
portfolio will not be exposed to excessive concentration.
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 Fitch-stressed
portfolio and matrices analysis is 12 months less than the WAL
covenant, to account for structural and reinvestment conditions
post-reinvestment period, including passing the
over-collateralisation tests and Fitch 'CCC' limitation 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 a downgrade of no more than
one notch on the class B-1, B-2, C, D and E notes, to below 'B-sf'
on 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 than
the Fitch-stressed portoflio, the class B-1, B-2, D, E and F notes
have a two-notch cushion and the class C notes have a one-notch
cushion while the class A notes have no rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would 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-stressed portfolio
would lead to upgrades of up to three notches, except for the
'AAAsf' rated notes.
During the reinvestment period, upgrades, based on Fitch-stressed
portfolio, may occur on better-than-expected portfolio credit
quality and a shorter remaining WAL test, allowing the notes to
withstand larger-than-expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Contego CLO XIII
DAC. In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
HARVEST CLO XV: Moody's Hikes Rating on EUR23.1MM E-R Notes to Ba1
------------------------------------------------------------------
Moody's Ratings has upgraded the ratings on the following notes
issued by Harvest CLO XV DAC:
EUR31,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aaa (sf); previously on Feb 14, 2024
Upgraded to Aa3 (sf)
EUR24,200,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to A2 (sf); previously on Feb 14, 2024
Affirmed Baa2 (sf)
EUR23,100,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Ba1 (sf); previously on Feb 14, 2024
Affirmed Ba2 (sf)
Moody's have also affirmed the ratings on the following notes:
EUR233,400,000 (Current outstanding amount EUR68,357,700) Class
A-1A-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa
(sf); previously on Feb 14, 2024 Affirmed Aaa (sf)
EUR30,000,000 (Current outstanding amount EUR8,786,340) Class
A-1B-R Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf);
previously on Feb 14, 2024 Affirmed Aaa (sf)
EUR15,000,000 Class A-2-R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Feb 14, 2024 Affirmed Aaa
(sf)
EUR41,600,000 Class B-1-R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Feb 14, 2024 Upgraded to Aaa
(sf)
EUR5,000,000 Class B-2-R Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Feb 14, 2024 Upgraded to Aaa (sf)
EUR13,500,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B1 (sf); previously on Feb 14, 2024
Affirmed B1 (sf)
Harvest CLO XV DAC, issued in May 2016 and refinanced in May 2018,
is a collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by Investcorp Credit Management EU Limited. The
transaction's reinvestment period ended in May 2022.
RATINGS RATIONALE
The rating upgrades on the Class C-R, Class D-R and Class 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 February 2024.
The affirmations on the ratings on the Class A-1A-R, Class A-1B-R,
Class A-2-R, Class B-1-R, Class B-2-R and Class 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-1A-R and Class A-1B-R notes have paid down by
approximately EUR130.1 million (49.4%) since the last rating action
in February 2024 and EUR186.3 million (70.7%) since closing. As a
result of the deleveraging, over-collateralisation (OC) has
increased across the capital structure. According to the trustee
report dated August 2024 [1] the Class A/B, Class C, Class D,
Claass E and Class F OC ratios are reported at 180.5.%, 147.1%,
128.9%, 115.2% and 108.4% compared to December 2023 [2] levels of
142.5%, 127.5%, 118.0%, 110.2% and 106.1%, 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: EUR251.89 million
Defaulted Securities: EUR1.08 million
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3199
Weighted Average Life (WAL): 3.06 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.76%
Weighted Average Coupon (WAC): 3.99%
Weighted Average Recovery Rate (WARR): 44.03%
Par haircut in OC tests and interest diversion test: 0.58%
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 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.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assume have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
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.
HARVEST CLO XVIII: Moody's Affirms B1 Rating on EUR10.5MM F Notes
-----------------------------------------------------------------
Moody's Ratings has upgraded the ratings on the following notes
issued by Harvest CLO XVIII DAC:
EUR33,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa1 (sf); previously on Feb 19, 2024
Upgraded to Aa3 (sf)
EUR22,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to A3 (sf); previously on Feb 19, 2024
Upgraded to Baa1 (sf)
Moody's have also affirmed the ratings on the following notes:
EUR197,000,000 (Current outstanding amount EUR82,305,948) Class
A-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf);
previously on Feb 19, 2024 Affirmed Aaa (sf)
EUR30,000,000 (Current outstanding amount EUR12,533,901) Class A-2
Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf);
previously on Feb 19, 2024 Affirmed Aaa (sf)
EUR56,500,000 Class B Senior Secured Floating Rate Notes due 2030,
Affirmed Aaa (sf); previously on Feb 19, 2024 Affirmed Aaa (sf)
EUR21,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Ba2 (sf); previously on Feb 19, 2024
Affirmed Ba2 (sf)
EUR10,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B1 (sf); previously on Feb 19, 2024
Affirmed B1 (sf)
Harvest CLO XVIII DAC, issued in January 2018, is a collateralised
loan obligation (CLO) backed by a portfolio of mostly high-yield
senior secured European loans. The portfolio is managed by
Investcorp Credit Management EU Limited. The transaction's
reinvestment period ended in April 2022.
RATINGS RATIONALE
The rating upgrades on the Class C and D notes are primarily a
result of the significant deleveraging of the Class A-1 and A-2
notes following amortisation of the underlying portfolio since the
last rating action in February 2024.
The affirmations on the ratings on the Class A-1, A-2, B, E and F
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 and A-2 notes have paid down by approximately
EUR115.8 million (51%) in the last 12 months and EUR80 million
(42%) since the last rating action in February 2024 and EUR132
million (58%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the trustee report dated August 2024 [1]
the Class A/B, Class C, Class D, Class E and class F OC ratios are
reported at 166.71%, 136.49%, 121.98%, 110.73% and 105.86% compared
to January 2024 [2] levels of 141.06%, 124.45%, 115.52%, 108.11%
and 104.75% 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: EUR253,816,309
Defaulted Securities: EUR3,801,936
Diversity Score: 43
Weighted Average Rating Factor (WARF): 3088
Weighted Average Life (WAL): 3.26 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.68%
Weighted Average Coupon (WAC): 3.75%
Weighted Average Recovery Rate (WARR): 44.37%
Par haircut in OC tests and interest diversion test: 1.09%
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 as account bank and swap provider,
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.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assume have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
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.
=========
I T A L Y
=========
LA DORIA: Fitch Affirms 'B' LongTerm IDR, Outlook Positive
----------------------------------------------------------
Fitch Ratings has affirmed La Doria S.p.A.'s Long-Term Issuer
Default Rating (IDR) at 'B' with Positive Outlook. Fitch has
affirmed La Doria's senior secured notes at 'B+' with a Recovery
Rating of 'RR3' on announcement of a EUR125 million tap on its
existing senior secured notes (SSN).
The incremental debt would temporally increase gross leverage by
0.3x to 5x at end-2024 compared with Fitch's previous assumptions,
albeit still consistent with the 'B' IDR. The company plans to use
the proceeds to repay its revolving credit facility (RCF) drawings
and for general corporate purposes.
The 'B' IDR of La Doria reflects its niche scale and concentrated
retail customer base, which is mitigated by its longstanding
customer relationships and adequate operating profitability for a
private-label food-processing company. The rating is also anchored
by La Doria's moderate leverage metrics and sustained positive free
cash flow (FCF).
The Positive Outlook reflects its expectations that the increase in
debt will be offset by revenue and EBITDA expansion, including
through internal efficiencies and an enhanced product mix. This is
expected to support low single-digit FCF margins and lead to
adequate leverage headroom within its sensitivities for a potential
'B+' upgrade over the next 12 to 18 months.
Key Rating Drivers
SSN Upsize Neutral to Rating: Fitch expects the tap to result in
only a modest increase in leverage. The 25% increase of total debt
will be offset by revenue and EBITDA expansion over 2024-2027.
Fitch projects EBITDA leverage to temporarily rise by 0.3x to 5x by
end-2024, before it falls to 4.5x in 2025 on the integration of
recently acquired Clas and Panificio Di Martino. Sustained moderate
leverage at below 5.0x may support an upgrade over the next 12-18
months, which is reflected in the Positive Outlook.
Fitch forecasts leverage to gradually improve to 4.3x by 2027. La
Doria's ability to deleverage is contingent on its ability to grow
EBITDA. Although the current leverage is strong for the sector, La
Doria's input cost, foreign exchange (FX) volatility and lengthy
cost pass-through mechanisms leave current leverage only adequate
for the 'B' rating.
Modest EBITDA Growth: For 2024, Fitch forecasts EBITDA margin to
rise to 12.2%, followed by a slow expansion towards 12.7% in 2027.
This is due to cost efficiencies, operating leverage effects and a
change in product mix as La Doria plans to focus more on
premiumisation. All these will be critical to demonstrating a
sustained profitability of above 12%, which is its upgrade trigger.
Inability to sustain current profitability will put pressure on
ratings. Fitch expects Clas and Pastificio Di Martino to add around
50bp to La Doria's profitability.
Sustainability of EBITDA Margins Critical: La Doria's ability to
sustain its EBITDA margins at around 11%-12% following an
exceptionally strong performance in 2023 is key to its rating.
Inflation-driven price increases and personnel cost reduction
resulted in a Fitch-calculated EBITDA margin of 11.8% in 2023,
compared with less than 10% three years ago. Fitch sees limited
scope for a material profitability improvement based on La Doria's
organic contract base and low emphasis on product innovation.
However, Fitch has factored in some leeway in the EBITDA margins to
accommodate potential volatility, given La Doria's exposure to
harvest yields and input commodity prices. Full delivery of
management's planned initiatives may stabilise margins at around
13%.
Positive FCF: Fitch forecasts Doria to generate positive FCF
margins of 3%-5% during 2024-2027, which together with stable
EBITDA margins, are critical to a potential upgrade in the next
12-18 months. Fitch expects this to be supported by moderate capex
requirements and limited working-capital outflows. La Doria has
factoring facilities that Fitch expects to rise in line with
revenue growth. Challenges in maintaining operating profitability,
or supply irregularities leading to higher working-capital
requirements, would put the ratings under pressure.
Additional Dividends Possible: Acquisitions and dividend
distributions are a possibility, but not included in its base case.
Fitch views the approach to acquisitions as opportunistic as viable
targets become available. Large cash balances may be used for
additional shareholder distributions, as allowed by its financial
documentation. La Doria has a put/call agreement with certain
minority shareholders, but Fitch does not expect it to be exercised
in the medium term.
Slow Cost Pass-Through: La Doria benefits from its costs mainly
being variable. Its supplier base is fairly diversified, with the
top five suppliers accounting for around 25% of cost of goods sold.
La Doria's tomato sourcing is strong due to framework agreements
with several producers, while pulses suppliers are more
concentrated. However, it is exposed to fluctuations in pricing and
yield of tomatoes and other commodities, with slow cost
pass-through of up to a year. This may affect its profitability in
low-yielding seasons or times of geopolitical tension, as in 2022.
Currency Exchange Risk: La Doria's operations are exposed to FX
risks. Its financial liabilities are euro-denominated, as are most
of its expenses, while sourcing costs are in euros and US dollars,
and about two-thirds of its turnover are in foreign currencies,
mainly sterling. This increases its risk of FX-related
profitability volatility. It has a hedging policy in place based on
forward-rate agreements. However, this results in FX-driven
earnings and cash flow volatility.
Niche Product, Concentrated Customers: La Doria's ratings are
driven by its niche in the food-processing sector, corresponding to
the 'B' rating category based on its scale. It has a highly
concentrated customer base, with its top 10 clients representing
about 63% of revenue. However, this is mitigated by La Doria's
longstanding customer relationships and no contract cancellations,
backed by its logistic and production capabilities. While La
Doria's customers have stronger bargaining power, its margins of
above 10% are high for the rating, underscoring its attractive
product offering.
Derivation Summary
La Doria is active in tomato and vegetable processing, and in the
distribution of its products via private-label agreements to
large-scale retailers, mainly in the UK. It is involved in
resilient consumer staples, its client base is concentrated and a
limited share of branded production generates moderate pricing
power. Fitch rates the company under its Packaged Food Navigator.
It compares well with a number of consumer, food and beverage
leveraged buyouts in Fitch's public and private ratings coverage.
La Doria compares well with Sigma Holdco BV (B/Stable). Sigma has
materially larger scale, greater geographic diversification and
higher margins, due to its branded portfolio and a different cost
base. Although Sigma's product range is mainly focused on a single
offering that is experiencing secular difficulties, Fitch allows it
a higher debt capacity.
Nomad Foods Limited (BB/Stable), which is strong in branded and
private-label frozen food, has a stronger business profile both in
scale and profitability. Nomad's leverage is also lower, justifying
its larger debt capacity and higher rating.
Flamingo Group International Limited (B-/Stable) operates in a
highly fragmented, agriculture-like floriculture market with a
concentrated customer base and limited expected FCF generation. It
has smaller scale than La Doria, with limited diversification
across geographical locations and its product portfolio. It also
faces significant seasonality and is vulnerable to weather
conditions.
Sammontana Italia S.p.A. (B+/Stable) has similar scale to La Doria
but in its view, a stronger business profile due to its wider
product offering, stronger brand awareness and lower customer
concentration. Its profits are also less exposed to volatility of
input prices than La Doria. These aspects are partly compensated by
La Doria's more conservative capital structure.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Flat revenue in 2024 due mainly to normalising prices, followed
by growth of 7.8% in 2025
- EBITDA margin at 12%-12.7% over 2024-2027
- Capex of EUR30 million in 2024, before normalising at around
EUR20 million a year to 2027
- FCF margins in low single digits over 2024-2027
- Dividends of EUR125 million in 2024 and none thereafter
- No M&As to 2027
Recovery Analysis
Its recovery analysis assumes that La Doria will be considered a
going concern (GC) in bankruptcy, and that it would be reorganised
rather than liquidated. This is because most of its value lies
within its client-and-supplier relationships, as well as in its
production and logistic capabilities. Fitch assumes a 10%
administrative claim.
Fitch assesses GC EBITDA at EUR110 million, after corrective
measures and a restructuring of La Doria's capital structure that
allow it to retain a viable business model. Loss of some customer
contracts, materials-sourcing challenges and difficulties in
passing on its input costs may drive financial distress leading to
a restructuring, in which case its capital structure may become
untenable.
Fitch applies a recovery multiple of 5.0x, which is in the
mid-multiple range for packaged food companies in EMEA. This
generates a ranked recovery in the 'RR3' band, leading to a 'B+'
instrument rating for the existing SSNs of EUR525 million and a tap
of EUR125 million. This results in a waterfall-generated recovery
computation output percentage of 57%.
Its estimates of creditor claims include a fully drawn EUR112.5
million super-senior RCF, and about EUR9 million of bilateral
facilities, both of which rank ahead of its super senior notes.
Fitch expects La Doria's existing receivables factoring facilities
to remain in place during and post distress without requiring an
alternative funding solution, albeit available at a reduced amount.
This assumption is driven by the strong credit quality of the
company's client base.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA gross leverage remaining below 5.0x, through organic
growth and supported by a more conservative financial policy while
conducting M&A activities
- EBITDA interest coverage remaining above 3.0x
- Evidence of EBITDA margin expansion to above 12% by 2025,
sustaining FCF margin at above 3%
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Increase in EBITDA gross leverage to above 6.5x, due to lower
profitability or debt-funded acquisitions
- EBITDA margin below 9%, resulting in volatile FCF margins
- EBITDA interest coverage weakening towards 2.0x or below
- Reducing liquidity headroom
- EBITDA margin failing to recover after the expected 2024 decline,
together with a lack of deleveraging by 2025, would lead to a
revision of the Outlook to Stable
Liquidity and Debt Structure
Comfortable Liquidity: Fitch forecasts La Doria's cash balance at
around EUR60 million at end-2024. Stable operating performance with
minimal to neutral working-capital outflows and limited capex
should support positive FCF before acquisitions of about EUR40
million-EUR70 million a year to 2027. La Doria also has access to a
fully undrawn RCF of EUR112.5 million, with no significant debt
maturing before 2029.
Issuer Profile
La Doria is an Italian manufacturer of private-label tomato,
vegetable and fruit derivatives including sauces, soups, dressings,
purees and juices.
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
----------- ------ -------- -----
La Doria S.p.A. LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
SAMMONTANA ITALIA: Fitch Rates EUR800MM Floating Rate Notes 'BB-'
-----------------------------------------------------------------
Fitch Ratings has assigned Sammontana Italia S.p.A.'s (SI) EUR800
million seven-year senior secured floating rate notes (SSN) a final
senior secured rating of 'BB-' with a Recovery Rating of 'RR3'.
Fitch has also affirmed SI's Long-Term Issuer Default Rating (IDR)
at 'B+' with a Stable Outlook.
The proceeds of the notes will be used for repayment of a EUR800
million bridge facility incurred for the acquisition of Forno
d'Asolo S.p.A. and Sammontana S.p.A. Repayment is expected to take
place on or about 11 October 2024. The final rating is in line with
the expected rating Fitch assigned on 30 September 2024 and the SSN
terms broadly conform to the information already received.
Covenants and permitted investment baskets were slightly tightened
compared with its initial assessment, providing additional
protection to lenders against the risk of increased leverage from
M&A activity.
The IDR reflects the strong business profile of newly-created SI,
resulting from the merger between Sammontana S.p.A. (Sammontana)
and Forno d'Asolo S.p.A. (FdA), including its expectation of top
line and cost synergies, the prospect of sustained positive free
cash flow (FCF), as well as relatively moderate initial leverage
for a private-equity sponsored transaction.
These aspects are balanced by a strategy that does not rule out
maintaining a proactive approach to consolidation in the industry,
which may constrain deleveraging over the rating horizon. However,
Fitch expects the company's business profile to strengthen and
gross leverage to be sustained around 5.0x-5.5x at the assigned
rating.
Key Rating Drivers
Creation of Italian Market Leader: The transaction brings together
two leaders in Italy, with strong routes to market in complimentary
food categories utilising cold storage and distribution chains. The
new company has a leading market share in the Italian non-bread
frozen bakery products market, as well as critical mass and
positions in a broad range of frozen categories distributed mainly
to bars, hotels and restaurants. Products include ice cream, frozen
patisserie and savoury pastry. The company also has a good portion
of sales in the modern trade channel. However, the current
concentration in Italy constrains the rating.
Ambitious and Diverse Synergies: The company plans to use the
complimentary product portfolios and routes to market of the two
merged entities to deliver cost synergies in procurement,
distribution and by reallocating manufacturing across its
respective footprint. Fitch views these as customary and tested
actions for this type of transaction. Nonetheless, Fitch views
management's target cost synergies together with benefits from
cross-selling as ambitious and have consequently assumed these to
be more limited. Overall, Fitch assesses execution risks as
moderate. Fitch expects its assessment to improve once the
integration and planned cost synergies have largely been
completed.
Opportunities to Expand Abroad: As part of its strategy, the merged
company intends to leverage on FdA's current small presence in the
US, France and German-speaking European countries and on favourable
demand trends. It envisages doubling its sales outside Italy by
2028 and reaching 25% of total sales from the current EUR150
million (mostly from FdA). Sammontana currently has a very small
presence abroad but may benefit from cross-selling and from
consumers' attitude towards Italian gelato.
Fitch believes these projects may have good scope for success but
have assumed a more limited pace of growth in its rating case. This
reflects the highly competitive market environment and
intrinsically higher execution risks associated with expansion
outside the home market.
Favourable Trends; Saturation Risks: The companies have benefited
from a trend of labour cost containment in
hotel/restaurant/catering, which has led to increasing penetration
of frozen bakery products. These have the benefit of significantly
reducing manual and man-controlled work in bakery product
production. Small bars are widespread in Italy, providing a range
of food and drinks for most meal occasions across the day and
represent SI's main client base. However, penetration of frozen
pastry has now reached around 60% in the larger sweet category and
the smaller, savoury segment.
Fitch expects growth to moderate, but the combination of organic
volume growth in Italy and expansion outside the country,
complemented by a modest and lower than 2019-2023 price mix
benefit, should enable SI to deliver annual revenue growth at least
in the mid to high single digits over 2025-2028.
Moderately Resilient Profit Performance: Over 2020-2022, FdA and
Sammontana suffered a contraction of revenues and consequently
profits, given their high exposure to the out-of-home consumption
channel. As a defensive move, Sammontana launched more products in
the food retail channel, helping it offset a small part of the
revenue decline. After out-of-home demand recovered in 2023, cost
inflation led to new challenges, which Sammontana managed to
overcome by more than proportionately passing on costs and
achieving a good upwards rebase of profits. FdA strongly benefited
from continued volume growth.
Good Post-Merger Profits: Overall, Fitch estimates combined
Fitch-adjusted EBITDA at end-2024 close to EUR140 million, strongly
up from EUR113 million in 2019, pro-forma for Bindi, which was
acquired in 2020. Fitch calculates an EBITDA margin of close to 16%
at end-2023, when accounting for assets planned for disposal in
2025 due to anti-trust requirements (EUR74 million of sales,
generating EUR7 million EBITDA). This profitability is consistent
with the mid to high end of European packaged food companies.
Good Cash Flow Generation: The 'B+' IDR is supported by its
estimated initially modest, but gradually expanding, sustained
positive FCF. Fitch projects annual FCF of EUR20 million-EUR25
million in 2024-2025, which should grow to EUR90 million-EUR100
million in 2027-2028. This will be driven by SI's strong EBITDA
margin and despite elevated planned capex disbursements of around
EUR50 million a year over 2024-2026, moderating towards EUR40
million thereafter.
Industry Consolidation; M&A Platform: M&A has been part of the
strategy pursued by FdA, which comes from private equity ownership
and whose CEO will lead the combined group. Fitch understands that
SI's strategy targets organic growth and acquisitions of small
sector peers and some distributors in Italy, the US or Europe.
Aside from proceeds from the divestment of Lizzi, which Fitch
assumes could take place by end-2024, its projections assume
bolt-on M&A of EUR25 million-EUR40 million funded from annual FCF
over 2026-2028.
Potentially Conservative Financial Policy: Divestment proceeds and
FCF provide good scope for leverage reduction to below 4.0x by 2027
without the need to raise more debt. However, attractive sector
prospects and a fragmented industry landscape, means Fitch does not
rule out more aggressive M&A after the integration of Sammontana
and FdA. The 'B+' IDR is contingent on SI maintaining EBITDA gross
leverage under 5.5x. Inability to deleverage from initially
elevated 6.0x in 2024 combined with larger debt-funded M&A
potentially increasing execution risks, would put pressure on SI's
ratings.
Derivation Summary
Fitch rates EMEA-based packaged foods companies La Doria S.p.A.,
Platform Bidco Limited (Valeo Foods) and Sigma Holdco BV (Upfield)
in the 'B' rating category.
La Doria (B/Positive) has similar scale to SI, but in its view, a
weaker business profile due to its narrower product offering,
weaker brand awareness and higher customer concentration, arising
from its focus on the private label space. Its profits are also
more exposed to volatility of input prices than SI. These aspects
are partly compensated by La Doria's a more conservative capital
structure.
Fitch views Valeo Foods (B-/Stable) as having a comparable business
profile, with benefits from larger scale and wider diversification
compensating its weaker operating profitability and cash
generation. The two-notch differential with SI mostly reflects
Valeo Foods' much higher leverage, which Fitch projects at 9.7x in
the year ending March 2025.
Global margarine and plant-based spreads producer Upfield
(B/Stable) has materially larger scale, greater geographic
diversification and higher margins, due to its strong brands
portfolio and a different cost base. Although Upfield's product
range is mainly focused on a single offering that is experiencing
secular decline, its strong FCF generation allows higher debt
capacity. However, higher leverage than SI is reflected in a
one-notch differential.
Nomad Foods Limited's (BB/Stable) two-notch differential with SI
reflects the former's strength in branded and private-label frozen
food and more diverse portfolio of categories and geographies of
operation, as well as larger overall scale, leading to a stronger
business profile. Combined with Nomad's higher cash generation,
this justifies larger debt capacity. Nomad's rating also reflects
its lower gross leverage of around 4.5x.
Compared with French frozen food retailer Picard BondCo S.A.
(B/Stable), SI has moderately smaller scale compared with Picard's
EUR1.8 billion revenues and EUR216 million EBITDA in FY24, but
materially lower opening and projected leverage than Picard's
6.3x-6.5x expected for FY25-FY26. Both companies remain heavily
reliant on their home markets, where they are market leaders
Key Assumptions
- Revenue to decline by 4.3% in 2024 due to carve-out of assets to
be disposed; followed by mid to high single digit organic growth
and bolt-on M&A
- EBITDA margin at around 16% in 2024, growing toward 18% by
end-2027
- Annual capex of around EUR50 million in 2024-2026 before
normalising at around EUR40 million thereafter
- Mild absorption of cash (around 1% of sales annually on average)
from trade working capital movements
- FCF margins in the low single digits over 2024-2026 before
stepping up to high single digits from 2027
- Total aggregate bolt on spending of EUR160 million over 2025-2028
largely covered with internally-generated cash flow
Recovery Analysis
Its recovery analysis assumes that SI would be considered a going
concern (GC) in bankruptcy, and that it would be reorganised rather
than liquidated. This is because most of its value lies within its
established brand portfolio, as well as client relationships and
production and logistic capabilities. Fitch assumes a 10%
administrative claim.
Fitch assesses GC EBITDA at EUR120 million, which includes the
ongoing four acquisitions and represents a hypothetical distress
EBITDA, at which level the group would have to undergo a debt
restructuring due to an unsustainable capital structure. The GC
EBITDA assumes undertaking corrective measures and the
restructuring of its capital structure in order for the company to
be able to remain a GC. Financial distress leading to a debt
restructuring may be driven by SI losing part of its key retailer
base, disruption in the Italian operations or having issues with
the post-merger integration.
Fitch applies a recovery multiple of 5.5x, at about the mid-point
of its multiple distribution in EMEA and in line with sector peers.
This generates a ranked recovery in the 'RR3' band. This results in
a 'BB-' instrument rating with a waterfall-generated output
percentage of 57% on current metrics and assumptions for the EUR800
million SSN. Its estimates of creditor claims include a fully drawn
EUR140 million super-senior revolving credit facility (RCF) ranking
ahead of EUR800 million SSN.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch does not envisage an upgrade to the 'BB' rating category in
the near future. Any positive rating action will be subject to:
- Achievement of wider scale and diversification, measured in terms
of EBITDA reaching EUR300 million and contribution of non-Italian
markets to EBITDA growing to at least one quarter
- EBITDA gross leverage dropping below 4.5x, thanks to organic
growth, integration of bolt-on targets or gross debt prepayment and
EBITDA interest coverage above 3.5x
- Evidence of EBITDA margin expanding sustainably to 18% or above,
sustaining FCF at mid-single digit
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA margin below 15% and neutral to positive FCF generation
- EBITDA gross leverage remaining above 5.5x, due to slower pace of
delivery of organic growth strategy or debt-funded acquisitions
- Reducing liquidity headroom as a result of higher than
anticipated working capital seasonality and M&A disbursements
Liquidity and Debt Structure
Comfortable Liquidity: Fitch estimates SI's freely available cash
balance at around EUR93million at end-2024 after completion of
refinancing with the SSN issuance and considering Fitch restricts
EUR50 million of cash for daily operational purposes, including
intra-year business seasonality. This liquidity is complemented by
the almost full availability of a committed RCF of EUR140 million
(EUR20 million drawn) with no significant debt maturing before
2031.
Issuer Profile
SI is a new Italy-based company with 2023 pro-forma continuing
revenues of EUR870 million and Fitch adjusted EBITDA of EUR139
million, resulting from the merger of Sammontana with FdA
manufacturing and distributing ice creams and frozen sweet and
savoury pastries and patisserie.
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
----------- ------ -------- -----
Sammontana
Italia S.p.A. LT IDR B+ Affirmed B+
senior secured LT BB- New Rating RR3 BB-(EXP)
===================
K A Z A K H S T A N
===================
BEREKE BANK: Fitch Lowers LongTerm IDRs to 'B+', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has downgraded Kazakhstan-based Bereke Bank JSC
Long-Term Issuer Default Ratings (IDRs) to 'B+' from 'BB'. The
Outlook is Stable. Fitch has also downgraded the bank's Government
Support Rating (GSR) to 'ns' from 'bb'. The IDRs and GSR have been
removed from Rating Watch Negative (RWN). Fitch has also affirmed
the bank's Viability Rating (VR) at 'b+'.
The rating actions follow the announcement that the sale of the
bank has been completed.
Fitch has affirmed and withdrawn Bereke's Long- and Short-Term
Foreign-Currency IDRs (xgs) and Long-Term Local-Currency IDR (xgs),
as these ratings are no longer considered by Fitch to be relevant
to the agency's coverage. This is because according to its Bank
Rating Criteria, 'xgs' ratings are only assigned to selected
financial institutions whose international ratings incorporate
assumptions of government support.
Key Rating Drivers
The downgrade of Bereke's Long-Term IDRs, GSR and National Rating
follows the announcement that on 8 October 2024, Kazakhstan-based
state-owned JSC National Management Holding Baiterek (BBB/Stable)
completed the sale of its 100% equity stake in Bereke to
Qatari-based Lesha Bank (unrated). Accordingly, Bereke has ceased
to be a state-owned bank.
Bereke's 'B+' IDRs are now driven by its intrinsic
creditworthiness, as measured by its 'b+' VR, as Fitch believes
that neither government nor shareholder support can be relied upon,
and thereby incorporated into Bereke's ratings. The Stable Outlooks
on Bereke's IDRs reflect Fitch's expectation that the key drivers
of the bank's credit profile will remain stable over the Outlook
horizon.
State Support Unlikely: Fitch believes that following the sale, the
authorities' propensity to support Bereke has materially reduced.
This is because Bereke is now a foreign-owned bank with limited
systemic importance in the Kazakh banking sector, as captured by
its low shares in sector loans and deposits of 4.5% and 3.5%,
respectively, at end-2Q24.
Fitch believes that additional limitations to the likelihood of
state support being provided to Bereke, in case of need, stem from
the patchy record of state support to privately-owned banks in
Kazakhstan, involving bail-in of certain senior unsecured creditors
in the past.
Limited Probability of Shareholder Support: Fitch believes that the
probability of capital support to Bereke from its new institutional
shareholder is limited, given Bereke's material size relative to
Lesha. At end-2Q24, Bereke's total assets equaled USD4.8 billion,
which is 2.8x higher than Lesha's USD1.7 billion total assets. In
addition, the level of integration between Bereke and Lesha, as
well as Bereke's role in group and strategy post-acquisition, is
uncertain at this stage. For these reasons, Fitch has not assigned
a Shareholder Support Rating to Bereke.
Ratings Driven by Intrinsic Creditworthiness: Fitch has affirmed
Bereke's VR at 'b+', given limited changes in the bank's intrinsic
creditworthiness since the previous review in May 2024. The VR
continues to capture the bank's weaker business profile and
profitability, compared with domestic peers, and its only moderate
capital ratios. As of 1 September, Bereke's regulatory Tier 1 ratio
was a moderate 12.1%, which is considerably lower than the sector
average of 19%. Bereke's net income under IFRS was a reasonable 20%
(annualised) of average equity, although this is weaker than at
higher-rated domestic peers.
For more details on the rating drivers of the VR see 'Fitch
Maintains Bereke Bank JSC's 'BB' IDR on Rating Watch Negative;
Upgrades VR' dated 29 May 2024.
National Rating: Fitch has downgraded Bereke's National Rating to
'BBB-(kaz)' from 'A+(kaz)' and removed it from RWN. The Outlook is
Stable. Bereke's National Rating corresponds to its 'B+' Long-Term
Local-Currency IDR and reflects its creditworthiness relative to
domestic peers.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Bereke's IDRs and National Rating are sensitive to changes in its
intrinsic creditworthiness, as assessed by Fitch and measured by
its VR. A downgrade of Bereke's VR could be driven by considerable
asset-quality deterioration, if it results in a loss-making
performance for several consecutive quarters and pressure on the
bank's capital ratios.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Bereke's ratings would require a considerable
strengthening of its business profile, core profitability and
capitalisation. In particular, the ratings could be upgraded if
core performance gets closer to sector averages, while the FCC
ratio increases to around 15%.
Moderate upside potential for Bereke's GSR may arise if Fitch takes
a view that the bank's systemic importance in Kazakh banking sector
has increased. This could be evidenced by a considerable increase
in Bereke's markets shares, particularly in customer deposits.
VR ADJUSTMENTS
The business profile score of 'b+' has been assigned below the 'bb'
category implied score because of the following adjustment reason:
business model (negative).
The capitalisation & leverage score of 'b+' has been assigned below
the 'bb' category implied score because of the following adjustment
reason: leverage and risk-weight calculation (negative).
The funding & liquidity score of 'b+' has been assigned below the
'bb' category implied score because of the following adjustment
reason: deposit structure (negative).
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Bereke Bank JSC LT IDR B+ Downgrade BB
ST IDR B Affirmed B
LC LT IDR B+ Downgrade BB
Natl LT BBB-(kaz)Downgrade A+(kaz)
Viability b+ Affirmed b+
Government Support ns Downgrade bb
LT IDR (xgs) B+(xgs) Affirmed B+(xgs)
LT IDR (xgs) WD Withdrawn B+(xgs)
ST IDR (xgs) B(xgs) Affirmed B(xgs)
ST IDR (xgs) WD Withdrawn B(xgs)
LC LT IDR (xgs) B+(xgs) Affirmed B+(xgs)
LC LT IDR (xgs) WD Withdrawn B+(xgs)
SAMRUK-ENERGY: Fitch Affirms 'BB+' LongTerm Foreign Currency IDR
----------------------------------------------------------------
Fitch Ratings has affirmed Kazakhstan-based JSC Samruk-Energy's
Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB+'.
The Outlook is Stable.
The affirmation and Stable Outlook reflect continued application of
'top-down minus two' notch approach from Kazakhstan's rating
(BBB/Stable) under Fitch's Government-Related Entities (GRE) Rating
Criteria. This is driven by its 'Very Likely' expectations of
support from Kazakhstan, together with a Standalone Credit Profile
(SCP) of 'b+'.
Samruk-Energy's 'b+' SCP reflects expected weakening of the
financial profile, with funds from operations (FFO) net leverage
rising to 5.2x in 2026 (2.0x in 2023), based on its projections,
and deeply negative free cash flow (FCF) over 2024-2026 as the
company progresses with substantial debt-funded capex for the
Almaty gasification and other projects. This is offset by stronger
state support in the form of guarantees for the projects' debt,
equity injections and asset contributions.
Fitch expects a positive operational performance, while
deleveraging should start from 2027 once major projects are
completed.
Key Rating Drivers
Responsibility to Support: Under its updated GRE Criteria, Fitch
assesses both decision-making and oversight, and precedents of
support as 'Very Strong'. The state has 100% ownership and strong
influence on Samruk-Energy's strategy and operations by approving
its investment plans, setting tariffs and delegating strategic
investment projects.
The state has also committed to provide guarantees for
Samruk-Energy's debt to fund gasification projects in Almaty,
leading to an average 53% share of total debt to be guaranteed over
2024-2028. The state transferred two hydro power plants to
Samruk-Energy for free in 2024 and plans to provide equity
injections of KZT398 billion to support the increased investment
plan over 2024-2028.
Incentive to Support: Fitch assesses preservation of government
policy role as 'Strong' as Samruk-Energy is responsible for 34% of
electricity production and over 40% of coal production in
Kazakhstan, is a large employer and executes many of strategic
projects for the state. Fitch does not see contagion risk from a
Samruk-Energy default for the state or other GREs, given its
limited size and mostly domestic funding with no presence in the
Eurobond market.
Updated Capex Plan: Samruk-Energy's investment programme assumes
capex of KZT1.2 trillion (USD2.4 billion) for 2024-2028. The
largest project is the gasification of Almaty Power Stations and
includes the construction of gas-fired units of around 1GW or
around 20% of the company's installed capacity, by 2027,
substituting coal-fired generation. Other major projects include
the modernisation of assets at Ekibastuz GRES-1, reconstruction of
cable networks in the Almaty region and construction of renewable
assets. The company expects the majority of the investment
programme to be debt funded, and has secured funding for most
projects.
Capex-Driven Releveraging: The 'b+' SCP reflects Fitch's
expectations of a weakening financial profile over 2024-2026, with
FFO net leverage rising to 5.2x in 2026 when capex peaks, from 2.0x
in 2023. Fitch also forecast significantly negative FCF, averaging
around KZT230 billion a year over 2024-2026, compared with close to
neutral FCF on average over 2019-2023. If the gasification projects
are implemented on time, Fitc would expect deleveraging from 2027
when the new power units start receiving high contracted capacity
market payments of KZT8 million-KZT10 million per megawatt (MW) per
month.
Equity Injections for New Projects: Samruk-Energy will be involved
in several state-driven projects, including construction of three
new combined heat power plants (CHPP) via joint ventures with
Samruk-Kazyna and construction of around 5GW of renewable
generation capacities via associated companies with foreign
partners. Samruk-Energy expects that new companies will not be
consolidated. Investments are estimated at KZT398 billion over
2024-2028 and will be fully covered by equity injections. In
September 2024, Samruk-Energy received a KZT4.1 billion equity
injection for Kokshetau CHPP construction project. These projects
have a neutral effect on the leverage trajectory.
Healthy Tariffs Growth: Electricity generation tariffs were
increased by 10% in January 2024 for Ekibastuz GRES-1 and by 27%
for Almaty Power Stations, key opcos of the group. As in previous
years, the regulatory order assumes that tariffs will remain flat
in 2025, although annual revisions are likely. Distribution tariffs
in the Almaty region were increased by 7% from January 2024 and an
additional 29% from August 2024 to support the high investment
plan.
Higher Capacity Tariffs: Samruk-Energy's GRES-1 and Almaty Power
Stations receive capacity payments from market sales, which cover
the fixed costs and do not have volume risk. The market tariff for
capacity was increased by 80% to KZT1.06 million per MW per month
in 2024, the first increase since 2019. A further 14% hike has been
approved from 2025. Fitch expects these indexations to add around
KZT17 billion to Samruk-Energy's EBITDA.
Emerging Regulation: Tariffs for generation, distribution and
supply segment are regulated in Kazakhstan. The regulatory
framework generally allows for recovery of costs and investments.
Despite some favourable changes to the framework in recent years,
the tariff-setting process remains subject to social and political
pressure. This results in Samruk-Energy's cash flows being less
stable than markets with more established regulation.
Healthy Investment Tariffs Benefit EBITDA: The company's investment
agreements lock in approved investment tariffs for Shardara, Moinak
HPPs and partially Almaty Power Stations, which have been agreed at
KZT2.5 million-KZT3.9 million per MW per month. These are
significantly higher than the current market capacity tariff of
KZT1.06 million per MW per month.
Fitch anticipates new investment agreements at GRES-1 starting in
2025 and Almaty Power Stations from 2027 to replace the expiring
ones. Fitch forecasts that capacity sales will contribute over 50%
of EBITDA from 2027 once gasification projects are completed, up
from an average of 25% of EBITDA over 2023-2026.
Derivation Summary
Along with Samruk-Energy, Kazakhstan Electricity Grid Operating
Company's (KEGOC, BBB/Stable, SCP: bbb-) and Uzbekistan's Thermal
Power Plants Joint Stock Company (BB-/Stable; SCP: ccc) are also
rated under its GRE criteria. Samruk-Energy has an SCP of 'b+' and
is rated two notches below the Kazakhstan sovereign, while KEGOC is
rated bottom-up plus one from its SCP for state support.
KEGOC's stronger SCP of 'bbb-' compared with Samruk-Energy reflects
its lower business risk profile and lower forecast leverage. The
stronger ties of Thermal Power Plants with the state of Uzbekistan,
reflecting that almost all of its debt is secured by government
guarantees or provided by the state, lead to the rating being
equalised with that of Uzbekistan.
The wider per group includes Energo-Pro a.s. (BB-/Stable), whose
rating balances high share of regulated activities and supportive
regulatory regimes with expected re-leveraging, high cash-flow
volatility and FX mismatch. Samruk-Energy's peer group also
includes Turkish-based renewable generator Aydem Yenilenebilir
Enerji Anonim Sirketi (B/Stable), which is facing increasing
merchant risk and FX exposure.
Key Assumptions
Fitch's Key Assumptions within Its Rating Case for the Issuer
Include:
- GDP growth of 4%-5% and CPI of 7%-9% over 2024-2028
- Electricity generation tariffs to increase from January 2024 as
approved by the regulator, with below-inflation growth in
2025-2028
- Electricity distribution tariff growth as approved by the
regulator until 2025
- Capacity market sales tariffs as approved by the regulator for
2024 and 2025, and flat for 2026-2028
- Capacity tariffs under investment agreements for GRES-1, Almaty
Power Stations, Moinak HPP and Shardara HPP as approved by the
regulator
- Cost inflation slightly below expected CPI
- Capex averaging KZT230billion a year over 2024-2028 including
gasification projects, in line with management's guidance
- Annual average dividends of KZT16 billion over 2024-2028
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Positive sovereign rating action
- Further strengthening links with the government
- An improvement of the SCP to 'bb-', for example, due to FFO net
leverage below 3.5x and FFO interest cover above 3.5x on a
sustained basis, would not have an impact on the IDR, assuming
unchanged links with the state
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Negative sovereign rating action
- Weaker linkage with the ultimate parent, for example, diminishing
or irregular state support, or attraction of significant funding
for upcoming capex projects without state guarantees
- FFO net leverage above 4.5x and FFO interest cover below 3x on a
sustained basis would be negative for the SCP, but not the IDR,
provided that links with the state remain unchanged
For the sovereign rating of Kazakhstan, Samruk-Energy's ultimate
parent, Fitch outlined the following sensitivities in its rating
action commentary of 17 May 2024:
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Public and External Finances: Erosion of the sovereign balance
sheet; for example, due to a severe commodity price shock,
disruption of exports, a prolonged period of looser fiscal policy,
or a crystallisation of significant contingent liabilities.
- Macro: A deterioration in the economic policy mix that, for
example, undermines the predictability of monetary policy or
confidence in the flexibility of the exchange rate to respond to
external shocks.
- Structural Features: Spillovers from Russia-related sanctions or
geopolitical tensions, or domestic social or political instability,
that raise risks to macroeconomic performance and stability.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Structural Features/Macro: Continued strengthening of the
economic policy framework and institutional capacity, supporting
enhanced policy predictability and effectiveness, the business
climate, and/or economic diversification.
- Public and External Finances: Further marked strengthening of the
sovereign balance sheet, for example resulting from an extended
period of higher oil revenue and a prudent fiscal policy stance.
Liquidity and Debt Structure
External Financing Key: At end 1H24, Samruk-Energy had available
cash and deposits of about KZT52 billion and unused uncommitted
credit facilities of KZT99 billion in Kazakh banks. The company
also has long-term credit agreements for KZT345 billion from
international and local financial institutions (EBRD, Asian
Development Bank and Development Bank of Kazakhstan) to fund its
increased capex plan. This compares with short-term debt of KZT43
billion and Fitch-expected negative FCF of around KZT300 billion in
2H24-2025.
Reliance on Local Banking System: Fitch expects Samruk-Energy to
remain reliant on local banks to refinance the majority of further
debt repayments, which exposes it to the local banking system. Debt
repayments are around KZT37 billion annually in 2025 and 2026.
Issuer Profile
Samruk-Energy is a Kazakhstan-based holding company integrated
across the electricity value chain including coal mining,
electricity and heat generation, electricity distribution and
retail sales. The company is one of the largest utilities in
Kazakhstan, accounting for around 34% of electricity production and
40% of coal mining (through its 50% joint venture, Bogatyr-Komir).
Samruk-Energy is 100% controlled by the state via the National
Welfare Fund Samruk-Kazyna. Around 85% of Samruk-Energy's EBITDA
comes from electricity generation, and the rest from networks.
Summary of Financial Adjustments
The difference between the balance value of loans from
Samruk-Kazyna and their nominal value was reflected as off-balance
sheet debt.
Capitalised interest was reclassified to interest paid from capex.
Public Ratings with Credit Linkage to other ratings
The rating is based on a 'top-down' approach from the indirect
sovereign shareholder, Kazakhstan.
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
----------- ------ -------- -----
JSC Samruk-Energy LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
Natl LT AA-(kaz)Affirmed AA-(kaz)
senior
unsecured LT BB+ Affirmed RR4 BB+
senior
unsecured Natl LT AA-(kaz)Affirmed AA-(kaz)
===========
P O L A N D
===========
SYNTHOS SPOLKA: Fitch Alters Outlook on BB LongTerm IDR to Negative
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Synthos Spolka Akcyjna's
Long-Term Issuer Default Rating (IDR) to Negative from Stable and
affirmed the IDR at 'BB'
The Negative Outlook reflects uncertainties about the recovery in
Synthos's insulation materials segment, which remains subdued due
to weakness in the European construction market. Margins and
operating rates are under pressure from an increasing share of
competitively-priced imports, especially from China and Iran. The
Outlook also takes into account elevated leverage, as Fitch expects
EBITDA net leverage of 3.8x in 2024 and Fitch forecasts that EBITDA
net leverage will not decrease below its 2.5x negative sensitivity
until 2026.
The rating is constrained by the company's modest scale, exposure
to the transportation and construction sectors, price volatility of
butadiene and styrene derivatives, and susceptibility to volatile
energy costs. Rating strengths include Synthos's strong position in
European market niches, particularly the production of synthetic
rubber and insulation materials. Additionally, the company's
diversification into the utilities segment and access to
competitively-priced feedstock provide some protection to earnings
during market downcycles.
Key Rating Drivers
Delayed Recovery in Earnings: Synthos reported a reduction in
Fitch-adjusted EBITDA by over 55% in 2023. Fitch no longer expects
a swift rebound in profitability as 1H24 EBITDA was down by 8% and
the outlook for 2H24 remains muted. The synthetic rubbers segment
is gradually recovering due to higher volumes, exports to Asia and
favourable butadiene-naphtha spread. However, the insulation
materials business is underperforming and Fitch expects its
depressed margins to remain a drag on overall recovery of Synthos's
EBITDA in 2024 and 2025
Fitch forecasts EBITDA of around PLN0.83 billion in 2024, followed
by a recovery to around PLN1.1 billion in 2025. This will reflect
the higher contribution of new capacity across product lines and a
modest recovery in insulation materials from 2H25.
Elevated Leverage: Fitch-adjusted EBITDA net leverage rose to
around 3.7x in 2023 from 1.7x in 2022. Fitch forecasts it at 3.8x
in 2024 as margins remain under pressure and high capex results in
negative free cash flow (FCF). Earnings recovery will reduce
leverage to around 2.7x in 2025, followed by a reduction below its
negative sensitivity of 2.5x from 2026. Fitch assumes no dividends
in 2024 and 2025. However, as FCF rebounds following a reduction in
expansionary capex, Fitch expects dividends to resume to a level
ensuring compliance with Synthos's internal target of net debt to
EBITDA below 2.5x.
Pressure from EPS Imports: Synthos's insulation materials segment
has been under significant pressure this year due to overcapacity
and low quotations for styrene in China, leading to increased
exports of expandable polystyrene (EPS) to Europe. This has
resulted in heightened competition, depressed prices, and low
utilisation rates in an already subdued European market. In its
view, this oversupply will continue impacting the European market
until the construction sector in China recovers. However, increased
shipping rates may limit arbitrage opportunities for Asian
exporters in the near term.
The recovery in the insulation materials segment will also depend
on a rebound in renovation and new building construction in Europe,
which Fitch expects to start gradually improving in 2025. The
magnitude and pace of this recovery remain uncertain. In the medium
term, Fitch anticipates that Synthos will benefit from lower
interest rates, and EU initiatives aimed at improving energy
efficiency in buildings.
Increasing Contribution of Utilities: Following the commission of
new combined-cycle gas turbine (CCGT) in April 2024, Fitch expects
Synthos's utilities segment is expected to contribute on average
around 30% to EBITDA in 2024-2027, compared with an average of
approximately 15% in 2019-2022. Fitch expects Synthos to sell
approximately 70% of electricity volumes externally from 2025.
Despite the partial exposure to market prices, this will provide
diversification in earnings.
Niche Leader, Small Scale: Synthos has a strong position in niche
markets, leveraging the proximity of its manufacturing facilities
to an established, diversified customer base. However, its rating
is constrained by exposure to cyclical construction and tyre end
markets and its relatively small operations compared with 'BB'
category chemical peers. Approximately 75% of its sales are derived
from Europe, where Synthos leads in the production of synthetic
rubber and EPS. Fitch anticipates Synthos will sustain its
leadership with its strategic expansion of higher-grade products.
Capex Peaks in 2024: Fitch expects capex to peak at approximately
PLN0.7 billion in 2024, driven by significant cash outflows for the
new butadiene plant and completion of the CCGT and InVento II
projects. Fitch forecasts capex will reduce to around PLN0.3
billion by 2027 as the company completes investment in the
butadiene unit, which is set to be commissioned in 2H26 due to
delay of the Orlen olefin project. Once growth capital expenditures
abate, Synthos is anticipated to generate healthy pre-dividend free
cash flow.
Backward Integration: Synthos's competitive position is underpinned
by an integrated production chain, providing access to
competitively-priced feedstock, and self-sufficiency in electricity
and steam in Poland and the Czech Republic. Synthos sources 17% of
its butadiene needs from its joint venture with Unipetrol and 43%
of styrene supply from its subsidiaries in Czech Republic and
Poland. A further 11% is supplied by Unipetrol's parent, ORLEN S.A.
(BBB+/Stable). Self-sufficiency in butadiene will rise to 44%
following completion of the investment in Plock.
Notching for Notes: Fitch rates the senior secured notes using a
generic approach for 'BB' category issuers, which reflects the
relative instrument ranking in the capital structure, in accordance
with its Corporates Recovery Ratings and Instrument Ratings
Criteria. The notes are secured by a share pledge of guarantors,
comprising over 80% of group adjusted EBITDA as of December 2023
and a mortgage over real estate in Poland. This results in the
senior secured rating being notched up once from the IDR and a
Recovery Rating of 'RR2'.
Derivation Summary
Synthos is rated broadly in line with its peers, INEOS Quattro
Holdings Limited (BB-/Stable) and INEOS Group Holdings S.A.
(BB/Stable).
INEOS Quattro Holdings is a diversified producer of chemical
commodities and intermediates, primarily manufacturing styrenics,
vinyls, aromatics, and acetyls. Compared with Synthos, INEOS
Quattro is larger and more globally diversified, whereas Synthos
has a relatively concentrated revenue stream in Europe. However,
INEOS Quattro's advantages are counterbalanced by its weaker EBITDA
margins, which are in the high-single digits, and its higher net
leverage across the cycle than Synthos.
INEOS Group Holdings is an intermediate holding company within
INEOS Limited, one of the largest chemical companies in the world,
operating in the commoditised petrochemical segments of olefins and
polymers. INEOS Group Holdings is significantly larger than
Synthos, with EBITDA of EUR1.5 million in 2023. The company
operates multiple manufacturing facilities in North America,
Europe, and Asia. Despite its greater size and diversified product
portfolio, these advantages are offset by its higher EBITDA net
leverage, which Fitch expects to remain above 6.0x in 2024.
Key Assumptions
- Butadiene and naphtha prices correlated with Fitch's oil price
deck: USD80/bbl in 2025, USD70/bbl in 2025, USD65/bbl in 2026 and
2027
- Low to mid-single digit growth in volumes of rubbers and styrene
derivatives from 2024 to 2027
- EBITDA margin of around 9% in 2024 followed by around 11% in 2025
and average of 13% in 2026-2027
- Capex of PLN0.7 billion and PLN0.55 billion in 2024 and 2025,
respectively, followed by an average PLN0.35 billion in 2026-2027
- No dividends in 2024 and 2025 followed by dividend of PLN200
million in 2026 and PLN700 million in 2027
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The Negative Outlook means positive rating action is unlikely.
However, outperformance with a quicker return of EBITDA net
leverage to below 2.5x could lead to a revision of the Outlook to
Stable.
- EBITDA net leverage below 1.5x on a sustained basis, and a record
of adherence to a more conservative financial policy, including a
clearly defined dividend distribution framework would be positive
for the rating.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA net leverage above 2.5x on a sustained basis due to, among
other things, weaker than expected market performance, high gas and
energy prices, excessive dividend payments, significant growth
capex during times of weak earnings or sizeable debt funded
acquisitions
- Decline in the EBITDA margin to below 10% for a sustained period
Liquidity and Debt Structure
Adequate Liquidity: Synthos has adequate liquidity, comprising its
cash balance of around PLN163 million and around PLN1.6 billion
available in June 2024 under a EUR500 million (PLN2.2 billion)
revolving credit facility (RCF) due in 2027. Until the maturity of
its EUR600 million Eurobond in 2028, Fitch expects Synthos's cash
flows and the RCF will be sufficient to maintain adequate liquidity
throughout its growth capex programme, which will moderate after
peaking in 2024.
Issuer Profile
Synthos is a European, rather small, privately-owned,
vertically-integrated chemical group mainly engaged in the
manufacture of synthetic rubber (capacity 704kt) and insulation
material (697kt) as well as electricity and heat generation.
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
----------- ------ -------- -----
Synthos Spolka
Akcyjna LT IDR BB Affirmed BB
senior secured LT BB+ Affirmed RR2 BB+
=============
R O M A N I A
=============
MAS PLC: Moody's Lowers CFR to 'B1', Outlook Negative
-----------------------------------------------------
Moody's Ratings has downgraded the corporate family rating of MAS
P.L.C. to B1 from Ba2. At the same time the backed senior unsecured
rating and the respective notes issued by MAS Securities B.V.,
guaranteed by MAS, have been downgraded to B2 from Ba3. The outlook
on both entities remains negative.
RATINGS RATIONALE
The rating downgrade considers the increasing risk to secure
refinancing for its cash needs well in advance of its remaining
EUR173 million bond maturity in May 2026 combined with increasing
governance risks linked to the rising investments into the
development joint venture (DJV).
The negative outlook reflects the need to shore up liquidity well
ahead of the maturity in May 2026. As such Moody's would expect
material progress in the next 6 months to stabilize the outlook
combined with a continued robust operating performance of MAS' core
business. Positive outlook catalysts include material liquidity
generation without further asset encumbrance.
The company's efforts to secure liquidity are exacerbated by higher
preferred equity drawings from the DJV than Moody's initially
expected, which increase liquidity requirements for MAS ahead of
the bond maturity. The DJV used proceeds to purchase shares in MAS
– effectively a proportionate share buyback - which Moody's
consider a governance risk and reflects MAS' limited control over
the activities of the DJV. In addition, Moody's think that MAS will
require liquidity sources in excess of encumbering its asset base
and retaining earnings to secure a buffer for its cash needs in the
next 2 years. MAS' management is working actively to shore up
liquidity and has pointed to asset disposals, unsecured debt or
fresh equity as additional liquidity sources, which come with
higher execution risk than retaining earnings or encumbering
assets.
Overall, MAS' rating remains supported by the company's EUR1
billion good quality directly held asset portfolio, mainly
consisting of well performing, convenience-led retail assets in
Romania (Baa3 stable). Footfall and sales at the company's retail
assets develop well, reflecting in stable OCRs and growing rental
income. Property values were resilient to recent rises in interest
rates. The company's value- and earnings-based leverage ratios
remain solid on the back of its conservative financial policy.
MAS' capital structure is currently stronger than Moody's
requirements for the B1 rating category, however the revised rating
reflects increased refinancing risk and the structural challenges
introduced by the DJV structure and governance. MAS owns a 40%
stake in and has a preferred equity commitment to PKM Development
Ltd (DJV), the joint venture with Prime Kapital. Prime Kapital in
turn is owned by a number of MAS' larger shareholders that
previously held their MAS shares through Prime Kapital. The growing
preferred equity exposure in the DJV does not directly contribute
to addressing refinancing needs for MAS' main bond maturity in May
2026 given current accrual of preferred dividends. Further possible
drawdowns of capital by the DJV reduce funds available to address
refinancing needs on the bonds.
Macroeconomic uncertainty in larger parts of Europe weigh on the
operating environment for retail landlords, while Romania is less
affected by those broader economic trends. Moody's currently do not
foresee a performance issue for MAS' asset base. MAS is exposed to
less liquid investment markets in CEE, which is relevant if
disposals or debt access are required. Another long-term risk is
the sectorwide structural currency mismatch that is embedded in the
leases.
LIQUIDITY
Liquidity for MAS is adequate in the next 12 to 18 months but is at
risk of deterioration, as reflected in the rating action. Going
forward liquidity depends on the remaining drawings on commitments
by the DJV (EUR72 million remaining), and company actions to
bolster liquidity, in particular ahead of the remaining
EUR173million bond maturity in May 2026 (from initially EUR300
million). Moody's believe MAS would need to take actions exceeding
the encumbrance of its asset base and foregoing dividend payments
to generate further liquidity that covers and contains a buffer to
its cash and refinancing needs. Those actions could include
unsecured issuances, property disposals or equity raises, which are
subject to higher execution risk. Moody's see a challenge in
securing the required liquidity well in advance of the bond
maturity date, but recognise management's focus on the
refinancing.
On June 30, 2024, MAS had EUR81.3 million cash and receives
steadily growing operating cash flows to cover expected basic
outflows. An undrawn EUR20 million RCF expires in November 2025. As
of end of June 2024, MAS has a commitment to provide around EUR72
million outstanding preferred equity and RCF drawings to the DJV
until 2030 to support the funding of the DJV's development
pipeline. Moody's base case assumes a full drawing in the next 24
months, even if the DJV may have resources to avoid a full drawing
of those commitments.
STRUCTURAL CONSIDERATIONS
The backed senior unsecured bonds are rated one notch lower than
the CFR. Moody's expect MAS to use the vast majority of its
directly held property assets to obtain secured loans to create a
liquidity buffer for the 2026 bond maturity. Therefore the majority
class of debt will be secured debt, which the CFR refers to. Given
the coverage of unsecured debt by unencumbered property assets will
decline, the notching reflects the subordination of the senior
unsecured debt to secured creditors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade could occur if
-- MAS creates a buffer to its liquidity needs in the next 2 years
including the bond maturity
-- Reduced governance concerns linked to potential DJV's capital
calls and their potential use
-- A rating upgrade would require Moody's-adjusted debt/asset to
remain well below 40% and Moody's-adjusted fixed charge cover
(excluding accounting earnings from preferred shares) to remain
well above 2x
A downgrade could occur if
-- Failure to address liquidity requirements more than 12 months
ahead of the May 2026 bond maturity
-- Moody's-adjusted debt/asset increases above 40% and
Moody's-adjusted fixed charge cover (excluding accounting earnings
from preferred shares) drops below 2x
The principal methodology used in these ratings was REITs and Other
Commercial Real Estate Firms published in February 2024.
COMPANY PROFILE
MAS P.L.C. is a CEE focused retail real estate landlord and
operator, with a focus in Romania. Most of its EUR1 billion
directly held assets are open air or enclosed malls. The company
also owns a 40% stake in and provides preferred equity to PKM
Development Ltd, the DJV established with Prime Kapital, which
provides construction and development functions to the DJV.
MAS is listed on the Johannesburg Stock Exchange (JSE), with a
market capitalisation of around EUR669 million including the
company's share scheme as of 7th of October 2024.
===========
T U R K E Y
===========
GDZ ELEKTRIK: Fitch Assigns BB- Final LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned GDZ Elektrik Dagitim Anonim Sirketi
(GDZ) a final Long-Term Issuer Default Rating (IDR) of 'BB-' with a
Stable Outlook. Fitch has also assigned GDZ's USD400 million 9%
notes due 2029 a final senior unsecured rating of 'BB-' with a
Recovery Rating of 'RR4'. The notes' final rating reflects their
final terms.
The rating reflects GDZ's moderate leverage, good network quality,
solid operating performance, and fully regulated revenues under a
regulatory framework of investment renumeration and high insulation
from price and volume risk.
Rating constraints include GDZ's high exposure to the Turkish
economy with a challenging operating environment and high
inflation, plus a regulatory framework prone to social or political
pressure that may lead to revenue underperformance and cash flow
volatility. It also faces high foreign-exchange (FX) risks due to
currency mismatch between revenue and debt.
Key Rating Drivers
Final Terms of Notes: The issue rating is aligned with GDZ's IDR.
The notes constitute direct, unsecured (subject to certain
provisions), unsubordinated and unconditional obligations of GDZ.
The proceeds are being used to refinance most of the existing bank
debt, repay trade payables to Turkish state-owned utility companies
and partially fund capex. The notes assume a bullet payment of
USD400 million in 2029. Remaining bank debt of around USD62 million
as of October 2024 will rank pari passu with the notes.
Regulated Utility Network: GDZ is the fourth-largest electricity
distribution network in Turkiye with an 8% market share by
distributed volumes, serving around 3.8 million customers. Its
business is fully regulated, with the Energy Market Regulatory
Authority setting key regulatory parameters and distribution
tariffs. GDZ has consistently earned network-quality bonuses and
managed to reduce its electricity loss rate to 5.2% in 2023, one of
the strongest ratios in Turkiye, from 7.3% in 2016.
Regulatory Framework with Long Record: GDZ's tariffs are based on
the regulated asset base (RAB) since 2006. The key parameters for
the fourth regulatory period of 2021-2025, such as RAB, real
weighted average cost of capital (WACC) of 12.3%, a 10-year
reimbursement period and efficiency incentives, support GDZ's
profitability. Tariffs are protected from volume and inflation
risks. Any deviation of actual results from projected figures is
corrected via tariffs with a moderate lag along with adjustments to
compensate for the lag itself.
Regulatory Weaknesses: The regulatory framework in Turkiye also has
weaknesses, some of which have emerged since 2022 on the back of
accelerating inflation and macroeconomic turbulence. These include
delayed and insufficient tariff increases, or mismatch between
operating spending allowances and actual operating spending
affected by high inflation. Regulatory decisions can be influenced
by social and political reasons to cap utility bill growth. This
results in high cash flow volatility at GDZ, with working capital
inflow at 15% of revenue in 2022 and outflow of 17%-18% of revenue
in 2023 and 1H24.
Following the latest distribution fee increase of 59% in July 2024,
cumulative tariff growth for 2022-2024 has been broadly in line
with inflation for the same period.
Challenging Operating Environment, FX Risk: FX volatility and
operating environment risks in Turkiye undermine the stability of
the regulatory framework for Turkish distribution companies. The
lira depreciated against the US dollar by around 2.5x between
end-2021 and September 2024, while inflation fluctuated between 38%
and 86% over the same period. The FX mismatch between GDZ's fully
US dollar-denominated debt and lira-denominated cash flows limits
financial flexibility. However, this is mitigated by
inflation-linked tariffs pre-empted by regulation and GDZ's limited
leverage.
Comfortable Headroom for Credit Ratios: Fitch forecasts funds from
operations (FFO) net leverage to remain below 3x and FFO interest
coverage at around 5x for 2024-2027, in line with the IDR. Fitch
expects distribution tariffs to rise with inflation from 2025,
driving operating cash flow to around TRY6.5 billion (around USD150
million) per year for 2024-2027. Fitch forecasts free cash flow
(FCF) to be moderately negative, driven by capex of around TRY8
billion (around USD200 million) per year over 2024-2027 and Fitch
expects bond covenants to allow GDZ to pay dividends from 2025.
Part of Larger Group: GDZ is 100% controlled by Aydem Holding,
which is present across the utility value chain in Turkiye. Apart
from its distribution businesses in Izmir and Manisa regions, it
has renewable and thermal generation assets with 2.2 GW of
installed capacity, electricity retail and manufacturing
businesses.
Standalone Profile Drives Rating: Fitch expects GDZ's bondholders
to benefit from proposed covenants that will restrict dividend
payments, loans to the parent and other affiliate transactions.
Fitch therefore views legal ring-fencing as 'Insulated' under its
Parent and Subsidiary Rating Linkage Criteria, while Fitch assesses
access and control of the parent as 'Porous', which result in a
standalone rating approach for GDZ.
Derivation Summary
GDZ peer group includes Nama Electricity Distribution Company SAOC
(BB+/Stable), an electricity network covering most of the territory
of Oman, and Georgia Global Utilities JSC (GGU, BB-/Stable,
Standalone Credit Profile (SCP): b+), a water network in Georgia.
Nama operates under a more transparent, stable and predictable
regulatory framework, and benefits from its larger size, higher
profitability and lower FX risks than GDZ. This results in Nama's
rating being two notches higher than GDZ despite the latter's lower
leverage.
Compared with GGU, GDZ is larger in size and has better asset
quality, which is counterbalanced by a stronger operating
environment in Georgia. Both companies have a high FX mismatch
between revenue and debt and a similar debt capacity. GGU's SCP is
one notch lower than GDZ's due to higher leverage, but its rating
benefits from a one-notch uplift for parental support from FCC
Aqualia S.A. (BBB-/Stable).
GDZ's business profile shares similarities with that of Energo-Pro
a.s. (EPas, BB-/Stable), which is involved in electricity
generation, distribution and supply in Bulgaria, Georgia, Turkiye
and Spain. Both companies are exposed to high cash flow volatility
and FX mismatch. EPas benefits from stronger geographic and
business diversification and stronger operating environments in
countries of operation. This results in higher debt capacity than
GDZ and the same rating, despite moderately higher leverage.
In Turkiye, GDZ compares well with renewable energy producer Aydem
Yenilenebilir Enerji Anonim Sirketi (B/Stable). Aydem benefits from
the renewable energy support mechanism, (YEKDEM), a law that
provides fixed feed-in tariffs denominated in US dollars for 10
years. YEKDEM has been more stable than regulation for distribution
networks in a high inflationary environment. However, Aydem's
exposure to merchant risk and FX mismatch has been increasing as
feed-in tariffs expire. GDZ's higher rating is driven by its lower
projected leverage.
Key Assumptions
- GDP growth in Turkiye of 2.8%-3.7% per year over 2024-2027 and
inflation of 59% in 2024, 31% in 2025 and 19% in 2026-2027
- Distribution fee increase of 59% from July 2024 and in line with
inflation from 2025
- Real returns on RAB in 2021-2025 at 12.3%
- Capex reimbursement period of 10 years as assumed by the
regulatory framework
- Capex averaging TRY8 billion per year over 2024-2027, in line
with management guidance
- Moderate dividends starting from 2025 at USD20 million-USD40
million per year
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- FFO net leverage above 3.5x and FFO interest coverage below 3x,
both on a sustained basis
- A downward revision of Turkiye's 'BB-' Country Ceiling
- Material weakening of the liquidity profile
- Adverse regulation effects including delays or insufficient
tariff increases, contraction of return on investments and
excessive cash flow volatility could have a negative impact on the
debt capacity
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upward revision of Turkiye's Country Ceiling together with FFO
net leverage below 2.5x and FFO interest coverage above 3.7x on a
sustained basis
- Greater stability of the regulatory framework, as manifested in
consistent tariff adjustments as foreseen by regulation and reduced
cash flow volatility, could have a positive impact on debt
capacity
Liquidity and Debt Structure
Improved Liquidity After Bond Issuance: Following the Eurobond
issuance, GDZ will face only moderate amortisation payments on the
remaining bank loan of around USD10 million annually over
2025-2028. Proceeds from the USD400 million notes are being used to
refinance most existing bank debt (the remaining part will be USD62
million as of October 2024), repay trade payables to Turkish
state-owned utility companies and partially fund capex.
As stipulated in covenants, GDZ will hold cash balances of at least
USD25 million, which should support liquidity. However, GDZ will
have to fund negative FCF expected in its rating case.
FX Risks: The FX mismatch between GDZ's fully US dollar-denominated
debt and lira-denominated cash flows limits financial flexibility.
However, this is mitigated by inflation-linked tariffs pre-empted
by regulation and GDZ's limited leverage.
Issuer Profile
GDZ is a Turkiye-based electricity distribution company serving
Izmir and Manisa regions, with an 8% market share of the country's
distribution volumes. GDZ serves 3.8 million customers and around 6
million population. GDZ is 100% indirectly owned by Aydem Holding.
Summary of Financial Adjustments
Fitch-calculated EBITDA and FFO include cash-effective capex and
WACC reimbursements related to service concession arrangements, and
exclude financial income accrued but not yet paid.
Date of Relevant Committee
September 23, 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
GDZ Elektrik Dagitim
Anonim Sirketi LT IDR BB- New Rating BB-(EXP)
senior unsecured LT BB- New Rating RR4 BB-(EXP)
===========================
U N I T E D K I N G D O M
===========================
10463817 LIMITED: RSM Restructuring Named as Joint Administrators
-----------------------------------------------------------------
10463817 Limited was placed in administration proceedings in the
High Court of Justice Business and Property Courts in Manchester
Companies and Insolvency List, Court Number: CR-2024-1163, and
James Hawksworth and Gareth Harris of RSM Restructuring Advisory
LLP were appointed as administrators on Oct. 7, 2024.
10463817 Limited engages in human health activities.
Its registered office is at RSM UK Restructuring Advisory LLP,
Landmark, St Peter's Square, 1 Oxford Street, Manchester, M1 4PB
(Formerly) Zone 1, 2 Pensbury Street, London SW8 4TJ
The joint administrators can be reached at:
James Hawksworth
RSM Restructuring Advisory LLP
Davidson House, Forbury Square
Reading, Berkshire, RG1 3EU
-- and --
Gareth Harris
RSM UK Restructuring Advisory LLP
Central Square, 5th Floor
29 Wellington Street, Leeds
LS1 4DL
Correspondence address & contact details of case manager:
Rob Hart
RSM Restructuring Advisory LLP
Landmark, St Peter's Square
1 Oxford Street, Manchester
M1 4PB
For further information, contact:
James Hawksworth
Tel No: 0118 853 0350
-- and --
Gareth Harris
Tel No: 0113 285 5000
ELITE FLEETCARE: CG & Co Named as Joint Administrators
------------------------------------------------------
Elite Fleetcare Limited was placed in administration proceedings in
the High Court of Justice, Business and Property Courts in
Manchester, Insolvency & Companies List, Court Number:
CR-2024-MAN-0001262, and Edward M Avery-Gee and Nick Brierley of CG
& Co. were appointed as administrators on Oct. 11, 2024.
Elite Fleetcare engages in the maintenance and repair of motor
vehicles.
Its registered office and principal trading address is at 164
Hellesdon Park Road, Hellesdon Park Industrial Estate, Drayton High
Road, Norwich, NR6 5DR.
The administrators can be reached at:
Edward M Avery-Gee
Nick Brierley
CG Recovery Limited
27 Byrom Street, Manchester
M3 4PF
For further information, contact:
Claire Usher
Email: info@cg-recovery.com
Claire.usher@cg-recovery.com
Tel No: 0161 358 0210
HODGKINSON BUILDERS: Opus Restructuring Named as Administrators
---------------------------------------------------------------
Hodgkinson Builders Limited was placed in administration
proceedings in the High Court of Justice, Court Number:
CR-2024-004860, and Louise Williams and Paul Mallatratt of Opus
Restructuring LLP were appointed as administrators on Aug. 28,
2024.
Hodgkinson Builders engages in the construction of civil
engineering projects.
Its registered office is at 1 Radian Court, Knowlhill, Milton
Keynes, Buckinghamshire, MK5 8PJ.
The administrators can be reached at:
Louise Williams
Paul Mallatratt
Opus Restructuring LLP
Bridgford Business Centre
29 Bridgford Road, West Bridgford
Nottingham, NG2 6AU
For further information, contact:
The Joint Administrators
Tel No: 0115 666 8230
Alternative contact: Charlotte Jones
MANGO SOLUTIONS: Moorfields Named as Joint Administrators
---------------------------------------------------------
Mango Solutions Recruitment Limited was placed to administration
proceedings in the High Court of Justice, Business & Property
Courts of England & Wales, Insolvency & Companies List, Court
Number: CR-2024-004884, and Andrew Pear and Michael Solomons of
Moorfields were appointed as administrators on Oct. 4, 2024.
Mango Solutions, trading as Mango Recruitment Solutions, is a
temporary employment agency.
Its registered office is at 82 St John Street, London, EC1M 4JN.
Its principal trading address is at 10 Second Floor, Atlanta
Boulevard, Romford, RM1 1TB.
The joint administrators can be reached at:
Andrew Pear
Michael Solomons
Moorfields
82 St John Street
London, EC1M 4JN
Tel No: 020 7186 1144.
For further information, contact:
Fern Taylor
Moorfields
82 St John Street, London
EC1M 4JN
Email: fern.taylor@moorfieldscr.com
Tel No: 020-7186-1151
MARKET BIDCO: Fitch Gives BB(EXP) on GBP1-Bil. A&E Term Loans
--------------------------------------------------------------
Fitch Ratings has assigned Market Bidco Limited's GBP1.18 billion
equivalent planned amended & extended (A&E) term loans an expected
long-term rating of 'BB(EXP)' with a Recovery Rating of 'RR1',
which is aligned with existing senior secured instrument ratings.
Once amended and extended, the company's existing GBP1.44 billion
equivalent senior secured term loans currently maturing in 2027,
will have an extended maturity to 2030 and be reduced thanks to the
use of around GBP250 million of cash on balance sheet. Fitch will
assign a final rating to the new instrument on receipt of final
documentation conforming to information already received.
The Outlook on Market Holdco 3 Limited's (Morrisons) IDR of 'B' is
Positive, reflecting Fitch's view of a more certain deleveraging
path to levels consistent with a higher rating following debt
reduction from disposal proceeds in May 2024. However, this remains
subject to profit growth and associated execution risk.
The rating continues to balance a robust business profile that
benefits from vertical integration, well-invested stores, channel
diversification and cash-generation capabilities, stabilised market
share performance and still high leverage.
Key Rating Drivers
Proactive Approach to Refinancing: Fitch views positively
Morrisons' proactive approach to addressing half of its 2027 debt
maturities via the A&E of its secured term loans and GBP250 million
repayment from cash. The extended maturities of the term loans will
go beyond its GBP1.2 billion unsecured notes maturing in 2028, but
benefit from a springing maturity clause.
Deleveraging on Track: Fitch forecasts similar EBITDAR leverage
metrics as previously of near 6.0x in the financial year ending
October 2025 (FY25) and below thereafter, reflected in the Positive
Outlook. Fitch calculates that Fitch-adjusted debt will not
materially change as the planned reduction in term debt is replaced
with liability arising on recent ground rent transaction. Earlier
this year, Morrisons repaid nearly GBP1.7 billion of debt (GBP5.7
billion at FYE23) from its petrol forecourts (PFS) disposal
proceeds.
Ground Rent Transaction: Morrisons raised GBP331 million net
proceeds via a 45-year transaction with around 4% initial interest.
This reduces the company's share of freehold properties (from over
80%) within the restricted group, as 76 properties were transferred
to the company's parent outside the restricted group to raise the
funding. Fitch understands that the properties are back-to-back
leased for an initial annual cash payment of near GBP20 million to
the restricted group. Part of these proceeds will be used to reduce
debt and part re-invested.
Performance on Track: Fitch's forecast captures continued execution
risk on profit growth, with around GBP90 million uplift to FY25
from reported last 12 months (LTM) underlying EBITDA (GBP819
million in 3QFY24). Morrisons demonstrated GBP68 million uplift in
LTM to 3QFY24 against FY23, as part of its good set of results with
positive like-for-like sales, supported by volume growth over the
last two quarters, and better margins. Fitch has adjusted its
EBITDA forecast (post rents) to around GBP680 million for FY25 to
reflect additional lease costs.
Limited FCF: Fitch forecasts average annual positive free cash flow
(FCF) of slightly above GBP50 million in FY25 to FY27, which should
still permit deleveraging. This reduced following the petrol
stations disposal transaction (from GBP150 million-GBP200 million),
mainly due to lower EBITDA that was not fully offset by lower
interest costs and the expectation that capex will remain broadly
flat despite the disposal.
Market Share Stabilised: Morrisons is one of the leading food
retailers in the competitive UK market, with good brand and scale.
Its market share has been more stable since early 2023. Recent
volume increase has been driven by improved availability, which can
help boost profits while remaining competitive in low-margin
grocery segment. Morrisons is more food-focused than some close
peers and its vertical integration with own manufactured food
making up to around half of the fresh food it sells can be helpful
in managing profitability.
Derivation Summary
Fitch rates Morrisons using its global Food Retail Navigator.
Morrisons is rated one notch below Bellis Finco plc (ASDA;
B+/Positive), which benefits from larger scale following the
acquisition of EG Group's UK operations. Both Morrisons and ASDA
are smaller than UK market leader Tesco PLC (BBB-/Stable), with
operations focused in the UK. Morrisons is larger and more
diversified than WD FF Limited (Iceland; B/Stable).
Morrisons has a smaller market share than ASDA, but it has
performed better recently. Both Morrisons and ASDA have established
direct access to the convenience segment, with Morrisons benefiting
from its larger number of stores, which Fitch estimates to be
slightly smaller in average size. Both are exposed to execution
risk in growth in sales and profits from conversions to their brand
and product mix changes. Morrisons also has indirect access to
convenience via its wholesale channel.
Fitch forecasts EBITDAR margin to trend towards 6% and the funds
from operations margin to trend towards 3% for both Morrisons and
ASDA, with Morrisons' margin slightly below ASDA's. Food retail is
cash-generative, enabling deleveraging, which also depends on
capital allocation decisions by financial sponsors.
Despite the recent reduction in debt from the PFS disposal and
ground rent transaction proceeds, Morrison's leverage remains
higher than ASDA's. Fitch forecasts Morrisons to deleverage to near
6.0x by FY25, which is one turn above ASDA, albeit subject to
execution risk on earnings growth for both.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Low single-digit revenue growth during FY24-FY27, following the
PFS business disposal (removing GBP3.6 billion revenue in FY23)
- EBITDA (after leases) margin increasing from 4.0% in FY24,
following the sale of the PFS business, to 4.5% by FY27; driven by
sales growth across retail and wholesale, McColls turning
profitable, McColls conversions, operational and cost-savings
measures
- Working-capital inflow (excluding changes in provisions) of
around GBP150 million in FY24, driven by the improvement from the
working-capital programme, and GBP30 million in FY25, flat
thereafter
- Capex of GBP340 million in FY24, and GBP390 million per year for
FY25-FY27
- Rental cost at around GBP230 million per year in FY25 (GBP20
million of which not capitalised)
- No dividend payments and no M&A to FY27, except for the bolt-on
acquisition of 38 convenience stores in Channel Islands
Recovery Analysis
According to its bespoke recovery analysis, higher recoveries would
be realised by liquidation in bankruptcy rather than reorganised
using a going-concern (GC) approach. This reflects Morrisons' high
proportion of freehold assets ownership, while ground rent
transaction removes a portion (GBP894 million) of restricted
group's assets. Morrisons' reported depreciation of its property,
plant and equipment (PP&E) in 3QFY24 exceeded its capex spent on
PP&E. Continuation of this trend may lead to a further reduction in
asset values and lower-ranked recovery for the senior secured
instruments.
The liquidation estimate reflects Fitch's view of the value of
balance-sheet assets that can be realised in sale or liquidation
and distributed to creditors. Fitch assumes Morrisons' GBP1 billion
revolving credit facility (RCF) to be fully drawn and takes 10% off
the enterprise value (EV) for administrative claims.
After the completion of the A&E of term loans, some debt reduction
and adjustment for lower asset values due to ground rent
transaction, Fitch expects the ranked recovery for the senior
secured debt to remain in the 'RR1' band, indicating a 'BB(EXP)'
instrument rating, three notches higher than the IDR. Fitch will
clarify the waterfall analysis output percentage upon assigning a
final instrument rating, but it is likely to be below the current
level of 98%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Weaker-than-expected performance with EBITDAR leverage no longer
expected to trend below 7.0x in FY24 and near 6.0x by FY25 would
lead to a revision of the Outlook to Stable
- Lfl decline in sales exceeding other big competitors, especially
if combined with lower profitability leading to neutral FCF and
reduced deleveraging capacity
- Evidence of a more aggressive financial policy, for example, due
to material investments in the wholesale channel; increased
shareholder remuneration; lack of debt repayments; or material
under-performance relative to Fitch's forecasts
- EBITDAR leverage trending above 7.0x in FY24 and beyond
- EBITDAR fixed charge cover below 1.5x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Lfl sales growth leading to increasing cash profits and
accumulated cash for debt prepayment, with no adverse changes to
its financial policy
- EBITDAR leverage below 6.0x on a sustained basis
- EBITDAR fixed-charge coverage above 1.6x
Liquidity and Debt Structure
Good Liquidity: Morrisons expects to have a healthy pro-forma cash
balance of GBP560 million post transaction, in addition to GBP1
billion committed undrawn revolving credit facility. This is aided
by ground rent proceeds, only part of which is used for debt
reduction, in anticipation of the Christmas season, and expected
GBP60 million payment for the recent bolt-on acquisition.
As part of this transaction, Morrisons will extend its GBP1 billion
RCF, which will benefit from springing maturity three months ahead
of the GBP1.3 billion equivalent senior secured notes, accelerating
maturity to August 2027 if the notes remain outstanding by then.
Issuer Profile
Morrisons is the fifth-largest UK supermarket chain, operating
around 500 mid-sized supermarkets and nearly 1,000 convenience
stores (McColls and Morrisons Daily).
Date of Relevant Committee
June 14, 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
Entity/Debt Rating Recovery
----------- ------ --------
Market Bidco Limited
senior secured LT BB(EXP) Expected Rating RR1
NEWSPAPER HOUSE: MHA Named as Joint Administrators
--------------------------------------------------
Newspaper House (Spv) Ltd was placed in administration proceedings
in the High Court of Justice Business and Property Courts of
England and Wales, Insolvency & Companies List (ChD), Court Number:
CR-2024-005932, and Michael Colin John Sanders and Georgina Marie
Eason of MHA were appointed as administrators on Oct. 9, 2024.
Newspaper House engages in the development of building projects.
Its registered office is at 6th Floor, 2 London Wall Place, London,
EC2Y 5AU.
The administrators can be reached at:
Michael Colin John Sanders
Georgina Marie Eason
MHA
6th Floor, 2 London Wall Place
London, EC2Y 5AU
For further information, contact:
Clara Groves
Email: Clara.Groves@mha.co.uk
Tel No: 0207-429-4100
OAKLAND GLASS: FRP Advisory Named as Joint Administrators
---------------------------------------------------------
Oakland Glass Limited was placed in administration proceedings in
High Court of Justice Business and Property Court of England and
Wales, Insolvency and Companies, Court Number: CR-2024-005946, and
Martyn Rickels and Anthony Collier of FRP Advisory Trading Limited
were appointed as administrators on Oct. 9, 2024.
Oakland Glass is a manufacturer of double & triple glazed insulated
glass units.
Its registered office is at Bretfield Court, Bretton Street
Industrial Estate, Dewsbury, WF12 9BG to be changed to c/o FRP
Advisory Trading Limited, 4th Floor Abbey House, 32 Booth Street,
Manchester, M2 4AB. Its principal trading address is at Bretfield
Court, Bretton Street Industrial Estate, Dewsbury, WF12 9BG.
The joint administrators can be reached at:
Martyn Rickels
Anthony Collier
FRP Advisory Trading Limited
4th Floor, Abbey House
Booth Street, Manchester
M2 4AB
For further information, contact:
The Joint Administrators
Tel No: 0161 833 3344
Alternative contact:
Harry Beth Megram
Email: Beth.megram@frpadvisory.com
S4 CAPITAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
--------------------------------------------------------------
Fitch Ratings has affirmed S4 Capital plc's (S4C) Long-Term Issuer
Default Rating (IDR) 'BB-'. The Outlook is Negative. Fitch has also
downgraded S4 Capital LUX Finance S.a r.l.'s senior secured
instrument rating to 'BB' from 'BB+' and the Recovery Rating to
'RR3' from 'RR2'.
The Negative Outlook reflects the continued uncertainty about S4C's
growth prospects, particularly in the technology services segment.
A prolonged impact of the economic cycle could further impact
revenue recovery, reduce S4C's scale and company's liquidity
buffer, limiting its financial flexibility. Further rating pressure
may result from further erosion in cash-generation capacity and
credit metrics. A return to growth with improving Fitch-defined
EBITDA margins and maintaining company's technological advantage
will be important to sustain the 'BB-' rating.
The downgrade of the instrument rating reflects the volatility of
the company's profits and therefore its view of diminished
collateral value. Fitch has also tightened S4C's EBITDA net
leverage thresholds by 0.5x, indicating weaker debt capacity
relative to peers in the media sector.
The IDR reflects S4C's earnings volatility with its high exposure
to cyclical advertising and marketing. Positively, the ratings also
reflect the company's record of expanding client relationships, a
well-defined digital strategy, supportive through-the-cycle
industry trends with continuing growth of global digital
advertising and healthy financial structure with low refinancing
risk, given long-dated debt maturities in 2028. The company is
leveraging its strong position in AI, which has been instrumental
in achieving some of these successes.
Key Rating Drivers
Sustained Revenue Weakness: Fitch expects S4C's net revenue to
decline by 8.6% in 2024 vs the previously expected 2%. This
reflects continued cyclical exposure, with reduced marketing
budgets at larger clients in the technology sector and prolonged
sales cycles across all S4C's portfolio. The decline in technology
services in 1H24 vs 1H23 highlights the short-term volatility in
the segment, which weighs on the company's operating profile.
Sufficient improvement in revenue is needed to enable a return to
EBITDA scale sustainable for the 'BB' category.
Slow EBITDA Growth: Fitch projects S4C's Fitch-defined EBITDA to
drop to GBP85 million in 2024 from GBP91 million in 2023 on the
back of lower top-line performance. However, Fitch forecasts
margins to stabilise at 9.5% in 2024 and gradually recover to 10.3%
in the next few years, reflecting efforts in cost control,
including a significant reduction in headcount.
S4C has also revamped its pricing strategy to achieve higher
margins and capitalise on AI opportunities by selling outputs
instead of hours for some projects, which Fitch expects to be
supportive of margin stabilisation. There is uncertainty around the
pace of recovery in 2025, which may lead to continued pressure on
EBITDA recovery.
Adequate Liquidity: Fitch views S4C's liquidity as adequate,
despite the ongoing pressure in earnings, with Fitch-adjusted
GBP138 million of cash on balance and GBP100 million available
under its revolving credit facility (RCF) projected at end-2024.
S4C has shown resilience in downturn by generating positive free
cash flow (FCF), even in a stressed trading environment.
Management's strict cost control and asset-light business model
underpin its good liquidity and ability to generate cash. Fitch
expects the FCF margin to remain neutral in 2024 but improve to
low-to mid-single digits by 2027 as the economic cycle impact
fades.
Strong Financial Structure: S4C's financial profile is supported by
a conservative capital structure and relatively low leverage,
appropriate for the 'BB-' rating. In 2023, Fitch-defined EBITDA net
leverage was 2.0x and Fitch projects it around 2.2x at end- 2024,
below its negative sensitivity for the rating. Fitch anticipates
that S4C will gradually reduce its leverage, showcasing a
conservative financial strategy supported by positive FCF. Fitch
expects its leverage to decrease to approximately 1.0x by 2027,
assuming the revolving credit facility (RCF) remains unused,
allowing financial flexibility.
Moderate Interest Coverage: S4C's debt is at floating rates with
margins ranging from 2.25% to 3.75% over EURIBOR and SOFR and Fitch
expects cash interest payments to remain above GBP25 million in the
next two years, from GBP14 million in 2022, as a result of higher
interest rates. However, Fitch expects EBITDA interest cover to
remain at 3.0x in 2024 and to improve to 4.5x in 2027 on the back
of increasing EBITDA.
Revised Leverage Thresholds: Fitch has tightened S4C's EBITDA net
leverage thresholds by 0.5x to align it with Fitch-rated media
peers and to partially account for the smaller operations scale and
volatility of the business through the cycle. The company still has
some leverage headroom with these new thresholds in its base case.
Key Person Risk Rating Neutral: Fitch views S4C's founder, Sir
Martin Sorrell, a key figure in the global advertising space, as
crucial to attracting other founding investors, making the company
attractive to merger targets and industry talents, and providing
access to key client accounts, with no visible abuse of power. At
end-2023, Sir Martin owned 9.4% of S4C and the only 'B' share
(providing veto rights and the right to appoint either himself or
another to the board). Over the past few years, he has built a
robust leadership team, several of which Fitch considers key
personnel. This includes establishing a new COO position and a new
content leadership role in 2023.
Derivation Summary
S4C has few comparable rated peers, given that it is a
recently-founded digital-based advertising and marketing agency.
Fitch does not believe it is relevant to benchmark S4C against the
large global advertising holding companies, given the maturity and
scale of the latter's business models.
Fitch sees similarities with digital advertising platform Speedster
Bidco GmbH (B/Stable) and another diversified media peer Delta
Topco Limited (Formula 1, BB/Stable). They both typically have
higher margins and a higher component of contracted revenue than
S4C, leading to higher rating thresholds. Another Fitch-rated peer
of similar scale to S4C, Daily Mail and General Trust plc (DMGT;
BB+/Stable), has a diversified business portfolio. DMGT's credit
profile is supported by the B2B and consumer media portfolio and
measured financial policy providing the flexibility to manage
operational risks. DMGT is rated higher than S4C due to lower
leverage.
A less immediate peer is Stan Holdings SAS (Voodoo; B/Stable), the
largest publisher of mobile hyper-casual games. Voodoo's business
is very different to S4C's. However, games monetisation is driven
by in-app advertising. Its rating is constrained by its small
absolute scale and execution risks leading to tighter leverage
thresholds than S4C's.
Key Assumptions
- Net and gross revenue to fall 8.6% and 11.4% in 2024,
respectively, and grow in the low single digit per year to 2027
- Fitch-defined EBITDA margin at 9.5% in 2024 and gradually
recovering towards 10.3% by 2027
- Change in working capital at 0.1% of total revenue in 2024 and
flat at 0.5% in 2025 and beyond
- Capex of 1% of revenue in 2024 and about 1.5% in 2025 and beyond
- Non-recurring restructuring costs of GBP25 million in 2024 and
GBP10 million in 2025
- Share buyback of GBP2.5 million in 2024
- No dividends
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Increasing scale and diversification with a growing market share
leading to continued revenue and EBITDA growth
- EBITDA net leverage expected to remain consistently below 2.0x
- FCF margin expected to remain consistently above 3%
Fitch could revise the Outlook to Stable on:
- Evidence of successful management strategy leading to improvement
in the top-line performance and profitability from 2025
- EBITDA net leverage expected to remain consistently below 3.0x
- FCF margin expected to be consistently at low-single digit
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Weaker-than-expected performance resulting in continued pressure
on revenue growth and margins
- EBITDA net leverage and EBITDA gross leverage expected to remain
consistently above 3.0x and above 4.0x, respectively
- FCF margin expected to be neutral to negative
- EBITDA interest cover expected to remain below 3.5x on a
sustained basis beyond two consecutive years
Liquidity and Debt Structure
Satisfactory Liquidity: S4C had GBP135 million of cash and cash
equivalents at end-1H24. The company also has access to a GBP100
million RCF undrawn as of 1H24. Refinancing risk is limited with
its term loan B maturing only in 2028.
Generic Approach for Senior Secured Debt: Fitch has downgraded
S4C's senior secured rating to 'BB', in line with its Corporates
Recovery Ratings and Instrument Ratings Criteria, under which Fitch
applies a generic approach to instrument notching for 'BB' rated
issuers. Fitch labels S4C's debt as "Category 2 first lien"
according to its criteria. However given the volatility of the
company's profits that might result in lower enterprise valuation
in distress Fitch applies a Recovery Rating of 'RR3', reflecting
weaker collateral value, with a one notch uplift from the IDR to
'BB'.
Issuer Profile
S4C provides digital advertising and marketing services, with
recent expansion into technology services. Operating in 32
countries, it creates content, data and digital media, and
technology services to a diverse client base, with significant
exposure to the tech sector. In 2022, S4C acquired TheoremOne, a
provider of digital transformation services including AI process
implementation. S4C has established strategic relationships with
major clients such as Uber, Meta, Amazon, Disney and Walmart.
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
----------- ------ -------- -----
S4 Capital LUX
Finance S.a r.l.
senior secured LT BB Downgrade RR3 BB+
S4 Capital plc LT IDR BB- Affirmed BB-
SPORE LONDON: FRP Advisory Named as Joint Administrators
--------------------------------------------------------
Spore London Limited was placed in administration proceedings the
High Court of Justice Business & Property Courts of England &
Wales, Court Number: CR-2024-005564, and Martyn Rickels and Anthony
Collier FRP Advisory Trading Limited, were appointed as
administrators on Oct. 7, 2024.
Spore London engages in publishing activities.
Its registered office is at Oc London, 10 John Street, London WC1N
2EB to be changed to c/o FRP Advisory Trading Limited 4th Floor
Abbey House, Booth Street, Manchester M2 4AB. Its principal
trading address is at Oc London, 10 John Street, London WC1N 2EB.
The joint administrators can be reached at:
Martyn Rickels
Anthony Collier
FRP Advisory Trading Limited
4th Floor, Abbey House
Booth Street, Manchester
M2 4AB
For further information, contact:
The Joint Administrators
Tel No: 0161 833 3344
Alternative contact:
Harry Bevan
Email: cp.manchester@frpadvisory.com
STICKER GIZMO: PKF Smith Named as Joint Administrators
------------------------------------------------------
Sticker Gizmo Limited was placed in administration proceedings in
the High Court of Justice Business and Property Courts in
Birmingham, Insolvency & Companies List (ChD), Court Number:
CR-2024-000574, and Brett Lee Barton and Dean Anthony Nelson of PKF
Smith Cooper were appointed as administrators on Oct. 9, 2024.
Sticker Gizmo is a manufacturer of paper stationery.
Its registered office is at Units 2&3 Brook Business Centre,
Icknield Street, Beoley, Redditch, B98 9AL.
The joint administrators can be reached at:
Brett Lee Barton
Dean Anthony Nelson
PKF Smith Cooper
1110 Elliott Court
Coventry Business Park
Herald Avenue
Coventry, CV5 6UB
For further information, contact:
Kyra Turner
Email: kyra.turner@pkfsmithcooper.com
Tel No: 02475 097627
WFC CONTRACTORS: Quantuma Advisory Named as Joint Administrators
----------------------------------------------------------------
WFC Contractors Limited was placed in administration proceedings in
the High Court of Justice Business and Property Courts of England
and Wales, Court Number: CR-2024-005870, and Jo Leach and Chris
Newell of Quantuma Advisory Limited were appointed as
administrators on Oct. 8, 2024.
WFC Contractors fka Neat Experts Trading Limited specializes in
construction activities.
Its registered office and principal trading address is at Olympus
House, Kingsteignton Road, Newton Abbot, TQ12 2SN.
The joint administrators can be reached at:
Jo Leach
Chris Newell
Quantuma Advisory Limited
2nd Floor, Arcadia House
15 Forlease Road, Maidenhead
SL6 1RX
For further information, contact:
Jasdeep Koundu
Email: Jasdeep.Koundu@quantuma.com
Tel No: 01628-478100
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Editors.
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