/raid1/www/Hosts/bankrupt/TCREUR_Public/241022.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, October 22, 2024, Vol. 25, No. 212
Headlines
F R A N C E
FORVIA SE: Moody's Cuts CFR to 'Ba3', Outlook Stable
GALILEO GLOBAL: S&P Affirms 'B' ICR & Alters Outlook to Negative
G E R M A N Y
WEPA HYGIENEPRODUKTE: Moody's Alters Outlook on Ba3 CFR to Positive
G R E E C E
PUBLIC POWER: S&P Affirms 'BB-' ICR on Greece Jurisdiction Revision
H U N G A R Y
WIZZ AIR: Fitch Lowers LongTerm IDR to 'BB+', Outlook Stable
I R E L A N D
AURIUM CLO X: Fitch Assigns 'B-sf' Final Rating on Class F-R Notes
AURIUM CLO X: S&P Assigns B-(sf) Rating on Class F-R Notes
MERRION SQUARE: Fitch Lowers Rating on Class F Notes to 'B-sf'
L U X E M B O U R G
ASSET-BACKED EUROPEAN 23: Moody's Assigns (P)Caa1 Rating to M Notes
N E T H E R L A N D S
MV24 CAPITAL: S&P Affirms 'BB+' Rating on $1.1BB Secured Notes
P O R T U G A L
VASCO FINANCE 2: Fitch Assigns 'B+' Final Rating on Class E Notes
R U S S I A
APEX INSURANCE: S&P Raises Financial Strength Rating to 'BB-'
NAVOI MINING: Fitch Rates New USD1-Bil. Notes Due 2028/2031 'BB-'
S E R B I A
TELEKOM SRBIJA: S&P Assigns Prelim. 'BB-' LT Issuer Credit Rating
U N I T E D K I N G D O M
ACTIVE ARENA: FTS Recovery Named as Joint Administrators
BIG RED: Wilson Field Named as Joint Administrators
CO-OPERATIVE GROUP: S&P Raises LT ICR to 'BB', Outlook Stable
COMPLETELY MOTORING: Azets Holdings Named as Joint Administrators
MARKET HOLDCO 3: S&P Affirms 'B' LongTerm ICR, Outlook Stable
PRISM ELECTRONICS: FRP Advisory Named as Joint Administrators
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F R A N C E
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FORVIA SE: Moody's Cuts CFR to 'Ba3', Outlook Stable
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Moody's Ratings has downgraded to Ba3 from Ba2 the corporate family
rating and to Ba3-PD from Ba2-PD the probability of default rating
of French automotive parts supplier FORVIA SE ("FORVIA" or "the
group"). Concurrently, Moody's downgraded the instrument ratings on
FORVIA's senior unsecured notes to B1 from Ba2. The outlook remains
stable.
"The downgrade reflects the recent slowdown in automotive
production and Moody's expectation of a continued sluggish market
environment next year, in which FORVIA will find it difficult to
reach credit metrics in line with Moody's guidance for the previous
Ba2 rating", says Goetz Grossmann, a Moody's Ratings Vice President
- Senior Analyst and Lead Analyst for FORVIA. "While Moody's
recognize FORVIA's continued efforts to improve profitability
levels and the execution of its disposal program, credit metrics
remain elevated following the acquisition-related debt increase to
fund a significant stake in HELLA GmbH & Co. KGaA (HELLA) in 2022,
which provided limited headroom for a performance contraction. The
stable outlook incorporates Moody's forecast of gradually improving
profitability and cash flow generation in 2025 and FORVIA's
sustained strong liquidity", continues Mr. Grossmann.
RATINGS RATIONALE
The rating action takes into account a continued weakening in
global automotive production in recent months and uncertain
prospects for a near-term recovery, which also caused FORVIA to
lower its 2024 sales, profitability and cash flow guidance on
September 27. Considering the more sluggish and volatile business
environment, Moody's adjusted downward Moody's global light vehicle
sales forecasts for 2024 (0.4% versus 1.6% before) and 2025 (1.4%
versus 2.1%) on October 16, 2024 and changed the sector outlook on
the global automotive industry to negative from stable. Against the
weakened market backdrop, Moody's believe that it will be
challenging for FORVIA to significantly strengthen its continued
weak credit metrics next year, as Moody's had previously
anticipated. For instance, Moody's expects the group's Moody's
adjusted leverage to remain above 6x (gross debt to EBITDA) in 2024
and to likely exceed Moody's 4.5x maximum guidance for the previous
Ba2 rating also through 2025. The prolonged de-leveraging reflects
continued weak light vehicle production and Moody's moderately
reduced profitability assumptions for the group. On a more positive
note, Moody's still forecasts FORVIA's profit margins to strengthen
next year thanks to cost savings from implemented restructuring,
realization of additional synergies with HELLA, a reduced research
and development intensity and non-recurrence of one-off costs
(EUR47 million) incurred in the interiors business in H1 2024.
However, extensive restructuring (requiring up to EUR600 million
costs over 2024-2025, although partially non-cash) will continue to
weigh on FORVIA's profitability and – to a lesser extent – cash
generation next year, while risks as to a timely execution and the
realization of associated cost savings (around EUR500 million
targeted by management until 2028) persist. We, therefore, expect
FORVIA's Moody's adjusted EBITA margin to expand to 4% in 2025
(3.1% as of LTM June 2024), a level commensurate with Moody's
guidance for its Ba3 rating.
The downgrade also reflects FORVIA's weak interest coverage,
illustrated by a 1.2x Moody's adjusted EBITA to interest ratio as
of LTM June 2024, which Moody's expects to remain below Moody's 2x
minimum guidance for a Ba3 rating over the next 12-18 months. The
ratio failed to improve in the past quarters given the group's
materially increased financing costs on its high debt load, which
has not reduced as anticipated since 2023. The high interest
burden, next to one-off restructuring costs in connection with the
EU Forward restructuring plan, also constrains FORVIA's modest
Moody's adjusted free cash flow (FCF), which Moody's expects at
about break-even in 2024 and up to EUR100 million next year,
supported by improving funds from operations and additional
inventory-related working capital reductions. A further credit
challenge factored into FORVIA's ratings pertains to a significant
amount of trade payables on balance sheet (110 days average payment
term). Part of these reflect a EUR0.8 billion utilization under an
existing EUR1.1 billion reverse factoring program available to
suppliers in H1 2024.
The Ba3 CFR with a stable outlook continues to reflect as credit
strengths the group's large scale, product, customer and geographic
diversification; a product portfolio (combined with that of HELLA)
that addresses the current trends in the automotive industry; a
financial policy focused on reducing the group's reported net
leverage to below 1.5x by 2025 and its strong liquidity.
The downgrade of the instrument ratings on FORVIA's senior
unsecured notes from Ba2 to B1, one notch below the Ba3 CFR,
reflects the structural subordination of the notes versus the debt
issued at the level of HELLA and non-financial obligations at
operating entities, including trade payables, pensions and lease
commitments. While the instrument ratings had been aligned with the
CFR, the rating downgrade has prompted a notching of the instrument
ratings, in line with Moody's published guidance, reflecting that
Moody's views these instruments as having a less favourable
position in the waterfall compared with sizeable amounts of
liabilities at operating subsidiaries and remaining financial debt
at HELLA, including a EUR500 million bond maturing January 2027,
which has a materially stronger credit strength than FORVIA.
LIQUIDITY
FORVIA's ratings remain supported by its strong liquidity. Moody's
assessment recognizes the group's substantial EUR4.3 billion cash
position (of which EUR1.4 billion at HELLA) and access to a fully
available EUR1.5 billion syndicated credit facility (maturing in
May 2028) and a EUR450 million facility (maturing in December 2027)
at the HELLA level. FORVIA's cash sources also include Moody's
forecast of annual funds from operations of more than EUR1.0
billion over the next 12-18 months and working capital release in
the low to mid hundreds of million euros range.
The group is currently working on a EUR1 billion asset divestment
program to support its de-leveraging, which should be completed by
the end of 2025. Thus far, 25% of the program has been achieved
with HELLA's disposal of a stake in a joint-venture earlier this
year (EUR227 million cash proceeds). Moody's considers additional
disposals under this program as likely, but do not incorporate
these in Moody's near-term liquidity and de-leveraging forecasts
given the uncertain timing and proceeds of such transactions in the
current challenging market environment.
FORVIA's cash needs comprise mainly short-term debt maturities of
around EUR0.7 billion (including EUR186 million at HELLA) at as
June-end 2024, pro forma for July and August refinancing
activities, Moody's standard 3% of sales (about EUR0.8 billion)
working cash assumption, annual capital spending of over EUR1.2
billion (Moody's-adjusted) and up to EUR180 million dividend
payments.
FORVIA's bank credit facilities agreements contain one financial
covenant (adjusted net leverage), under which Moody's expects the
group to maintain sufficient capacity at all times.
ESG CONSIDERATIONS
As to governance considerations, the rating action reflects
FORVIA's consistent high leverage since its acquisition of a
majority stake in HELLA in 2022, while Moody's expects the measure
to continue to constrain the group's rating over the next 12-18
months.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook balances FORVIA's current weak credit metrics,
which Moody's expects to reach adequate levels for the Ba3 rating
category over the next 18 months only, with its consistent strong
liquidity and a financial policy focused on de-leveraging to a
reported net debt to EBITDA ratio of below 1.5x by year-end 2025.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FORVIA's ratings could be upgraded, if its (1) EBITA margin
exceeded 4%, (2) leverage reduced to well below 4.5x gross debt to
EBITDA, (3) interest coverage improved to at least 2.5x EBITA to
interest expense, and (4) FCF remained positive – all on a
sustained and Moody's-adjusted basis. An upgrade would further
require FORVIA to maintain its currently strong liquidity.
FORVIA's ratings could be downgraded, if its (1) EBITA margin
failed to steadily recover towards 3.5% in 2025 and 4% over time,
(2) leverage continued to exceed 5.0x gross debt to EBITDA, (3)
interest coverage remained below 2.0x EBITA to interest expense, or
(4) FCF turned negative – all on a sustained and Moody's-adjusted
basis. Negative rating pressure would also evolve if FORVIA's
liquidity started to weaken unexpectedly.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automotive
Suppliers published in May 2021.
COMPANY PROFILE
Headquartered in Paris, France, FORVIA is one of the world's
largest automotive suppliers for seats, exhaust systems, interiors,
and has grown in the lightening and electronics segments post the
acquisition of a 81.6% stake in HELLA in January 2022. As of LTM
June 2024, FORVIA generated over EUR27 billion in sales and
Moody's-adjusted EBITDA of around EUR2.0 billion (7.3% margin).
The HELLA family pool is the group's largest shareholder holding 9%
of FORVIA's shares, followed by Exor, a holding company controlled
by the Agnelli family (5%).
GALILEO GLOBAL: S&P Affirms 'B' ICR & Alters Outlook to Negative
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S&P Global Ratings revised its outlook on the long-term rating on
Galileo Global Education Strategy (GGE) to negative, from stable.
S&P affirmed its 'B' rating. S&P assigned its 'B' issue rating to
the EUR350 million TLB add-on, with a recovery rating of '3'
(indicating recovery prospects of 50%-70%, rounded to 55%).
S&P said, "Our negative outlook reflects the group's diminishing
rating headroom given its now more aggressive financial policy.
This includes partially debt-funded acquisitions and large
expansionary capex despite the operating performance being somewhat
weaker than we had anticipated in the last couple of years. S&P
Global Ratings-adjusted debt to EBITDA remains above 7.0x for a
third consecutive year, coupled with limited free operating cash
flows (FOCF) after leases in the context of the current investment
peak."
GGE intends to issue a EUR350 million TLB add-on to finance
acquisitions and buy minority interests, which will lead to
leverage remaining above 7.0x for a third consecutive year. The
add-on, maturing in July 2028, is fully fungible with the initial
EUR1,000 million TLB issued in July 2021. Coupled with about EUR130
million in cash on balance sheet, this new tranche will finance
four acquisitions and minority interest buyouts. S&P said, "We
think these acquisitions are highly likely to materialize. For
three of the four, GGE will not have full ownership and so we
expect additional put options on the minority interests to
materialize, which we include in our adjusted debt figure. That
said, we expect cash outflows related to these put options to be
staggered and start being effective in two-to-three years.
Considering the pro forma contribution of the acquisitions, we
forecast our adjusted leverage to remain at 7.1x in fiscal 2025,
like fiscal 2024, and to only decline to 6.3x in fiscal 2026. We
view these partially-debt-funded acquisitions as more aggressive
than we had anticipated, considering GGE's underperformance. S&P
Global Ratings-adjusted leverage is being pushed above 7.0x for a
third consecutive year, limiting the group's financial flexibility.
Noting GGE's strategy and recent track record of debt-funded
acquisitions, we see some risk that leverage might not reduce below
7.0x in fiscal 2026 versus the 6.3x in our current base case. Its
leverage is challenging to forecast given the active M&A strategy,
which can translate into large one-offs and significantly affect
our debt adjustments. GGE has a good track record of integrating
targets with over 20 entities acquired since 2020. This creates
some inherent integration risk, in our view."
The four contemplated acquisitions will further strengthen GGE's
knowledge areas and geographic diversification, in line with its
strategy to become a global leader in higher education. Two are in
Latin America, one is in the U.K., and one is in Europe. GGE will
also further strengthen its portfolio of medical and technology
schools and expand its full digital offering. GGE's track record of
integration of acquired companies has been strong, to date. That
said, the group has still little exposure, so far, to Central and
Latin America and may face some foreign exchange volatility.
Post-acquisition, GGE will have about 300,000 students, being the
first private higher education provider in Europe, with a declining
focus in France (still 43%, including the core schools plus emlyon
and Studi) and an increasing footprint in the rest of Europe and
Latin America. Overall, the four acquisitions will contribute to
about EUR150 million of topline and EUR40 million-EUR45 million of
pre-IFRS-16 EBITDA, translating into EUR50 million-EUR55 million in
S&P Global Ratings EBITDA. This will lead to an adjusted EBITDA
margin of more than 35%, well above the group's current level,
boosting its consolidated EBITDA margin for future years.
S&P said, "We expect weak enrolments for 2023/2024 at the French
(excluding emlyon) core schools to continue to weigh on the group's
operating performance in fiscal 2025, recovering only from fiscal
2026. This challenging enrolment campaign will have lasting
effects on profitability because smaller cohorts of students are
being locked in for three-to-five years, depending on the degree.
That said, we already see signs of recovery in enrolments for the
2024/2025 academic year, which we expect will continue in the
following years. The group has also implemented cost savings and
has reorganized its French core schools. We expect the recovery in
earnings to materialize from fiscal 2026 onward, with an S&P Global
Ratings-adjusted EBITDA margin of about 23.5% for GGE (stand-alone)
in fiscal 2025, in line with fiscal 2024, increasing in fiscal 2025
to 24.2% but still before the 26.4% achieved in 2023. The French
onsite schools (excluding emlyon) represented about 30% of the
group's revenue in fiscal 2024.
"The muted operating performance in some geographies, coupled with
high expansionary capex and increasing debt service, will delay
further positive FOCF generation after leases until fiscal 2026.
On the back of somewhat stable absolute EBITDA growth for GGE
(stand-alone) in fiscal 2025, coupled with higher capex and cash
interest payments, although positively impact by the cash
contribution of current acquisitions, we forecast slightly negative
FOCF after leases for fiscal 2025 before turning positive the
following year. Since fiscal 2023, the group has been accelerating
its capex as some acquisitions have needed additional facilities
and some core schools have reached full capacity. In fiscal 2024,
capex was about EUR144 million. We think this was the peak and
foresee it slightly declining to about EUR120 million in fiscal
2025. This high capex is notably being driven by the finalization
of emlyon's new Gerland campus, digital enhancements, and IT
investments. We also expect FOCF generation will be negatively
impacted by high cash interest payments reaching about EUR105
million in fiscal 2025 and EUR110 million in fiscal 2026. Limited
free cash flow generation and leverage being above 7.0x in fiscal
2025 for a third consecutive year are limiting the group's
financial flexibility, reflected in our negative outlook. That
said, decreasing interest rates and the group's active hedging
strategy, together with less intensive capex from 2026 onward,
should translate into a structural improvement in FOCF after
leases, diminishing the risks associated with high leverage.
"Our negative outlook reflects the group's diminishing rating
headroom given its now more aggressive financial policy of
partially debt-funded acquisitions and large expansion capex
despite its operating performance being weaker than we had
initially expected over the last couple of years. This has seen S&P
Global Ratings-adjusted debt to EBITDA stay above 7.0x for a third
consecutive year, and limited FOCF generation after leases in the
context of the current investment peak.
"We could lower the ratings over the next 12 months if GGE's credit
metrics weaken below our base case amid continued muted operating
performance and a more aggressive financial policy, including
material debt-funded acquisitions or additional sizable
expansionary capex." This could translate into:
-- S&P Global Ratings-adjusted debt to EBITDA sustained at or
above 7.0x; and
-- Reported FOCF weakening materially below its base case;
S&P could revise its outlook to stable if GGE is able to achieve:
-- Leverage below 7.0x on a sustainable basis; and
-- Sustained, meaningful, and positive FOCF after leases in
absolute terms, underpinned by improving operating performance and
reduced expansionary capex.
A stable outlook would also hinge on S&P's assessment that the
group's financial policy would support the company's deleveraging,
balancing its acquisitive growth.
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G E R M A N Y
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WEPA HYGIENEPRODUKTE: Moody's Alters Outlook on Ba3 CFR to Positive
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Moody's Ratings has affirmed the Ba3 long-term corporate family
rating and the Ba3-PD probability of default rating of WEPA
Hygieneprodukte GmbH. Concurrently, Moody's affirmed the B1
instrument ratings of the EUR400 million senior secured notes
maturing in December 2027 and the EUR250 million backed senior
secured notes maturing in January 2031. The outlook has been
changed to positive from stable.
RATINGS RATIONALE
The rating action reflects WEPA's strong operational performance
starting Q4 2022. WEPA is strongly positioned in the structurally
favored segment of private label consumer tissue products with a
market share of 8% in Europe and a strong concentration in Germany
where it holds a 25% market share. Starting 2022, the company has
put in place short-term contracts with a duration of 3-6 months
(representing around 85% of total consumer products' sales) that
provide better cost control capacity, as the company can gradually
adapt its pricing to input cost fluctuations within the operational
year.
The company reached a record-high profitability above Moody's
initial expectations, with Moody's-adjusted EBIT margin at 14.2% in
2023 and 14.5% in LTM Jun-24, significantly exceeding prior peak of
10.3% achieved in 2016. In 2023, WEPA bolstered its earnings and
profitability, as higher pricing gradually came in while key input
costs reduced from peak levels in Q3 22. In the first half of 2024,
particularly in Q2 2024, pricing was adapted to the declining input
costs in 2023 but input costs entered a new peak cycle due to
limited supply, strikes in Finland, and continued tension in the
Red Sea region. WEPA still maintained a strong profitability with
Moody's-adjusted EBIT margin at 13.4% in Q2 24 (vs. 15.0% in Q2
23). Considering the time lag in price adjustments to input cost
swings, Moody's generally project WEPA's profitability to decrease
in Q2 and Q3. However, Moody's expect the company to maintain
Moody's-adjusted EBIT margin in the range of 12%-14% over the next
12-18 months.
Higher earnings have allowed WEPA to deliver on its financial
policy target (reported net Debt/EBITDA in the range of 2.0x –
3.0x) with company's net leverage ratio at 1.6x as of December 2023
and 1.8x as of June 2024. Moody's-adjusted debt/EBITDA remained
stable around 2.2x for both periods down from 5.3x in 2022. In
parallel, the company has also strengthened its liquidity position
with solid cash on hand and reduced drawings on its
receivable-based program (ABS Program). Moody's adjusted free cash
flow has been positive since Q1 2023 and stands at EUR142 million
as of LTM Jun-24, despite capital expenditure spendings and
dividend distributions.
As positive rating pressure continues to develop for WEPA,
maintaining a consistent track record of sustained high
profitability and positive free cash flow is essential to pave the
way to a higher rating. It would provide greater comfort regarding
the company's management of exposure to different swings in input
costs and ensuing profitability erosion risk, and liquidity
management during different cycles of capital expenditure intensity
and dividend distributions.
The rating is mainly supported by (1) the group's leading market
position in the production of private-label consumer tissue
products, which benefit from fairly stable demand due to
non-discretionary nature of some products; (2) long relationships
and strong ties with customers, including joint product
development; (3) strategically located good-quality assets, which
are close to customers and limit transportation costs; (4) focus on
cost control and commitment to tighter financial policy; and (5)
strong credit metrics with record-high profitability, low leverage,
positive free cash and improved liquidity profile despite strategic
investments, reduction of securitization drawings, and continued
dividend distributions.
The rating is primarily constrained by (1) limited geographical
diversification and modest scale, with operations mainly in mature
Western European markets, and a relatively narrow product portfolio
compared with larger peers, such as Essity Aktiebolag (Essity, Baa1
stable); (2) some customer concentration, with a few large
customers having significant pricing power; (3) WEPA's
susceptibility to volatile input costs, which has resulted in a
high level of volatility in its credit metrics in the past and can
lead to earnings seasonality under price-sensitive contracts; (4)
risks of profitability erosion due to downwards pricing pressure or
sudden increase in key input costs; (5) relatively weak track
record of sustained high profitability and positive free cash flow
(FCF) generation over the past decade.
RATIONALE OF THE OUTLOOK
The positive outlook reflects Moody's expectation that WEPA will
build a track record of strong operating metrics with high
profitability, low leverage, and positive free cash flow. The
outlook also assumes that liquidity remains solid with no
significant dividend distributions outside of payout policy, large
debt-funded acquisitions, or intensive period of capital
spendings.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Further positive rating pressure would develop if:
-- WEPA maintains a strong operating performance with a clear
evidence of reduced earnings volatility
-- Moody's-adjusted EBIT margin is materially above 12% on a
sustained basis
-- Moody's adjusted debt/EBITDA (including off-balance
securitisation) is below 3.5x on a sustained basis
-- WEPA maintains a consistently positive free cash flow
generation
-- Conversely, negative rating pressure could arise if:
-- Moody's adjusted EBIT margin is below 8% on a sustained basis
-- Moody's adjusted debt/EBITDA (including off-balance
securitisation) is above 4.5x on a sustained basis
-- WEPA shifts to a more aggressive growth strategy, resulting in
weaker credit metrics or material deterioration of the liquidity
profile
LIQUIDITY
WEPA maintains a good liquidity, supported by EUR98 million cash
and cash equivalents and EUR150 million fully undrawn committed
revolving credit facilities (RCFs) as of June 30, 2024. In
addition, the company has access to a EUR220 million
receivable-based program (ABS Program) which further strengthens
its liquidity and financial flexibility. As of June 30, 2024, WEPA
further reduced its drawings under the ABS program to EUR31 million
from EUR98 million as of December 2023 (and EUR216 million as of
December 2022). Moody's expect WEPA to maintain an ample headroom
under its springing covenant (set at maximum net debt/EBITDA of
5.25x) which is only tested when RCFs drawings exceed 50%. The RCFs
mature in December 2026 and the ABS program matures in June 2027.
Together with funds from operations of around EUR260 million
(Moody's estimate including interest paid), Moody's expect WEPA to
comfortably cover working capital swings, capital spending needs
(at around 4%-6% of sales), and dividend distributions in line with
its payout policy in the next 12-18 months. In addition, Moody's
anticipate the company to generate positive free cash flow which
can potentially be used for strategic bolt-on acquisitions and/or
further reduction of ABS program drawings.
WEPA has no significant upcoming debt maturity, with EUR400 million
senior secured notes only coming due in December 2027 and EUR250
million backed senior secured notes coming due in January 2031.
STRUCTURAL CONSIDERATIONS
In Moody's assessment of priority of claims, Moody's distinguish
between three layers of debt in WEPA's capital structure. First,
the EUR150 million super senior revolving credit facilities and
trade payables ranking pari passu at the top of the capital
structure, reflecting a preferred treatment for trade payables in a
going-concern scenario. Next are the EUR650 million guaranteed
senior secured notes which rank junior to the super senior RCFs and
trade payables. Then, behind these debt instruments are pension
liabilities and short-term lease obligations. All debt instruments
are issued at WEPA level and there is no outstanding debt outside
the restricted group.
The B1 rating of the EUR650 million guaranteed senior secured notes
is one notch below the CFR, reflecting its junior ranking
vis-à-vis super senior RCFs and trade payables. The senior secured
notes share the same collateral package as the super senior RCFs,
consisting of materially all of the group's assets, as well as
upstream guarantees from most of the group's operating
subsidiaries, representing a substantial share of assets and
EBITDA. However, RCFs lenders benefit from priority treatment in a
default scenario because their claims have a priority right of
payment before any remaining proceeds are distributed to the
holders of the senior secured notes.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Paper and
Forest Products published in August 2024.
CORPORATE PROFILE
Headquartered in Arnsberg, Germany, WEPA Hygieneprodukte GmbH
(WEPA) is among the leading producers and suppliers of tissue paper
products in Europe. The company focuses on private-label consumer
tissue products, which generate around 90% of its group sales, with
the remainder generated primarily from tissue solutions for
Professional applications.
The company operates 22 paper machines and around 80 converting
lines in 14 production sites across Europe and has more than 4,000
employees. WEPA generated around EUR1.8 billion revenue in the 12
months that ended in June 2024. The company operates in Europe,
with an established footprint in DACH, Italy, Benelux, France,
Poland and the UK.
WEPA was founded in 1948 by Paul Krengel as "Westfälische
Papierfabrik". Currently, three Krengel families hold equal shares
in the company.
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G R E E C E
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PUBLIC POWER: S&P Affirms 'BB-' ICR on Greece Jurisdiction Revision
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S&P Global Ratings affirmed its 'BB-' issuer credit and issue
ratings on Greek integrated power utility Public Power Corp. (PPC)
and its EUR1,275 senior unsecured notes.
S&P said, "The stable outlook on the issuer credit rating indicates
that we expect PPC will continue to deliver on its strategic plan,
with solid liquidity, improved profitability margins, and high
investments resulting in funds from operations (FFO) to debt of
about 14% and debt to EBITDA at about 5x over 2024-2026.
"We expect PPC's S&P Global Ratings-adjusted EBITDA to reach EUR1.7
billion in 2024, supported by inorganic growth. The bulk of the
rise in adjusted EBITDA, from EUR1.2 billion in 2023 and
illustrated by EUR927 million reported EBITDA (57% year on year)
for the first half of 2024, is due to the integration of about
EUR350 million in EBITDA of Romanian distribution, supply, and
renewable assets acquired from Italian energy group Enel SpA in
September 2023. It is also supported by solid organic growth as
distribution networks recover higher costs from previous years and
strong margins at PPC's integrated business segment, which is
partly protected from commodity price volatility thanks to some
natural hedging between volumes of electricity generated (9.4
terawatt hours [TWh] in the first half of 2024) and sold to end
customers (15.2 TWh over the same period), PPC remaining short on
electricity. We will closely monitor the cash conversion of EBITDA
in 2024 notably as carbon dioxide (CO2) allowance effects could
lead to higher working capital needs in the second half of the
year, and we expect management of accounts receivable to gradually
improve (via a low churn rate, decreasing overdue payments, and
securitization).
"We view the acquisition of Romanian assets from Evryo Group as
marginally positive for our business risk profile assessment for
PPC and in line with its decarbonization strategy under the
2024-2026 strategic plan. We view PPC's upcoming acquisition of
629 megawatts (MW) of renewable assets in operation and 145 MW in
pipeline assets for EUR700 million (about 7x EBITDA of about EUR90
million-EUR100 million) as in line with the company's strategy to
rapidly expand renewables in Romania. An additional agreement was
signed in September with Greek companies Copelouzos and Samaras for
the acquisition of 67 MW of renewable installed capacity in
operation and cooperation in building a pipeline of up to 1.7
gigawatts (GW) in Greece, for a EUR106 million cash outflow in
2024. The group has a target of 5.5 GW of renewable power sources
by 2026 (excluding large hydro; 8.9 GW including large hydro) from
1.5 GW in operation as of August 2024, mostly solar, with 3.3 GW in
additional capacity either under construction or in the
ready-to-build phase, (all amounts pro rata PPC's share, most
projects being 100% owned). The company still has little record of
in-house renewable development, and growth in renewables is largely
inorganic. We monitor the company's ability to grow profitable
renewable generation on its own, improving return on capital.
Renewable acceleration should materialize from 2024, with 1.4 GW
under construction, mostly solar power plant projects, and with the
Enel Romania 499 MW wind fleet and renewable pipeline integration.
However, PPC's business risk profile remains weakened by its
generation fleet being skewed toward fossil fuels with about 70% of
power production from gas, oil, and lignite coal. PPC targets a
full phaseout of its coal fleet by 2026, while commercial operation
of its new Ptolemaida V coal plant began in winter 2023 with
uncertainty over its conversion to gas or another fuel type.
"PPC will maintain some credit headroom in 2024-2026, despite its
recently announced acquisitions and increased capex. We expect
postponement to later years of some capex to partly compensate for
the EUR800 million increase in net debt for the recently announced
renewable acquisitions. We forecast PPC will accelerate net capex
to EUR2.5 billion-EUR3.0 billion on average per year over 2024-2026
(versus EUR1.1 billion in 2023) to grow its renewables (44%) and
distribution network (27%), with about 38% of investments outside
of Greece. Over 2025-2026 we expect EUR1.9 billion-EUR2.1 billion
in EBITDA, and negative free cash flow of EUR1.5 billion on average
on the period, leading to a steep increase in adjusted debt to
EUR11 billion at year-end 2026 from EUR6 billion at year-end 2023.
We forecast about 14% in FFO to debt in 2024-2026, in the middle of
our defined 12%-16% FFO to debt range for the current rating level.
The group's strategy is highly acquisitive, with its latest
purchase following the acquisition of Romanian supply,
distribution, and renewable assets from Enel in September 2023 for
EUR1.4 billion net debt impact and the Kotsovolos retail network
for EUR200 million net debt impact and EUR100 million of lease
liabilities, in April 2024. We will monitor closely integration and
potential combined benefits.
"The stable outlook reflects our view that PPC will gradually
progress with its strategic plan over the next two years and
maintain FFO to debt of about 14% with no pressure on liquidity. We
understand the company will continue its refinancing process at the
parent company, having therefore the majority of debt at the PPC
S.A. holding level."
A negative rating action could stem from one or more of the
following factors:
-- A material deterioration of credit metrics, with FFO to debt
below 12%. This could result from weakening of the retail segment's
operating performance, with difficulties in improving payment
collection and related working capital outflows; a slower
transformation of the generation mix, with delays in closing the
lignite plants and increasing renewables; or more aggressive
shareholder remuneration.
-- Reduced willingness and ability of the Greek government to
support PPC, for example if it sold part of its 34.1% share in the
company.
-- A one-notch downgrade to Greece (BBB-/Positive/A-3) to 'BB+'
would not automatically trigger a downgrade of PPC.
S&P could raise the long-term rating by one notch to 'BB' if it
revised its assessment of PPC's stand-alone credit profile upward
by one notch to 'bb-', other factors remaining equal. This would
depend on:
-- Continuous solid performance across business lines;
-- Stronger-than-expected credit metrics, such as FFO to debt
higher than 16%;
-- Delivery of the transformation plan without operating issues;
and
-- Demonstrated improvement of the business model, with an
improved competitive position in its merchant business.
All else being equal, a one-notch upgrade to Greece) would not
trigger any commensurate change in the ratings on PPC.
PPC is the largest electricity provider and producer in Greece. It
also holds leading positions in supply and distribution in Romania
and is fully integrated across the energy value chain. The company
owns assets in power generation, distribution, and supply. The
company reported EUR7.7 billion of revenue and EUR1.3 billion of
recurring EBITDA in 2023.
The company's power portfolio comprises conventional thermal and
hydroelectric power plants, as well as renewable power units,
accounting for about 10.7 GW of installed capacity, mostly in
Greece. PPC generated 20.6 TWh of electricity in 2023, with an
average market share in electricity generation of 39% in Greece,
while in Romania its market share in renewable generation amounted
to 14%. In 2023, thermal power plants generated about 14.4 TWh,
while hydro, wind, and solar units generated 6.2 TWh (hydro assets
about 3.9 TWh, wind and solar about 2.3 TWh).
In Greece, the company conducts its distribution activity through
Hellenic Electricity Distribution Network Operator (HEDNO), in
which it has a 51% stake. S&P understands that, due to regulatory
requirements, HEDNO has independent operations and management. It
operates in a regulated framework, which entitles PPC to a pretax
weighted average cost of capital (WACC) of 7.66% for 2023-2024 on a
EUR3.1 billion regulatory asset base (RAB), up from 6.7% in
2021-2022. Romanian power distribution operators that PPC owns have
a total RAB of EUR1.2 billion
Assumptions
-- Real GDP growth in Greece of 2.4%, 2.5%, and 2.4% for 2024,
2025, and 2026. GDP growth is supported by large expected Next
Generation EU funds and other transfers, and a strong anticipated
further recovery of tourism earnings.
-- Stabilized energy demand in Greece in 2024-2026 with
normalization of energy prices and stabilization of economic
growth.
-- An increase in PPC's renewable generation capacity to 5.5 GW by
2026 from 1.5 GW (excluding large hydro) in August 2024, with most
of the asset mix comprising solar (3.6 GW of renewables capacity),
while already large hydropower capacity is expected to increase
only slightly to 3.4 GW from 3.2 GW.
-- Complete phaseout of lignite coal plants by 2026. We expect
Ptolemaida V to be converted into a gas-firing plant by 2028.
-- A domestic supply market share of about 55% by year-end 2024.
-- Increasing margins in retail with streamlined processing of
less creditworthy clients and improved margins based on contract
renegotiation of certain clients from 2023. In Romania, supply
EBITDA reflects guaranteed margin of Romanian leu (RON) 73/MWh
(about EUR15/MWh at the current exchange rate) for January 2023 to
March 2025.
-- Stable revenue from distribution networks, with tariffs in
place since April 2021, a 6.7% pretax WACC, and gradual RAB
increases on the back of significant investments to upgrade the
network and inflation.
-- Adjusted EBITDA averaging EUR1.7 billion-EUR2.2 billion in
2024-2026, with a gradual increase in retail and generation margins
and stable network contribution of about 35% of EBITDA.
-- Controllable operating expenditure reduction year on year,
based on cost efficiencies and digitalization.
-- A neutral cumulative working capital change in 2024-2026, with
positive inflow in 2024 reflecting a normalization of prices,
decrease in overdue receivables, streamlining of payables, and
margin call requirements from hedged positions in electricity, gas,
and carbon emissions.
-- Capex net of customer contributions and grants of EUR2.5
billion on average in 2024-2026.
-- Cost of debt of about 6.5% in 2024-2026.
-- Financial policy including dividends of about EUR120 million
annually to minority shareholders of HEDNO and the Romanian
businesses, dividends to PPC shareholders from 2025 of about EUR150
million, and a share repurchase program of about EUR200 million in
2024.
Key metrics
S&P said, "We assess PPC's liquidity as adequate, since we expect
liquidity sources to exceed uses by 1.2x in the next 12 months and
we perceive improved relationships with banks, as well more
flexibility in its capex plan to face adverse events with 90% of
renewables capex uncommitted. The company has adequate credit lines
to finance its obligations. We expect the company to timely
refinance its upcoming debt maturities."
Principal liquidity sources as of June 30, 2024, include:
-- About EUR2.1 billion in available cash and short-term
investments over the next 12 months;
-- About EUR2.6 billion of available committed revolving credit
lines;
-- Cash FFO that we forecast at about EUR1.5 billion; and
-- About EUR180 million of positive working capital change due to
normalization of power prices.
Principal liquidity uses as of the same date include:
-- Over the same period, these include debt maturities of about
EUR1.7 billion;
-- Capex that we estimate at about EUR2.6 billion net of
subsidies;
-- EUR800 million of acquisitions recently signed; and
-- Dividend payments of about EUR200 million, and EUR100 million
of share repurchases.
S&P expects PPC will remain in compliance with its debt covenants
in 2024. The company's public debt covenants include the following
default covenants:
-- EBITDA-to-net interest ratio is less than or equal to 2x.
-- Net debt-to-fixed assets ratio is greater than or equal to
0.5x.
-- Net debt-to-total equity ratio is greater than or equal to 2x.
Environmental factors are a negative consideration in S&P's credit
rating analysis of PPC. The company is still more exposed than
peers to environmental risk, even as it implements a strategic plan
that includes a gradual shift toward a lower-CO2-emitting fleet.
Lignite coal-based generation represented 22% of the energy
production mix on Dec. 31, 2023, while natural gas- and oil-based
production represented 30% and 18%, respectively. PPC has closed
1.9 GW (net capacity) of its 3.4 GW lignite generation fleet, and
plans to phase out the remaining 1.6 GW by 2026. The new lignite
coal plant, Ptolemaida V, will be phased out by 2026 as per PPC's
target, two years before the 2028 coal-free target set by the Greek
National Energy and Climate Plan.
Governance factors are a moderately negative consideration, given
that PPC's management team is building a track record of
efficiently derisking the company's activities, notably on exposure
to volatile commodity prices, the management of receivables, and
achievement of key targets in its new energy plan. The successful
phaseout of coal and renewable ramp-up targets could lead to a
stronger governance assessment.
-- S&P rates the EUR775 million and the EUR500 million senior
unsecured sustainably-linked notes at 'BB-'. The recovery rating is
'3', indicating its expectation of 60%-90% recovery.
-- The notes' structural subordination to EUR2.8 billion of
priority-ranking debt, of which EUR2.5 billion debt is at the
subsidiary level, constrain this rating.
-- S&P uses an emergence EBITDA multiple of 5x, which is aligned
with power generation peers that have a large scale of generation
and diversified asset base, and reflecting PPC's portfolio of
assets skewed toward thermal generation with operations in the
relatively riskier countries of Greece and Romania.
-- S&P's hypothetical default scenario assumes a combination of
significant deterioration in plant performance, adverse regulatory
changes, lower power prices, and an increase in leverage due to
debt-financed acquisitions.
-- S&P's simulated default in 2028 envisions that PPC would
exhaust its liquidity due to difficult market conditions and weak
profitability in its generation and retail segments with increasing
receivables and bad debt with lower efficiency, as well as delayed
phase-out of its coal-fired plants.
-- S&P values the business as a going concern because its strong
market position underpins its view that lenders would achieve
greater value through reorganization than a liquidation of assets.
-- Simulated year of default: 2028
-- EBITDA at default: EUR809 million.
-- Jurisdiction: Greece
-- Emergence EBITDA multiple: 5.0x
-- Gross recovery value: About EUR4,045 million
-- Net recovery value for waterfall after administrative expense
(5%): About EUR3,843 million
-- Estimated priority claims: EUR2,800 million
--Remaining value for creditors: About EUR1,011 million
-- Estimated senior unsecured debt claims: EUR1,728 million
--Recovery expectation: 60%
--Recovery rating: '3'
=============
H U N G A R Y
=============
WIZZ AIR: Fitch Lowers LongTerm IDR to 'BB+', Outlook Stable
------------------------------------------------------------
Fitch Ratings has downgraded Wizz Air Holdings Plc's Long-Term
Issuer Default Rating (IDR) and senior unsecured rating to 'BB+'
from 'BBB-'. The Rating Outlook on the Long-Term IDR is Stable. The
Recovery Rating (RR) on the senior unsecured notes is 'RR4'. Fitch
has also downgraded the airline's Short-Term IDR to 'B' from 'F3'.
The downgrade reflects its expectation that Wizz Air's EBITDAR net
leverage and EBITDAR fixed-charge coverage will not be consistent
with the rating sensitivities for a 'BBB-' rating (below 2.0x and
above 1.8x, respectively) during the forecast horizon of FY25-FY27
(the financial years ending March). The pace of deleveraging has
been mainly affected by the larger and more prolonged impact from
the Pratt & Whitney (P&W) engines issues than previously
anticipated. Those issues resulted in a lower-than-expected
capacity growth, a higher increase in costs and lower profit (not
fully offset by P&W compensation) and, ultimately, a higher debt
and leverage compared with its previous forecasts.
The Stable Outlook reflects its expectations of Fitch-defined
EBITDAR margin at average 26%, which remains high compared with
airlines peers, and its assessment of the company's deleveraging
potential, driven by anticipated growth in profitability from new
fleet additions and positive free cash flow (FCF) expected from
FY26. The Outlook is also supported by the company's leading
position in the Central and Eastern Europe (CEE) market, its
competitive cost base with a young and fuel-efficient fleet and a
solid liquidity position.
Key Rating Drivers
High Leverage Drives Downgrade: Wizz Air Holdings Plc's EBITDAR net
leverage is expected to remain sustainably above the 2.0x threshold
set for the previous 'BBB-' rating, driving the downgrade. Fitch
forecasts this metric to average 3.4x in FY25-FY26, then fall below
the new sensitivity of 3.0x for a 'BB+' rating in FY27. Net debt
increase in FY24-FY25 is higher compared with its previous
expectations, mainly due to a higher number of grounded aircraft
and absence of its associated EBITDAR, and investments in spare
engines to address P&W-related groundings. Without these engines,
more aircrafts would have been grounded.
Moderate Deleverage Expected: Fitch expects net debt to grow
further with new deliveries and a higher share of finance leases,
but Fitch also expects a moderate deleveraging across the forecast
horizon, supported by strong EBITDAR growth from new fleet
additions and positive FCF, despite not operating at full capacity.
From a business profile standpoint, Fitch views positively the
shift to a partially owned fleet model, facilitated by higher share
of finance leases.
Weaker Coverage Metrics: Fitch also expects a delay in the recovery
of coverage metrics compared with its previous forecast for the
same issues. Coverage metrics are projected to improve to about
1.7x by FY27 (average 1.6x in FY25-FY27), remaining below the 1.8x
threshold for the 'BBB-' rating. This delay is mainly due to slower
EBITDAR growth than in its previous forecast and increased debt
service from higher-than-expected debt.
Increasing Visibility on P&W: Wizz Air had to ground more aircraft
than expected due to GTF engine issues. Fitch now forecasts an
average of 40-45 grounded aircraft over the next 18 months, peaking
at 46 in September 2025, aligned with Wizz guidance. These
groundings create capacity constraints, mitigated through new
aircraft deliveries, lease extensions, wet leases and investment in
spare engines.
Wizz Air receives compensation for direct grounding costs, but some
indirect costs are not included and they penalise the operating
cash flow generation. Negotiations for a new support package from
P&W are underway as the current package expires in December 2024.
ASK Growth to Resume in FY26: Groundings have slowed growth in
available seat kilometers (ASKs), which Fitch expects to remain
relatively flat year-on-year in FY25. From FY26, Fitch forecasts
annual ASK growth of about 20%, based on new aircraft deliveries,
higher aircraft utilisation and a gradual reduction of the grounded
fleet. This is materially higher than what Fitch sees in the
sector, also due to capacity constraints related to the production
issues faced by The Boeing Company (BBB-/Negative), and could
support the company's market positioning in the medium term.
Solid Revenue Management in Challenging Context: Despite flat
capacity in FY25, revenue growth is supported by optimising
operations and yield management. In 1H25 (April-September 2024),
passenger numbers increased by 1% to 33.3 million, with a 92.3%
load factor.
Daily fleet utilisation and on-time performance (OTP) metrics also
improved. Active network management through reallocating the fleet
away from the lowest profitable routes and the enhancement of the
ancillary product portfolio have supported the yields. Fitch
expects mid-single-digit growth in RASK in FY25, despite milder
demand and more aggressive competition.
Cost Pressure from Grounded Fleet: Grounded aircraft due to geared
turbofan (GTF) engine issues had an impact on operating costs, not
fully covered by P&W compensation. These costs include additional
expenses from wet lease contracts, higher maintenance costs for
older aircraft, and inefficiencies from a sub-optimal fleet mix.
Persistent air traffic control challenges have also driven up crew
costs and passenger compensation. Fitch forecasts double-digit
growth in (ex-fuel) CASK in FY25, with a gradual decline,
thereafter, though to a level above FY24.
EBITDAR Growth Expected: Fitch forecasts FY25 EBITDAR to increase
to EUR1.4 billion (FY24: EUR0.95 billion), driven by a solid load
factor, increasing yields and full year of P&W compensation,
despite capacity constraints and higher CASK pressure. Fitch
expects annual EBITDAR growth of about 20% in FY26-FY27, resulting
from additional capacity, although tempered by a mild decrease in
yields in FY26 due to price pressure. Fitch forecasts EBITDAR
margin to average 26%, which remains high compared with airlines
peers, reflecting Wizz Air's competitive cost position.
EBITDAR growth is a fundamental driver of deleveraging, given its
expectations that net adjusted debt will remain EUR5.1
billion-EUR5.4 billion in FY25-FY27.
Effective Management Strategy: Fitch believes Wizz Air has the
potential to deliver strong growth and profitability. However,
Fitch views its expansionary investments as aggressive, given a
fleet expansion plan of over 310 aircrafts by 2032, which will more
than double its fleet from 208 aircraft by end-FY24. This strategy
creates execution challenges in scaling operations in existing
bases and developing new routes, and exposes the company to
exogenous shocks.
However, Fitch acknowledges that the secured backlog is a
competitive advantage in a moment when original equipment
manufacturer's production is a long-term issue and annual fleet
retirements rates are increasing.
Derivation Summary
As an ultra-low-cost carrier, Wizz Air's very strong cost position
is comparable to that of Ryanair Holdings plc (BBB+/Stable) and
Pegasus Hava Tasimaciligi A.S. (BB-/Stable). It has a leading
market position in the CEE market, which has a solid growth
potential. Wizz Air operates on a smaller scale than Ryanair and
Southwest Airlines Co. (BBB+/Stable), but is larger than Pegasus.
Wizz Air has developed a large footprint in terms of airports,
countries and routes, on par with its larger peers. The company
also intends to maintain high growth through new aircraft
deliveries. Wizz Air's current combination of business and
financial profiles is stronger than Pegasus's, but weaker than
those of Ryanair or Southwest.
Key Assumptions
- Available seat kilometres growing by 1.5% in FY25, 19% in FY26
and 21% in FY27
- Load factor at 92.0% in FY25, 92.5% for FY25 and 93% for FY26
- Oil price of USD85/bbl in 2023 and thereafter
- Robust EBITDAR margin for FY24-FY26 (average 25.6% in FY25-FY27),
also factoring in compensation for groundings
- Capex (inclusive of PDP payments) of about EUR645 million on
average per year between FY25-FY27
- Growth of gross lease equivalent debt to about EUR8.1 billion in
FY27
- No dividends between FY25-FY27
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDAR net leverage decreasing below 2.0x on a sustained basis
- EBITDA fixed-charge coverage rising above 1.8x
- EBITDAR margin above 25% and positive FCF a sustained basis
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDAR net leverage above 3.0x on a sustained basis
- EBITDA fixed-charge coverage below 1.5x on a sustained basis
- EBITDAR margin below 20% a sustained basis
Liquidity and Debt Structure
Strong Liquidity: Wizz Air has a strong liquidity position. Its
large unrestricted cash position of EUR1.7 billion at end-June 2024
(34% of FY24 revenue), and forecast positive FCF generation from
FY25 will be enough to cover debt maturities until FY27, including
a bond maturing in FY26.
In February 2023, the group contracted a EUR280 million
pre-delivery payments refinancing credit facility available for
three years, which does not include financial covenants. At June
2024, USD197.2 million had been borrowed and is expected to be
fully repaid in 2025.
Issuer Profile
Wizz Air is an ultra-low-cost carrier in CEE with 218 aircrafts
(A320/A321) as of end June-2024, and an average fleet age of 4.6
years old. While a smaller and growing player in Western Europe,
Wizz Air is a leader in CEE with 27% of the total CEE market, or
45% among the low-cost carriers as of FY24.
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
----------- ------ -------- -----
Wizz Air Holdings
Plc LT IDR BB+ Downgrade BBB-
ST IDR B Downgrade F3
senior unsecured LT BB+ Downgrade RR4 BBB-
Wizz Air Finance
Company B.V.
senior unsecured LT BB+ Downgrade RR4 BBB-
=============
I R E L A N D
=============
AURIUM CLO X: Fitch Assigns 'B-sf' Final Rating on Class F-R Notes
------------------------------------------------------------------
Fitch Ratings has assigned final ratings to Aurium CLO X DAC's
reset notes.
Entity/Debt Rating Prior
----------- ------ -----
Aurium CLO X DAC
A-1 XS2466140089 LT PIFsf Paid In Full AAAsf
A-1-R XS2892326997 LT AAAsf New Rating
A-2 XS2466140162 LT PIFsf Paid In Full AAAsf
A-2-R XS2892327532 LT AAAsf New Rating
B XS2466140592 LT PIFsf Paid In Full AAsf
B-R XS2892327375 LT AAsf New Rating
C XS2466140915 LT PIFsf Paid In Full Asf
C-R XS2892327706 LT Asf New Rating
D XS2466141137 LT PIFsf Paid In Full BBB-sf
D-R XS2892327961 LT BBB-sf New Rating
E -R XS2892328266 LT BB-sf New Rating
E XS2466141301 LT PIFsf Paid In Full BB-sf
F XS2466141640 LT PIFsf Paid In Full B-sf
F-R XS2892328423 LT B-sf New Rating
Transaction Summary
Aurium CLO X DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of corporate rescue
loans, senior unsecured, mezzanine, second-lien loans and
high-yield bonds. Net proceeds from the note issuance were used to
redeem all the existing notes, apart from the subordinated notes,
and to fund a portfolio with a target size of EUR400 million. The
portfolio manager is Spire Management Limited. The collateralised
loan obligation (CLO) has a 4.5-year reinvestment period and an
8.5-year weighted average life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 24.9.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate (WARR) of the identified portfolio
is 61.5%.
Diversified Portfolio (Positive): The transaction has six matrices.
Two are effective at closing with fixed-rate limits of 6.5% and
12.5%. The other four matrices have the same fixed-rate limits -
two are effective one year after closing, provided that the
portfolio balance is above target par, with the final two becoming
effective 18 months after closing, provided that the portfolio
balance is higher than the reinvestment target par balance less
EUR2 million. All six matrices are based on a top 10 obligor
concentration limit of 20%.
The closing matrices correspond to a 8.5-year WAL test while the
forward matrices correspond to 7.5-year and seven-year WAL tests,
respectively. The transaction also includes various concentration
limits, including an exposure to the three largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash-Flow Modelling (Positive): The WAL used for the transaction's
stressed-case portfolio analysis is 12 months shorter than the WAL
covenant. This reflects the strict reinvestment criteria post
reinvestment period, which includes satisfaction of Fitch's 'CCC'
limitation and the coverage tests, as well as a WAL covenant that
steps down in a linear manner over time. In Fitch's opinion, these
conditions reduce the effective risk horizon of the portfolio
during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase 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 have no impact on the class A-1-R
notes, would lead to a downgrade of one notch for the class A-2-R
to E-R notes and to below 'B-sf' for the class F-R notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class A-1-R and A-2-R notes have no cushion and the class B-R to
F-R notes have a two-notch cushion.
Should the cushion between the identified portfolio and the stress
portfolio be eroded due to manager trading or negative portfolio
credit migration, a 25% increase of the mean RDR across all ratings
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of four notches for the class
A-2-R to C-R notes, three notches for the class A-1-R notes, two
notches for the class D-R notes and below 'B-' for the class E-R
and F-R notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of Fitch's stress portfolio
would lead to upgrades of up to four notches, except for the notes
rated 'AAAsf', which are at the highest level on Fitch's scale and
cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
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 monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch, other nationally
recognised statistical rating organisations or European Securities
and Markets Authority-registered rating agencies. Fitch has relied
on the practices of the relevant groups within Fitch and/or other
rating agencies to assess the asset portfolio information or
information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Aurium CLO 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.
AURIUM CLO X: S&P Assigns B-(sf) Rating on Class F-R Notes
----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Aurium CLO X
DAC's class A-1-R, A-2-R, B-R, C-R, D-R, E-R, and F-R notes. The
issuer has unrated subordinated notes outstanding from the existing
transaction and has not issued additional subordinated notes.
This transaction is a reset of the already existing transaction.
The issuance proceeds of the refinancing notes were used to redeem
the refinanced notes (the original transaction's class A-1, A-2, B,
C, D, E, and F notes) and the ratings on the original notes have
been withdrawn.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
our counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,770.33
Default rate dispersion 584.14
Adjusted/actual weighted-average life (years) 4.50/4.26
Obligor diversity measure 144.50
Industry diversity measure 20.97
Regional diversity measure 1.33
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.92
Actual 'AAA' weighted-average recovery (%) 36.83
Actual weighted-average spread (%) 3.94
Actual weighted-average coupon (%) 5.02
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments.
The portfolio's reinvestment period will end approximately 4.50
years after closing.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, S&P has conducted its credit and cash
flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the portfolio's covenanted weighted-average
spread (3.94%), covenanted weighted-average coupon (5.25%), and
actual weighted-average recovery rates for all rating levels. We
applied various cash flow stress scenarios, using four different
default patterns, in conjunction with different interest rate
stress scenarios for each liability rating category."
This transaction features a principal transfer test, which allows
interest proceeds exceeding the principal transfer coverage ratio
to be paid into either the principal or supplemental reserve
account. The interest proceeds can only be paid into the principal
account senior to the reinvestment overcollateralization test and
into the supplemental reserve account junior to the reinvestment
overcollateralization test. Therefore, S&P has not applied a cash
flow stress for this. Nevertheless, because the transfer to
principal is at the collateral manager's discretion, it did not
give credit to this test in our cash flow analysis.
S&P said, "Under our structured finance sovereign risk criteria, we
consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-R to F-R notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the transaction will be in its reinvestment
phase starting from closing, during which the transaction's credit
risk profile could deteriorate, we have capped our ratings assigned
to the notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our ratings are commensurate with the
available credit enhancement for the class A-1-R to F-R notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A-1-R to E-R
notes based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F-R notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
illegal activities, child or forced labour, asbestos fibres,
sanctioned products, speculative extraction of oil and gas,
controversial weapons, hazardous chemicals and pesticides, illegal
drugs or narcotics, non-sustainable palm oil production, civilian
weapons or firearms, tobacco, thermal coal, fossil fuels, private
prisons, activities that adversely affect animal welfare, payday
lending, pornography or prostitution, trade in endangered wildlife,
or opioids.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, we have not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities."
Aurium CLO X is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Spire
Management Ltd. manages the transaction.
Ratings list
Amount Credit
Class Rating* (mil. EUR) Interest rate§ enhancement (%)
A-1-R AAA (sf) 248.00 3mE + 1.30% 38.00
A-2-R AAA (sf) 7.00 3mE + 1.60% 36.25
B-R AA (sf) 38.00 3mE + 1.90% 26.75
C-R A (sf) 23.00 3mE + 2.25% 21.00
D-R BBB- (sf) 28.00 3mE + 3.15% 14.00
E-R BB- (sf) 18.00 3mE + 6.25% 9.50
F-R B- (sf) 12.00 3mE + 8.50% 6.50
Sub notes NR 33.00 N/A N/A
*The ratings assigned to the class A-1-R, A-2-R, and B-R notes
address timely interest and ultimate principal payments. The
ratings assigned to the class C-R, D-R, E-R, and F-R notes address
ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to 6mE when a frequency switch event occurs.
3mE--Three-month Euro Interbank Offered Rate.
6mE--Six-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
MERRION SQUARE: Fitch Lowers Rating on Class F Notes to 'B-sf'
--------------------------------------------------------------
Fitch Ratings has downgraded Merrion Square Residential 2023-1
DAC's class E and F notes and affirmed the others.
Entity/Debt Rating Prior
----------- ------ -----
Merrion Square
Residential 2023-1 DAC
A XS2647846463 LT AAAsf Affirmed AAAsf
B XS2647846976 LT AA+sf Affirmed AA+sf
C XS2647847198 LT Asf Affirmed Asf
D XS2647847354 LT BBB+sf Affirmed BBB+sf
E XS2647847438 LT BBsf Downgrade BB+sf
F XS2647847602 LT B-sf Downgrade BB-sf
Transaction Summary
The transaction is a securitisation of first-lien Irish residential
and commercial mortgage assets originated predominantly between
2005 and 2008 by several lenders. Of the loans, 57.4% by current
balance consist of owner-occupied (OO) loans, 28.3% buy-to-let and
14.3% of small and medium-sized enterprise (SME) loans. The pool
was previously securitised across Shamrock 2021-1 DAC and
Strandhill RMBS DAC, neither of which Fitch rated.
KEY RATING DRIVERS
Weakening Asset Performance Drive Downgrades: As of August 2024,
Fitch calculated loans in arrears by more than 90 days had
increased to about 18% from 15% since closing in October 2023.
Fitch believes that high interest rates have put pressure on
borrower performance, given the adverse features of the assets. The
portfolio includes a significant portion of restructured loans,
about 45% by current balance as of August 2024. Fitch calculated a
significant increase in restructured loans with arrears to around
30% in the last 12 months from 10% at closing.
Reserve Drawings: Since closing, there have been some drawings on
the non-liquidity reserve fund, which now stands at around 4% of
the target, leading to an uncleared the performance deficiency
ledger for the class Z2 notes of about EUR11.5 million (47.5% of
the class Z2 notes). This is due to pool underperformance and
limited excess spread. Under its stressed rating scenarios, Fitch
believes the non-liquidity reserve will be completely depleted on
upcoming interest payment dates.
SME Loans Criteria Variation: As of August 2024, the pool contains
around 14% (by current balance) of SME loans backed by either land
or commercial properties. These are small ticket loans that are
mostly agricultural loans to farmers and small business, with a
EUR65,000 average balance. The valuations for these loans are
subject to commercial market-value-decline assumptions as stated in
Fitch's European RMBS Rating Criteria.
Fitch determined the weighted average foreclosure frequency (WAFF)
for the SME sub-pool of the portfolio based on historical
performance data provided at closing. Fitch also assessed the
impact of subsidies potentially supporting the performance of the
agricultural loans in line with its SME Balance Sheet
Securitisation Rating Criteria. The determination of the WAFF for
the SME sub-pool represents a variation to the European RMBS Rating
Criteria and SME Balance Sheet Securitisation Rating Criteria.
Property Valuations Criteria Variation: Fitch relied on the 1,716
original valuations provided at closing or around 34.6% by loan
count. Updated valuations were provided at closing for 4,216 loans
(of which 1,009 had both original and updated valuations), which
were either desktop or drive-by valuations undertaken between
2015-2019. Where an updated valuation was used (only in the absence
of an original valuation) Fitch applied a 5% haircut to the
valuation amount. This is a criteria variation from the European
RMBS Rating Criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
conditions and the economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
(CE) available to the notes
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain notes susceptible to
negative rating action depending on the extent of the decline in
recoveries. Fitch found that a 15% increase in the WAFF and a 15%
decrease in the WA recovery rate (RR) indicate downgrades of up to
four notches for all classes of notes.
A downgrade of the European Union's rating (AAA/Stable/F1+) may
also affect the notes' ratings given the reliance on subsidies
supporting SME loan performance in the portfolio. Fitch tested a
sensitivity whereby a 100% WAFF was assumed for the SME loans in
ratings above 'A+sf' (a scenario where the European Union's rating
was downgraded by up to four notches), which led to model-implied
two-notch downgrades of the class A and B notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and upgrades. Fitch
found a decrease in the WAFF of 15% and an increase in the WARR of
15% indicate upgrades of up to two notches for the class C and D
notes.
CRITERIA VARIATION
Criteria variations maintained as per closing.
For desktop and drive-by valuations, Fitch applied a 5% haircut to
the valuation amount, which is a criteria variation from the
European RMBS Rating Criteria.
Fitch determined the WAFF for the SME sub-pool of the portfolio
based on historical performance data. The determination of the WAFF
for the SME sub-pool represents a variation to the European RMBS
Rating Criteria and SME Balance Sheet Securitisation Rating
Criteria.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Merrion Square Residential 2023-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===================
L U X E M B O U R G
===================
ASSET-BACKED EUROPEAN 23: Moody's Assigns (P)Caa1 Rating to M Notes
-------------------------------------------------------------------
Moody's Ratings has assigned provisional ratings to Notes to be
issued by Asset-Backed European Securitisation Transaction
Twenty-Three S.a r.l.:
EUR[ ]M Class A Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Aaa (sf)
EUR[ ]M Class B Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Aa1 (sf)
EUR[ ]M Class C Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Aa3 (sf)
EUR[ ]M Class D Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)A2 (sf)
EUR[ ]M Class E Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Baa3 (sf)
EUR[ ]M Class M Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Caa1 (sf)
EUR[ ]M Class X Asset-Backed Floating Rate Notes due March 2034,
Assigned (P)Caa3 (sf)
RATINGS RATIONALE
The Notes are backed by a 2 month revolving pool of German auto
loans originated by CA Auto Bank S.p.A. Niederlassung Deutschland.
The provisional portfolio of assets amount to approximately
EUR520.5 million as of October 2, 2024 pool cut-off date. The
Liquidity Reserve Fund will be funded to 1.46% of the
collateralized Notes balance at closing and the total credit
enhancement for the Class A Notes will be 19.23%.
The ratings are primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
The transaction benefits from various credit strengths such as: (i)
a non-amortizing liquidity reserve fund sized at 1.46% of the
collateralized Notes balance, and (ii) a granular portfolio of
assets.
However, Moody's note that the transaction features some credit
weaknesses such as: (i) the potential asset quality drift due to
the revolving nature of the pool, and (ii) the pro-rata
amortization of the Notes under certain scenarios. Various
mitigants have been included in the transaction structure such as:
the performance and structural triggers which can stop the addition
of new loans in the pool and change the payment structure in the
waterfall.
The portfolio of underlying assets was distributed through dealers
to private individuals (53.6%) and self-employed/commercial
borrowers (46.4%) to finance the purchase of new 43.9% and used
56.1% cars. As of October 2, 2024, the portfolio consists of auto
finance contracts to borrowers with a weighted average seasoning
of 0.9 years.
Moody's determined the portfolio lifetime expected defaults of 4%,
expected recoveries of 40% and Aaa portfolio credit enhancement of
13% related to borrower receivables. The expected defaults and
recoveries capture Moody's expectations of performance considering
the current economic outlook, while the PCE captures the loss
Moody's expect the portfolio to suffer in the event of a severe
recession scenario. Expected defaults and PCE are parameters used
by us to calibrate Moody's lognormal portfolio loss distribution
curve and to associate a probability with each potential future
loss scenario in the cash flow model to rate Auto ABS.
Portfolio expected defaults of 4% are higher than the EMEA Auto ABS
average and are based on Moody's assessment of the lifetime
expectation for the pool. Moody's primarily based Moody's analysis
on the historical cohort performance data that the originator
provided for a portfolio that is representative of the securitised
portfolio. Moody's also evaluated other European market trends,
benchmark auto loan and lease transactions, and other qualitative
considerations with respect to the originator's experience in the
asset class. Moody's stressed the results from the historical data
analysis primarily to account for the high balloon loan component
of the securitised portfolio.
Portfolio expected recoveries of 40% are in line with the EMEA Auto
ABS average and are based on Moody's assessment of the lifetime
expectation for the pool taking into account: (i) historical
performance of the book of the originator, (ii) benchmark
transactions, and (iii) other qualitative considerations.
PCE of 13% is higher than the EMEA Auto ABS average and is based on
Moody's assessment of the pool which is mainly driven by: (i) the
exposure to balloon payments despite considering the strength of
the originator, (ii) the relative ranking to originator peers in
the EMEA market, and (iii) the weighted average current LTV ratio
of 77.0%, which is in line with the sector average.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
August 2024.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of the Notes
include significantly better than expected performance of the pool
together with an increase in credit enhancement of the Notes.
Factors that would lead to a downgrade of the ratings include: (i)
an increase in the level of arrears resulting in a higher level of
losses than forecast, (ii) increased counterparty risk leading to
potential operational risk of servicing or cash management
interruptions, or (iii) economic conditions being worse than
forecast resulting in higher arrears and losses.
=====================
N E T H E R L A N D S
=====================
MV24 CAPITAL: S&P Affirms 'BB+' Rating on $1.1BB Secured Notes
--------------------------------------------------------------
S&P Global Ratings affirmed its 'BB+' issue-level rating on MV24
Capital B.V.'s $1.1 billion 6.748% senior secured notes.
The stable outlook on the debt rating reflects S&P's expectation
that the project will have minimum 95% availability and use average
of seven maintenance days, remaining entitled to receive a 41-day
bonus payment in the end of each cycle in October, leading to a
debt service coverage ratio (DSCR) of around 1.3x in 2025 and
2026.
MV24's underlying operating asset floating production storage and
offloading (FPSO) vessel Cidade de Mangaratiba faced an event on
July 8, 2024, with the vapor recovery unit, which took
approximately eight days to resume full operations and which
affected uptime and daily charter revenue.
Following the repairs, in the absence of further events, S&P is
maintaining its base-case uptime expectation of 95% and the 41-day
bonus assumption for the cycle.
S&P said, "In our view, the vessel is inherently exposed to
operational risks and security factors that can result in lower
availability and no bonus payment. We assume 95% availability
annually because we expect greater variability in monthly
availability, as illustrated by the latest downtime. In our view,
the project's resilience in a downside-case scenario supports
MV24's strength, given its fixed-price and availability-based
charter payments."
On July 8, the FPSO faced an event with the vapor recovery unit
(VRU). The compressor was running with lube oil leakage through its
mechanical seals, which is an unsustainable operating condition.
The cause of the events was the premature wear of the mechanical
seals, which could only be repaired in a workshop, as it required
dismantling. On July 17, MV24 concluded the repairs and the VRU
system was back in operation and full production.
The report showed an uptime of 83.7% in July 2024 and a US$2.12
million (close to a 4-day rate) total revenue loss in July's
monthly charter revenue. Such unexpected events directly affect the
FPSO's uptime and, consequently, the daily charter rate revenue.
Since the July event, the project hasn't had any major component
failures or production issues.
MV24 successfully completed the work within seven days as
scheduled. As a result, MV24 expects to receive the maintenance
allowance bonus at the end of its 10th contract year in October
2024, equivalent to approximately 41 days of charter day rate.
S&P said, "Following the repair conclusions, the absence of further
events and 41-day bonus payment expectation, we are maintaining our
base-case uptime expectation of 95% and, for now, the 41-day bonus
assumption, leading to minimum DSCR of 1.23x in 2032. This leads us
to maintain our stand-alone credit profile (SACP) on the project.
"We rate the project's debt one notch above the rating on the
weakest of the revenue counterparties, Petrobras, because we think
there are economic incentives for the owners of the oilfield to
continue oil production even during financial distress. This
reflects our view of the essential service the project provides to
the oil production operations, which generate cash flows to the
owners of the field. In addition, the asset has unique
characteristics that were designed to operate in the Tupi field,
making it difficult to replace. The field is in the first quartile
of the cash cost curve of the region, with an oil breakeven cost
below $20 per barrel of oil equivalent (boe)."
===============
P O R T U G A L
===============
VASCO FINANCE 2: Fitch Assigns 'B+' Final Rating on Class E Notes
-----------------------------------------------------------------
Fitch Ratings has assigned final ratings to Vasco Finance No. 2.
The final rating on the class B notes is one notch higher than the
expected rating, driven by the lower interest rate payable to the
swap provider than initially considered in the analysis. The final
ratings on the class A, C D, E and X notes are the same as the
expected ratings.
Entity/Debt Rating Prior
----------- ------ -----
Vasco Finance No. 2
Class A PTTGUFOM0034 LT AA+ New Rating AA+(EXP)
Class B PTTGUPOM0032 LT A+sf New Rating A(EXP)
Class C PTTGU7OM0023 LT BBB+ New Rating BBB+(EXP)
Class D PTTGCEOM0029 LT BB+ New Rating BB+(EXP)
Class E PTTGCFOM0028 LT B+ New Rating B+(EXP)
Class F PTTGCGOM0027 LT NR New Rating NR(EXP)
Class G PTTGC8OM0012 LT NRsf New Rating NR(EXP)
Class X PTTGCNOM0028 LT BB+sf New Rating BB+(EXP)
Transaction Summary
Vasco Finance No. 2 is a cash-flow securitisation of a EUR280
million revolving portfolio of credit card receivables originated
by WiZink Bank S.A.U. - Sucursal em Portugal (WiZink Portugal).
WiZink Portugal, the Portuguese branch of WiZink Bank, S.A.U.,
registered in Spain and majority-owned by Värde Partners, acts as
portfolio servicer, originator and seller.
KEY RATING DRIVERS
Asset Assumptions Reflect Pool Credit Profile: Fitch's analysis of
the credit card portfolio was linked to a steady-state annual
charge-off rate assumption of 8%, an annual yield of 15%, a monthly
payment rate (MPR) of 8%, and a purchase rate of zero in line with
its Credit Card ABS Rating Criteria. The analysis considered the
historical data from the originator, WiZink Portugal's underwriting
and servicing standards, and Portugal's economic outlook.
At the 'AA+' rating case commensurate with the class A note rating,
the asset assumptions are annual charge-offs of 32.0%, a 10.3%
yield, a 5.5% MPR and a zero purchase rate. The zero purchase rate
assumption reflects that no further credit card drawings after the
end of the revolving period are assigned to the transaction.
Revolving and Pro Rata Amortisation: The portfolio will be
revolving until October 2025 as new eligible receivables can be
purchased by the issuer on a monthly basis. After the end of the
revolving period, the class A to G notes will be repaid on a pro
rata basis unless a sequential amortisation event occurs. This
event is driven by performance triggers such as annualised defaults
(defined as arrears over seven months or 210 days past due)
exceeding 10% of the portfolio balance, or a principal deficiency
ledger (PDL) of greater than zero.
Fitch views the switch to sequential amortisation as highly likely
in the first years after the end of the revolving period given the
portfolio's performance expectations compared with defined
triggers. The tail risk posed by the pro-rata paydown is mitigated
by the mandatory switch to sequential amortisation when the note
balance falls below 10% of its initial balance.
Counterparty Rating Cap: The maximum achievable rating on the
transaction is 'AA+sf' due to the minimum eligibility rating
thresholds defined for the transaction account bank (TAB) and the
hedge provider of 'A-' or 'F1', which are insufficient to support
'AAAsf' under Fitch's criteria.
Payment Interruption Risk Mitigated: The interest payment
obligations on the class A to C notes are due timely so long the
respective class is the senior most outstanding. For these notes,
Fitch views payment interruption risk as mitigated in scenarios of
servicer distress. This is due to the liquidity protection in the
form of a dedicated cash reserve, the operational capabilities of
WiZink Portugal, the transfer of direct debit collections from the
collection account bank (CAB) to the TAB within two business days,
an adequate borrower notification process on a servicer termination
event, and the presence of a back-up servicer facilitator.
Class X Notes Rating (Criteria Variation): The class X notes are
only protected by excess spread and their 'BB+sf' rating is seven
notches higher than the model-implied rating (MIR) as obtained from
Fitch's Multi-Asset Cash Flow Model, which projects the cash flows
of the transaction during its amortisation phase after the
revolving period ends.
This is a variation from Fitch's Consumer ABS Rating Criteria,
which allow for a one-notch deviation from the MIR, and is because
Fitch expects the class X note to be fully repaid by the
transaction's excess spread during the revolving period. This will
be approximately four months after the closing date, driven by the
small balance of class X and the ample excess spread protection.
Under Fitch's Global Structured Finance Rating Criteria, the class
X notes' rating is capped at 'BB+sf' given its high sensitivity to
various credit and cash-flow scenarios.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Long-term asset performance deterioration, such as increased
charge-offs, reduced MPR or reduced portfolio yield, which could be
driven by changes in portfolio characteristics, macroeconomic
conditions, business practices or legislative landscape.
Sensitivity to Increased Charge-offs:
Current ratings (class A/B/C/D/E/X): 'AA+sf' / 'A+sf' / 'BBB+sf' /
'BB+sf' / 'B+sf' / 'BB+sf'
Increased charge-offs by 25%: 'AA-sf' / 'A-sf' / 'BBB-sf' / 'BBsf'
/ 'Bsf' / 'NRsf'
Increased charge-offs by 50%: 'Asf' / 'BBBsf' / 'BB+sf' / 'B+sf'
/'NRsf' / 'NRsf'
Increased charge-offs by 75%: 'A-sf' / 'BBB-sf' / 'BBsf' / 'Bsf' /
'NRsf' / 'NRsf'
Sensitivity to decreased Monthly Payment Rates
Current ratings (class A/B/C/D/E/X): 'AA+sf' / 'A+sf' / 'BBB+sf' /
'BB+sf' / 'B+sf' / 'BB+sf'
Decreased MPR by 15%: 'AAsf' / 'A-sf' / 'BBBsf' / 'BBsf' / 'B+sf' /
'NRsf'
Decreased MPR by 25%: 'AA-sf' / 'BBB+sf' / 'BBB-sf' / 'BBsf' /
'Bsf' / 'NRsf'
Decreased MPR by 35%: 'Asf' / 'BBBsf' / 'BBB-sf' / 'BB-sf' / 'Bsf'
/ 'NRsf'
Sensitivity to decreased Yield
Current ratings (class A/B/C/D/E/X): 'AA+sf' / 'A+sf' / 'BBB+sf' /
'BB+sf' / 'B+sf' / 'BB+sf'
Decreased Yield by 15%: 'AA+sf' / 'Asf' / 'BBBsf' / 'BBsf' / 'Bsf'
/ 'NRsf'
Decreased Yield by 25%: 'AA+sf' / 'A-sf' / 'BBBsf' / 'BB-sf'/
'NRsf' / 'NRsf'
Decreased Yield by 35%: 'AAsf' / 'A-sf' / 'BBB-sf' / 'BB-sf' /
'NRsf' / 'NRsf'
Sensitivities to increased charge-offs and decrease MPR
Current ratings (class A/B/C/D/E/X): 'AA+sf' / 'A+sf' / 'BBB+sf' /
'BB+sf' / 'B+sf' / 'BB+sf'
Increased charge-offs by 25% and decreased MPR by 15%: 'A+sf' /
'BBBsf' / 'BB+sf' / 'BB-sf' / 'NRsf' / 'NRsf'
Increased charge-offs by 50% and decreased MPR by 25%: 'BBB+sf' /
'BB+sf' / 'BB-sf' / 'Bsf' / 'NRsf' / 'NRsf'
Increased charge-offs by 75% and decreased MPR by 35%: 'BBB-sf' /
'BB-sf' / 'Bsf' / 'NRsf'/'NRsf'/ 'NRsf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Credit enhancement ratios increase as the transaction deleverages,
and is able to fully compensate for the credit losses and cash-flow
stresses commensurate with higher rating cases.
For the class A notes, modified TAB and derivative provider minimum
eligibility rating thresholds compatible with 'AAAsf' ratings under
Fitch's Structured Finance and Covered Bonds Counterparty Rating
Criteria.
CRITERIA VARIATION
The class X notes are only protected by excess spread and their
'BB+sf' rating is seven notches higher than the MIR as obtained
from Fitch's Multi-Asset Cash Flow Model, which projects the cash
flows of the transaction during its amortisation phase after the
end of the revolving period.
This is a variation from Fitch's Consumer ABS Rating Criteria,
which allow for a one-notch deviation from the MIR, as Fitch
expects the class X note to be fully repaid by transaction's excess
spread during the revolving period (about four months after the
closing date), driven by the class X small balance and the ample
excess spread protection.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===========
R U S S I A
===========
APEX INSURANCE: S&P Raises Financial Strength Rating to 'BB-'
-------------------------------------------------------------
S&P Global Ratings raised to 'BB-' from 'B+' its long-term
financial strength rating on Apex Insurance JSC (Apex Insurance).
The outlook is stable.
S&P also raised to 'BB-' from 'B+' our long-term financial strength
rating on Apex Life Insurance JSC (Apex Life). The outlook is
stable.
S&P said, "The upgrade reflects our view that Apex Insurance has
improved its solvency ratio and reduced risk in its investment
portfolio over the past two years. We now view the company's real
estate exposure (at 35%-37% of total assets) as exposure to its
own-occupied property and do not expect the company to sell this.
This compares favorably with the market average of 9%. We also view
positively that Apex decreased its single-counterparty
concentration in its investment portfolio to 28% as of July 1, 2024
from 44% as of July 1, 2023. Sector concentrations, with all
investments being in local banks, are fully in line with other
local market players. We believe Apex Insurance will maintain its
asset mix, with average credit quality in the 'B+/B' range over the
next 12 months.
"Apex Insurance also improved its regulatory solvency buffer to
1.28x as of July 1, 2024 from 1.0x in 2023-2022. We expect the
company to maintain its regulatory solvency ratio at 1.2x-1.3x.
Apex Insurance's absolute capital has also expanded by 20% to $50
million in the past six months. We forecast that the company will
grow its capital further to about $55 million-$70 million in
2024-2025 due to solid earnings and zero dividend policy. At the
same time, Apex doubled its insurance portfolio in 2023 compared
with 2022 and expanded its business by 35% in the first six months
of 2024 compared with the same period in 2023. As a result, we
forecast that capital adequacy in 2024-2025 might come under
pressure due to substantial insurance premium growth, but will
stabilize at the 99.5% confidence level.
"For the first six months of 2024, Apex Insurance has continued to
be the market leader, with a market share of 36% in terms of gross
written premiums. We view positively the company's reshuffling of
its insurance portfolio in the past two to three years, which led
the combined (loss and expense) ratio to improve to 87% in 2023,
compared with a market average close to 100%-105%. We anticipate
that the company will achieve underwriting profitability in
2024-2025 with a combined ratio close to 90%. That said, we expect
that Apex Insurance will manage its cost base and underwriting
profitability in the next two years on the back of expected 15%
growth in net premiums earned over the same period."
As a result, S&P considers that the insurer's financial strength is
holistically comparable with 'BB-' rated peers.
S&P said, "We base our analysis of the Apex Insurance group on the
consolidated financials of Apex Insurance JSC, which are prepared
according to International Financial Reporting Standards. The group
also includes Apex's 100% subsidiary, Apex Life JSC. Apex Insurance
is an integral part of the group because it accounts for more than
80% of premiums and consolidated assets and is the driving force
behind the group's creditworthiness. The group credit profile (GCP)
is 'bb-'. Our financial strength rating on Apex Insurance matches
the GCP.
"We consider Apex Life as a core subsidiary of Apex Insurance. The
rating on Apex Life mainly reflects the company's high integration
into the Apex Insurance group, the related reputational factors,
and the life insurer's high importance for the group's business
development strategy for 2024-2026. We expect that Apex Life will
benefit from support from the parent if needed in any foreseeable
circumstances. As a result, we equalize our long-term rating on
Apex Life with the 'bb-' group credit profile of Apex Insurance.
"The stable outlook indicates our expectation that the company will
maintain its solid competitive position in Uzbekistan's insurance
market in the next 12 months, while its capital adequacy will
remain at least above the 99.5% level supported by profitable
growth. The stable outlook on Apex Life reflects that on Apex
Insurance. The rating on Apex Life is likely to move in tandem with
that on Apex Insurance, unless we revise our view of Apex Life's
group status."
Downside scenario
S&P could consider a negative rating action on Apex Insurance over
the next 12 months if, contrary to its expectations:
-- The company's capital base and capital adequacy deteriorate
below 99.5% according to our capital model due to
weaker-than-expected operating performance, higher-than-anticipated
growth, substantial dividend payments, or investment losses, and if
this is not offset by shareholder capital injections.
-- S&P takes a negative rating action on our Uzbekistan sovereign
ratings (BB-/Stable/B).
Upside scenario
A positive rating action is unlikely in the next 12 months. An
upgrade would be only possible if S&P raised its ratings on
Uzbekistan and, at the same time, observed a substantial
improvement of the group's business and financial risk profiles.
NAVOI MINING: Fitch Rates New USD1-Bil. Notes Due 2028/2031 'BB-'
-----------------------------------------------------------------
Fitch Ratings has assigned JSC Navoi Mining and Metallurgical
Company's (NMMC) new USD500 million notes due 2028 and USD500
million notes due 2031 final senior unsecured ratings of 'BB-' with
a Recovery Rating of 'RR4'. The bonds will rank pari passu with
NMMC's existing and future senior unsecured debt. Fitch has also
affirmed the company's Long-Term Issuer Default Rating (IDR) at
'BB-' with a Stable Outlook.
The final ratings follow the receipt of final bond documentation
conforming to the information previously reviewed. The proceeds
from the issuance are being used to fund capex and refinance some
existing debt. The ratings are in line with NMMC's Issuer Default
Rating (IDR).
Fitch has revised the company's Standalone Credit Profile (SCP) to
'bb+' from 'bb' as the notes have extended the amortisation profile
and diversified funding sources. NNMC's rating incorporates its
large scale as the fourth-largest gold producer globally, with
expected production of over 3 million ounces (moz) in 2024, and as
one of the lowest cost producers with long mine life, high profit
margins and very low leverage. This is offset by concentrated
operations in a weak operating environment and relatively weak
liquidity.
NMMC's IDR is constrained by its sole parent, Uzbekistan
(BB-/Stable), in accordance with Fitch's Government-Related
Entities (GRE) Rating Criteria.
Key Rating Drivers
Sovereign Constrains Rating: NMMC's rating is constrained by its
sole shareholder, Uzbekistan, given its close links with the
sovereign, in accordance with Fitch's GRE Rating Criteria and
Parent and Subsidiary Linkage (PSL) Rating Criteria. This reflects
the influence the state exerts on the company through strategic
direction and control over the company's cash flow through taxation
and extraction of dividends.
Top Five Gold Miner: NMMC is the fourth-largest global gold
producer with 2.9 moz output in 2023, below leaders Newmont,
Barrick Gold and Agnico Eagle, slightly above Polyus PJSC and above
AngloGold Ashanti plc. The company has 12 major mining sites, seven
plants and two heap leach workshops, all located in Uzbekistan. Its
largest cluster, Muruntau, generates about 70% of total production,
and has a similar share of its resource base. NMMC sells all the
gold it produces to the Central Bank of Uzbekistan at the current
London Bullion Market price.
Fitch expects the company to increase gold production by 30% by
end-2024 compared with 2017, achieving its target output two years
ahead of plan, and having spent about USD3 billion capex to achieve
this.
Strong Financial Profile: The company has historically operated
with low leverage, and Fitch expects it to maintain net and gross
debt to EBITDA at below 1x. This is also a target for management,
with short-term deviations allowed in case of a gold price drop.
The company distributes 100% of net income to the government. When
deciding on the dividend amount, the government takes into
consideration the company's leverage target, cash flow, investment
programme and liquidity.
Cost Leadership and High Reserves: NMMC's mines are located in the
first quartile of CRU's all-in sustaining costs (AISC) curve for
gold producers due to low costs of operations, high share of
local-currency-denominated costs and economies of scale,
particularly for Muruntau mine, which is the largest gold mine in
the world. The company reported 2023 AISC at USD866/oz, which is
one of the lowest levels among gold producers globally. The reserve
life of Muruntau cluster is robust at 24 years, while reserve
estimates of other mines are pending.
Responsibility to Support: Fitch view the Decision Making and
Oversight factor under the GRE Rating Criteria as 'Strong', given
the 100% ownership by the state through the Ministry of Economy and
Finance. The state is contemplating selling a minority share
through an IPO, but Fitch believes that the government will
maintain strong links with NMMC. The state has tight control over
the company, monitoring the budget, investment programme and key
performance indicators.
Fitch assesses precedents of support as 'Strong' as 19% of total
debt at end-2023 was provided by government entities. The company
has not received any equity injections over the past 10 years.
Incentive to Support: Fitch assesses NMMC's preservation of
government policy role as 'Strong' as it is responsible for more
than 80% of gold produced in the country. NMMC is the largest
taxpayer and a major employer in Uzbekistan. As at end-2023, 71% of
its debt comprised facilities from international lenders. NMMC can
be considered a reference entity for the state given its size and
international debt amount. Fitch believes NMMC's default could
affect the ability of Uzbekistan and other GREs to borrow on
international markets and therefore assess contagion risk as
'Strong'.
Corporate Governance: Similar to other state-controlled companies
in Uzbekistan, NMMC is improving its corporate governance. It
started publishing IFRS financials from 2020 and also provides
half-year financials. NMMC has completed estimating most of its
reserves according to the JORC international standard. The
supervisory board currently mostly consists of state
representatives, with two independent members having been appointed
in 2024. The company's management has a positive record of
completing expansion programmes ahead of time and without
significant cost overruns.
Derivation Summary
NMMC's peers include global gold producers Agnico Eagle Mines
Limited (BBB+/Stable), Kinross Gold Corporation (BBB/Stable),
AngloGold Ashanti plc (BBB-/Negative), Endeavour Mining plc
(BB/Stable) and Uzbek copper producer JSC Almalyk Mining and
Metallurgical Complex (BB-/Stable).
As the fourth-largest global gold miner with 2.9moz production in
2023, NMMC slightly trails the third-largest gold producer, Agnico
Eagle (3.4 moz in 2023) and its output is higher than that of
AngloGold Ashanti (2.3 moz) and Endeavour (1.1 moz). The company
also operates the largest gold mine globally, which is a part of
the Muruntau cluster that generates about 70% share of its total
production.
NMMC is among the lowest cost producers globally, with assets
located in the first quartile of the global gold cost curve. Its
AISC were at USD866/oz in 2023, comparing favourably with
Endeavour's USD967/oz, Agnico Eagle's USD1,207/oz, Kinross's
USD1,316/oz and AngloGold Ashanti's USD1,538/oz.
The company's operations are concentrated in one country,
Uzbekistan, which has a weaker operating environment and is the
major constraint on the company's rating. Investment-grade peers
have less risky country exposure. Agnico Eagle has 84% production
exposure to Canada and 11% exposure to Australia. Kinross has
operating mines in the US (32% of 2023 gold equivalent sales from
continuing operations), South America (40%) and West Africa (28%).
AngloGold Ashanti has a wide geographic diversification, albeit to
high-risk jurisdictions in Africa where about 60% of production is
generated and South America (20% of production), while only about
20% of gold is produced in Australia.
NMMC also has the highest mine life compared with peers of over 20
years, while peers only report between eight and 13 years. NMMC has
the highest profit margins in its peer group with a superior EBITDA
margin of over 50% on average. Its leverage profile compares well
with investment-grade peers with EBITDA net leverage below 1x on a
though the cycle basis. However, its liquidity is weaker than
higher-rated peers.
NMMC's closest peer in Uzbekistan is copper and gold producer JSC
Almalyk Mining and Metallurgical Complex, which is smaller in
scale, and its production is currently focused on only one mine.
The entity is developing a second mine, which Fitch expects to be
commissioned in 2024. Large capex for the transformative project
and delays in project completion puts pressure on its free cash
flow (FCF), and its leverage is also higher than NMMC.
Key Assumptions
- Gold price of USD2,100/oz in 2024, USD2,000/oz in 2025,
USD1,800/oz in 2026 and USD1,700/oz in 2027 and USD1,600/oz
mid-cycle
- Low single digit increase in production volumes
- EBITDA margins averaging above 50% in 2024-2027
- Capex of USD400 million on average in 2024-2027
- 100% of net profit is distributed as dividend
- Social contributions on average of about USD100 million per year
in 2024-2027
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade - Positive rating action on the sovereign
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade: - Negative sovereign rating action
- EBITDA gross leverage above 2.0x on a sustained basis could be
negative for the SCP but not necessarily the IDR
- Sustained negative FCF due to dividends/ large capex or M&A
activity
Rating Sensitivities for Uzbekistan dated 23 August 2024
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- External Finances: A marked worsening of external finances, for
example, via a large and sustained drop in remittances, or a
widening in the trade deficit, leading to a significant decline in
FX reserves.
- Public Finances: A marked rise in the government debt-to-GDP
ratio or an erosion of sovereign fiscal buffers, for example, due
to an extended period of low growth, loose fiscal stance or
crystallisation of contingent liabilities.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Macro: Consistent implementation of structural reforms that
promote macroeconomic stability, sustain strong GDP growth
prospects and support better fiscal outturns.
- Public Finances: Confidence in a durable fiscal consolidation
that enhances medium-term public debt sustainability.
- Structural: A marked and sustained improvement in governance
standards.
Liquidity and Debt Structure
Improved Maturity Profile Post Issuance: As at June 2024, the
unrestricted cash balance was USD3 million (net of USD519 million
in treasuries related to dividend and tax payments to the state)
against short-term debt of USD425 million, resulting in limited
liquidity. Capex is expected to be about USD400 million per year
over the next three years. Fitch expects FCF to remain negative in
2024 and improve to about USD150 million in 2025-2026. During
July-September 2024, the company raised USD180 million loan from
international banks with maturities in 2025-2027.
The USD1 billion Eurobond issuance will improve NMMC's maturity
profile. Most of the funds will be used to refinance existing
facilities with the highest interest rates. Fitch expects that the
company will need to raise short-term funding to repay part of its
medium-term maturities, which the company does on an ongoing basis
given strong access to the local banks. Management plans to hold
USD30 million-USD50 million cash on hand.
Issuer Profile
NMMC is the fourth-largest gold producer in the world and operates
in Uzbekistan. It is one of the lowest cost producers globally.
Summary of Financial Adjustments
Fitch treats charity and social contributions of USD94 million as
minority dividends.
Public Ratings with Credit Linkage to other ratings
NMMC's rating is constrained by Uzbekistan's rating.
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
JSC Navoi Mining and Metallurgical Company has an ESG Relevance
Score of '4' for Financial Transparency due to a limited record of
audited financial statements and publication timeliness, which has
a negative impact on the credit profile, and is relevant to the
rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
JSC Navoi Mining and
Metallurgical Company LT IDR BB- Affirmed BB-
senior unsecured LT BB- New Rating RR4
senior unsecured LT BB- New Rating RR4 BB-(EXP)
===========
S E R B I A
===========
TELEKOM SRBIJA: S&P Assigns Prelim. 'BB-' LT Issuer Credit Rating
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'BB-' long-term issuer
credit and issue ratings to Telekom Srbija a.d. Beograd and its
proposed $750 million senior unsecured bond.
The stable outlook reflects S&P's outlook on Serbia, its belief
that Telekom Srbija will execute its strategy to continue
increasing its fixed-line broadband and mobile convergent customer
base and monetize its premium content and well-invested network, as
well as its expectations that the company will be successful in
timely securing additional funding to face its maturities beyond
June 2025.
Telekom Srbija is the dominant player in Serbia and a leading
integrated telecommunications provider in BiH and Montenegro.
Telekom Srbija is the No. 1 provider of fixed-line broadband,
mobile, and multimedia services in Serbia. The company had a 44.1%
subscriber market share in mobile (ahead of No. 2 Yettel with 32%),
57.1% in fixed-line broadband (well ahead of No. 2 SBB with 27%),
and 54% in multimedia (ahead of No. 2 SBB with 39%) as of June
2024. The company is also the largest fixed-line telephone operator
and one of the two largest mobile telephony, internet, and
multimedia providers in BiH. It is the largest mobile telephony,
internet, and multimedia services provider and the second-largest
fixed-line telephone operator in Montenegro.
S&P believes Telekom Srbija's market position is underpinned by its
well-invested fixed-line broadband and mobile network. Telekom
Srbija's strengths are underpinned by its well-invested, fully
integrated fixed-line broadband and mobile networks, although the
company sold a portfolio of about 1,800 towers in December 2023, in
line with several passive mobile infrastructure transactions that
closed in Europe over the past decade. The company has more than
96% of the population covered by 4G technology in its main markets,
supported by a large and diverse mobile spectrum portfolio across
all frequency bands and a dense network of 3,186 sites in Serbia.
Telekom Srbija's 5G mobile network is ready to roll out in dense
urban areas, at no major incremental costs because its current
mobile network is dense enough to carry out its 5G plan, while 57%
of its mobile towers are already connected with fiber. Since 2021,
Telekom Srbija has invested significantly in a fiber optic network
aimed at expanding its network quality and coverage, making it the
market leader in FTTH in Serbia with a network covering over 60% of
the households nationally. Historically, the company has been
focusing on urban and dense areas, but it is now increasingly
addressing rural areas. Telekom Srbija has also rolled out FTTH in
BiH and Montenegro and currently covers 13% and 67% of total
households, respectively.
Telekom Srbija further differentiates from competition thanks to
its extensive and exclusive content. Telekom Srbija offers a wide
range of content focusing on different segment groups. The company
produces its own TV premium content in cooperation with global and
regional content creators and its content library consists of
approximately 12,000 titles, while it has participated in the
production of over 145 series and 84 movies. Telekom Srbija has
also secured exclusive and extensive sports distribution rights,
including all major sport leagues, local TV, and premium foreign
content through its Arena Channels Group, which is not only offered
in Telekom Srbija's bundles, but also across the Balkans and the
Serbian diaspora in Europe (Germany, Austria, Switzerland) and
Turkiye via wholesale agreements and triple-quadruple play bundled
via mobile virtual network operator (MVNO) contracts. This strategy
has enabled Telekom Srbija to increase revenue at a compound annual
growth rate of 16.5% between 2019 and 2023 and grow its multimedia
market share to 53% from 38% in Serbia, to 31% from 24% in BiH, and
to 41% from 35% in Montenegro over the same period.
Both Telekom Srbija's network and extensive content portfolio are
key enablers of its growth strategy, which will enhance the depth
of its convergent offering and generate additional growth
opportunities. Telekom Srbija leverages its well-invested
network, diversified and unique media content portfolio, and large
subscriber base to cross sell services and expand the number of
bundled packages it offers. This leads to an overall increase in
customer spend, satisfaction, and stickiness; higher average
revenue per user (ARPU); and consequently higher revenue by
locking-in subscribers and incentivizing them to migrate to
high-speed data packages and premium multimedia services. While
Telekom Srbija compares positively with its competitors in terms of
bundled package penetration with a total of 51% in Serbia, 43% in
BiH, and 48% in Montenegro, the company has the opportunity to
increasingly bundle its mobile customer base, and to grow broadband
and multimedia bundled subscriptions in BiH and Montenegro. Telekom
Srbija is also planning to further monetize content investments,
expanding its reach to the Serbian diaspora across the globe as
already started in certain European countries and Turkiye. This
strategy, combined with continuous focus on improved customer
satisfaction, and price increases will in S&P's view support
forecast revenue growth of about 15% per year in 2024 and 2025 and
S&P Global Ratings-adjusted EBITDA margin improvement toward 38% in
2025, from 27.4% in 2023.
Telekom Srbija operates in a stable and supportive regulatory
environment with good economic fundamentals. No new entrants are
expected in mobile and fixed-line broadband in the foreseeable
future and Telekom Srbija is required to open only its copper
network to the competition. In addition, it is supported by solid
GDP growth expectations of 4%, on average, beyond 2024, and a
constant growth of average wages, which supports consumer
spending.
The company's strengths are somewhat balanced by its
still-below-peers' average profitability, owing to the expensive
content strategy it aims to increasingly monetize; still large
contribution from mobile operations; and its relatively smaller
scale compared with Western European incumbents due to the service
area it covers. High content costs largely undermine Telekom
Srbija's profitability, resulting in S&P Global Ratings-adjusted
EBITDA margin (after capitalized content production and content
acquisition) that is below the peer average, expected at about 33%
in 2024, from 27.4% in 2023. This is because the company invested
massively in the production of internal content and securing
exclusive broadcasting sports and TV rights to drive expansion and
growth, all of which it has to continue monetizing. As a result of
its lower margin and elevated capital expenditure (capex), we
expect Telekom Srbija will continue reporting negative free
operating cash flow (FOCF) over 2024-2025. Our view of Telekom
Srbija's business positioning is further constrained by the
company's business mix being still dependent on mobile revenue,
with a relatively low degree of mobile convergent customers (about
14% in Serbia). Broadband and pay-TV revenue stood at about 14% and
24% over the 12 months ended June 30, 2024, against a contribution
of around 48% from mobile services. Finally, with revenue
equivalent to about EUR1.5 billion and S&P Global Ratings-adjusted
EBITDA equivalent to about EUR415 million in 2023, Telekom Srbija
has a relatively smaller scale than Western European incumbents
owing to the service area it covers.
S&P said, "We expect Telekom Srbija's S&P Global Ratings-adjusted
debt to EBITDA will be about 5.2x in 2024, before reducing to 4.2x
by 2025, with negative FOCF over the period. S&P Global
Ratings-adjusted debt to EBITDA of slightly more than 5.0x in 2024
and our expectation of negative FOCF constrain our rating on
Telekom Srbija. While we expect a sharp leverage reduction to about
4.2x in 2025, we forecast FOCF should turn positive only by the end
of 2026 as intensive capex plans absorb forecast revenue growth and
profitability improvement over 2024-2025. This is because the
company continues investing in its fiber network and making its
mobile network 5G ready while continuously investing in multimedia
content. Although we understand some growth capex could be delayed
and the company can decide to postpone or stop the production of
content, we believe such investments are still necessary for the
company to maintain its network and media leadership and deliver on
its growth strategy through content monetization, growing bundled
penetration, and price increases.
"We assess liquidity as adequate, but we note that Telekom Srbija
will have to secure new funding to cope with maturities beyond June
2025. We believe Telekom Srbija will have sufficient funds from
July 1, 2024, pro forma for the proposed bond and term loan
issuance, to cope with its maturities in the next 12 months,
although this would require some capex or dividend adjustments
absent further issuance over the next several quarters. We are also
mindful the company will have to secure additional funding to cover
its maturities beyond June 2025. However, we view positively that
Telekom Srbija has built strong relationships with banks and
investors over the years and understand the company is in active
discussions to secure new facilities, or to renew or roll over
existing ones, although no firm and final commitments have been
received yet.
"The preliminary ratings are subject to the successful issuance of
the proposed debt, and our satisfactory review of the final
documentation. Accordingly, the preliminary ratings should not be
construed as evidence of final ratings. If we do not receive the
final documentation within a reasonable time frame, or if the final
documentation departs from the materials we have already reviewed,
we reserve the right to withdraw or revise our ratings. Potential
changes include, but are not limited to, the use of proceeds,
interest rate, maturity, size, financial and other covenants, and
the security and ranking of the senior secured debt.
"The stable outlook reflects the outlook on Serbia. It also
reflects our belief that Telekom Srbija will execute its strategy
to continue increasing its fixed-line and mobile convergent
customer base and monetize its premium content and well-invested
network, such that FOCF turns positive by 2026 and S&P Global
Ratings-adjusted leverage sustainably reduces to less than 5x. The
stable outlook also reflects our expectation that the company will
be successful in timely securing additional funding to face its
maturities beyond June 2025."
S&P could lower the rating if:
-- Telekom Srbija's adjusted leverage rises above 6x due to a
slower-than-expected monetization of its large and diversified
multimedia content, and if its investments in network upgrade and
quality translate into subdued revenue and EBITDA growth and a
large FOCF deficit in 2025 and potentially beyond.
-- S&P believes Telekom Srbija's liquidity sources are not
sufficient to sustain its operations over the next 12 months.
-- S&P lowers its sovereign rating on Serbia.
S&P said, "Rating upside is remote over the next 12 months,
considering our assessment of a moderate likelihood of support from
the government and our BBB-/Stable/A-3 local currency ratings on
Serbia. We could raise our assessment of Telekom Srbija's
stand-alone credit profile (SACP) to 'bb-' should its S&P Global
Ratings-adjusted leverage reduce substantially and sustainably
below 5x and its FOCF turns positive, supported by our forecast of
high revenue growth and profitability improvement, in addition to
adequate liquidity. Such a revision would, however, not result in a
change to our 'BB-' preliminary rating on Telekom Srbija.
"We could raise the preliminary rating on Telekom Srbija to 'BB' if
we revise our view of its SACP to 'bb', which would require
adjusted leverage of less than 4x and FOCF to debt comfortably and
sustainably above 5%, with a steadily adequate liquidity."
ESG factors do not have a material impact on S&P's analysis of
Telekom Srbija.
===========================
U N I T E D K I N G D O M
===========================
ACTIVE ARENA: FTS Recovery Named as Joint Administrators
--------------------------------------------------------
Active Arena CIC was placed in administration proceedings in the
High Court of Justice Business and Property Courts of England and
Wales Insolvency and Companies, Court Number: CR-2024-005992 of
2024, and Ian Michael Rose and Mark David Charles Hopkins of FTS
Recovery Ltd were appointed as administrators on Oct. 11, 2024.
Active Arena CIC fka KIXX LINCOLNSHIRE CIC is an indoor football
arena.
Its registered office is at Active Arena, Moorland Way, Lincoln,
Lincolnshire, LN6 7JW. Its principal trading address is at
Moorland Way Warehouse, Moorland Way, Tritton Road, Lincoln, LN6
7JW.
The joint administrators can be reached at:
Ian Michael Rose
Mark David Charles Hopkins
FTS Recovery Ltd
Alma Park, Woodway Lane
Claybrooke Parva, Lutterworth
Leicestershire
LE17 5FB
Tel No: 01455 555 444
For further information, contact:
Mark David Charles Hopkins
FTS Recovery Ltd
Email: mark.hopkins@ftsrecovery.co.uk
Tel No: 01455-555-444
BIG RED: Wilson Field Named as Joint Administrators
---------------------------------------------------
Big Red Key Company Ltd was placed in administration proceedings in
the High Court of Justice, Business & Property Courts, Manchester,
Insolvency & Companies List (ChD), Court Number:
CR-2024-MAN-001347, and Kelly Burton and Joseph Fox of Wilson Field
Ltd were appointed as administrators on Oct. 15, 2024.
Big Red Key fka Citrus FM Limited engages in the cleaners
business.
Its registered office is at 12 Victory Business Centre, Somers Road
North, Portsmouth PO1 1PJ to be changed to FRP Advisory Trading
Ltd, The Manor House, 260 Ecclesall Road South, Sheffield, S11 9PS.
Its principal trading address is at 12 Victory Business Centre,
Somers Road North, Portsmouth, PO1 1PJ.
The administrators can be reached at:
Kelly Burton
Joseph Fox
Wilson Field Ltd
The Manor House
260 Ecclesall Road South
Sheffield, S11 9PS
For further information, contact:
The Joint Administrators
Tel No: 0114 235 6780
Alternative contact:
Carl Addy
E-mail: c.addy@wilsonfield.co.uk
CO-OPERATIVE GROUP: S&P Raises LT ICR to 'BB', Outlook Stable
-------------------------------------------------------------
S&P Global Ratings raised its long-term ratings on Co-operative
Group Ltd. (Co-op) and its senior unsecured notes to 'BB' from
'BB-' and raised its issue rating on its subordinated notes due
2025 to 'BB' from 'B+'.
S&P said, "The stable outlook reflects our view that Co-op will
sustain the improvement in its credit metrics and consistently
generate positive free operating cash flow (FOCF) after leases in
the next 24 months, thanks to improved profitability and cash flow
generation, with leverage remaining at 3.0x and lower over
2024-2026, and we believe the group will continue executing its
financial policy and repay its debt due 2025 and refinance or repay
2026 notes on a timely basis."
Co-op has strengthened its market position and operating
performance, driven by effective pricing investments and membership
offerings. Despite a contraction of the convenience market
according to data analytical firm Circana, Co-op's food segment was
resilient and it was able to grow revenue by 3.2% in the first half
of 2024 with year-on-year volume increase across stores and online
platforms, proving the effectiveness and value of the group's
membership drive and pricing investments in stimulating volume
growth. Specifically, membership contributed 36.2% of the segment
sales in the first half, increasing by 5.7 percentage points year
on year. S&P said, "We believe that the group's ongoing membership
expansion and more targeted pricing investments, in addition to the
growth potential in e-commerce (including Quick Commerce) despite
still contributing to a less material sales percentage of the
segment, will continue to yield positive volume growth and increase
sales density per store and overall profitability. However, we
expect the U.K. grocery market to remain extremely competitive and
retailers to compete aggressively for market share by increasing
promotions to improve volumes because previous price increases have
led to high list prices."
Co-op's profitability should continue to improve over 2024 and
2025. S&P said, "We forecast that the group will generate adjusted
EBITDA of about GBP480 million in 2024, and above GBP530 million in
2025, up from GBP461 million in 2023, which is about GBP60
million-GBP80 million better than our previous forecast. While the
increase in national living wages is still the largest cost
headwind for the group, we expect an improvement in adjusted EBITDA
margin to about 4.3% in 2024 and further 4.6% in 2025, from 4.1% in
2023, driven by ongoing efforts in labor productivity and energy
cost efficiency, reduced contribution from the lower-margin
wholesale segment, and continued growth momentum from the
higher-margin life services segments. In our view, the intense
competition in the sector will significantly limit improvement in
Co-op's profitability beyond our base case through 2026. In
addition, we note some volume headwinds to the business-to-business
(B2B) segment that had an underlying EBITDA margin of about 1.5%
compared with about 4.2% at the group level in 2023, followed by
losses in the first half of 2024. However, we believe the segment
would return to profit by end-2024, driven by the gradual rollout
of new corporate partnerships, and that it will continue to benefit
the group as a consolidated buying entity supporting margins in the
long term.”
S&P said, "We expect the group to deleverage quicker, thanks to
debt repayment and EBITDA growth. Co-op repaid GBP200 million of
its bonds due May 2024 with cash and intends to repay another
GBP109 million of the subordinated notes due December 2025, also
with cash. We now forecast adjusted net leverage at about 3.0x in
2024 and further down to about 2.6x in 2025, improving from 3.0x in
2023. We expect funds from operations (FFO) to debt at about 27.5%
in 2024 and above 31% in 2025, improving from 24.4% in 2023. This
is faster deleveraging than our previous forecast of adjusted debt
to EBITDA of 3.5x-4.0x and FFO to debt of 18%-20% by 2025. This,
coupled with top-line and profitability outperformance since 2023,
as well as improved financial controls after the Nisa acquisition
in 2019, demonstrates prudence in the group's management and
governance that led us to improve our management and governance
score to neutral from moderately negative.
"Discipline and effectiveness of deploying capital expenditure
(capex) would be key to a steady cash flow profile. We forecast
FOCF after leases to dip slightly into negative territory in 2024
due to higher capex, before returning to positive in 2025,
thereafter growing on the back of EBITDA improvement and neutral
movement in net working capital that has normalized after some
volatility in the previous two years due to supply chain
disruption. We believe capex will weigh on the group's cash flows
as it invests in the routine hygiene and safety compliance of its
store network and dials up investment in store refreshment, energy
efficiency, and other trading-enhancing initiatives. We forecast
capex to be about GBP285 million in 2024 and about GBP300
million-GBP310 million in the next two years, assuming it will be
funded by organic cash generation and will be effective in driving
sales and profitability. Adverse market conditions could, however,
yield lower-than-expected returns on those investments and more
volatile working capital movements, squeezing on cash flows.
However, we believe that would be mitigated by the management's
generally prudent cash management and adequate liquidity, based on
our estimate that Co-op will have about GBP400 million cash on
balance sheet as of end-2024 and GBP443 million availability under
the revolver that is committed until March 2026.
"The stable outlook reflects our view that Co-op will maintain S&P
Global Ratings-adjusted FFO to debt of about 27% in 2024 and about
30% in 2025, and adjusted debt to EBITDA will stay at 3.0x and
lower over the next 12-24 months. We also forecast that the group
will maintain adequate liquidity and generate positive FOCF after
leases in the next 24 months after a small negative dip by
end-2024, while maintaining discipline and effectiveness of its
capex deployment."
S&P could lower the rating if Co-op underperforms its base case,
resulting in weaker credit metrics, including:
-- Adjusted FFO to debt falling to 20% or lower;
-- Adjusted debt to EBITDA deteriorating toward 4.0x; or
-- Co-op failing to generate consistently positive FOCF after full
lease payments.
This could happen if market conditions turned significantly more
adverse than our expectations, leading to a prolonged period of
negative volume or like-for-like revenue growth in food and B2B
segments, especially if accompanied by a more volatile working
capital, or if trends in the funeralcare market caused the segment
to significantly weigh on the group's profitability and cash flow
generation.
Although not in our base case, S&P could also consider a negative
rating action if the group's financial policy were to turn more
aggressive and led to financing capex or opportunistic acquisitions
with material debt or to liquidity position significantly weakening
after the repayment of its outstanding GBP109 million notes due in
2025.
S&P could upgrade Co-op if, on the back of robust operating
execution, it can demonstrate stronger-than-expected EBITDA margins
and cash flow generation on a sustainable basis, such that:
-- FFO to debt is above 30%;
-- Debt to EBITDA remains well below 3.0x; and
-- FOCF to debt is around 15%.
An upgrade would depend on the group's consistent adherence to its
financial policy and conservative management of liquidity and
refinancing risk, including timely extension or refinancing of its
GBP443 million revolving credit facility (RCF) due in March 2026.
S&P said, "Governance factors are now a neutral consideration in
our credit rating analysis of Co-op compared with moderately
negative previously. We note the strategic focus and consistently
prudent financial policy under the CEO, Shirine Khoury-Haq, who was
appointed in August 2022 after starting as the group's CFO in
August 2019 and then becoming CEO of Life Services. We also view
positively the changes in the executive management team, such as
the appointment of a CFO and managing director of B2B. We believe
that the group's solid performance in trading and profitability
demonstrates the effectiveness in executing the pricing strategy,
membership program, and other growth initiatives. The group has
also displayed prudence in managing debt and other liabilities. It
decided to preserve cash from the forecourt disposal in 2022 and
balance the spending between investing in the business with the
commitment to repay its 2024 and 2025 debt maturities with cash. It
also put effort in de-risking its pension funding through several
buy-in deals, the latest deal being in November 2023. Lastly, we
factor in the improvements that Co-op made in its financial
controls. We note positively that the group has developed and made
progress in a comprehensive plan to improve its financial controls
across all divisions, including its retail and funeralcare
segments. We factor into our analysis the group's regulatory
compliance framework, which it put in place in response to the
prepaid funeral plan regulation by Financial Conduct Authority. The
group in our view has the ability to effectively manage risks and
operate the funeralcare business in a regulated environment."
Like other retailers, the group is also impacted by social risks as
regards wages, labor relations, and employee safety, through its
retail network. The group has adopted a set of values and
principles describing a different, fairer, and better way of doing
business, which are in line with the principles held by the
International Co-operative Alliance. This is evidenced by the
social causes, employee discounts, and community projects that the
group has invested over the years. Overall, social factors remain a
neutral consideration for our analysis. Like several other
large-scale U.K. retailers, Co-op faces equity pay claims from
store employees seeking to close the pay differences with their
warehouse colleagues. If Co-op is unsuccessful in its legal
defense, and depending on the number of successful claims, the
potential liabilities could be large and significant. S&P said, "We
do not foresee imminent resolution, given the several uncertainties
involved, length of court proceedings, and development of the
events. We also note the contingent liability related to the claims
by the liquidators of The Food Retailer Operations Ltd., which
Co-op also anticipates will be subject to a lengthy legal process
and it is our assumption that the event is unlikely to lead to a
material cash outflow over our forecast period."
Environmental factors are a neutral consideration for our analysis.
It invests in sustainability projects and arranges for
sustainability-linked features in its debt documentation.
COMPLETELY MOTORING: Azets Holdings Named as Joint Administrators
-----------------------------------------------------------------
Completely Motoring Limited was placed in administration
proceedings in the High Court of Justice, Business and Property
Courts in Leeds Insolvency and Companies List (ChD), Court Number:
CR-2024-000967, and Jonathan Mark Amor and Matthew Richards of
Azets Holdings Limited and Alessandro Sidoli of Xeinadin Corporate
Recovery Limited were appointed as administrators on Oct. 10, 2024.
Completely Motoring Limited engages in the sale of used cars and
light motor vehicles. Its registered office and principal trading
address is at Unit 4, Vernon Court, Cheltenham Road East,
Staverton, Gloucester, Gloucestershire, GL2 9QL.
The joint administrators can be reached at:
Jonathan Mark Amor
Azets Holdings Limited
12 King Street, Leeds
LS1 2HL
-- and --
Matthew Richards
Azets Holdings Limited,
2nd Floor Regis House
45 King William Street
London, EC4R 9AN
-- and --
Alessandro Sidoli
Xeinadin Corporate Recovery Limited
100 Barbirolli Square, Manchester
M2 3BD
For further information, contact:
The Joint Administrators
Tel No: 0161 224 1000
Alternative contact:
Matthew Peters
Email: Matthew.Peters@azets.co.uk
MARKET HOLDCO 3: S&P Affirms 'B' LongTerm ICR, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit rating
on Morrisons' parent company, Market Holdco 3 Ltd. (UK). At the
same time, S&P affirmed its 'B+' issue rating on the group's senior
secured debt comprised of the GBP1 billion RCF and GBP1.2 billion
term loan B. The recovery rating on the senior secured notes
remains '2' (rounded estimate: 80%). The issue-level rating on the
senior secured notes due November 2027 is 'B+' and ranks pari passu
with the term loan B. S&P affirmed the issue-level rating on the
GBP1.2 billion senior subordinated notes at 'CCC+', two notches
below the issuer credit rating.
The stable outlook reflects S&P's expectation that the company will
maintain its like-for-like revenue growth due to the expansion of
its customer loyalty programs to its online and convenience
channels, and that its efficiency measures will help keep its S&P
Global Ratings-adjusted EBITDA margins above 5%. However, it also
reflects the group's high leverage, with S&P Global
Ratings-adjusted debt to EBITDA of 9.0x (7.1x excluding preference
shares).
S&P said, "We believe Morrisons' focus on loyalty programs and
operational efficiencies will continue to increase its
like-for-like revenues and improve its margins. Morrisons'
emphasis on loyalty and better stock availability is yielding
results, stabilizing its previously declining market share at 8.6%
as of Sept. 29, 2024, according to Kantar Worldpanel. With muted
food inflation, the group's revenue growth in the current fiscal
year is largely volume driven. Morrisons reported like-for-like
retail growth of 3.2% for the first nine months of fiscal 2024
(year ending Oct. 31); however, the quarterly growth rate has
steadily declined during this period. The group continues to
increase the reach of its loyalty program by including more
products with significant supplier-funded savings and extending it
to its Amazon channel and convenience stores. We believe that newly
switched customers from the loyalty program, along with an expanded
logistics network to support the convenience and wholesale segment,
will help maintain revenue growth of about 2%-4% in 2025.
"Additionally, the group has cumulatively achieved about 75% of its
GBP700 million three-year cost-saving program. These measures have
helped improve the group's operating margin profile amid a
competitive environment and rising labor costs. We calculate the
group has improved its S&P Global Ratings-adjusted EBITDA margin to
5% for the 12 months ended July 28, 2024. Morrisons already
realized about GBP420 million of its GBP500 million working capital
improvement plan, but these benefits were consumed in the working
capital unwind of its fuel business, which it sold in the second
quarter of 2024. Therefore, we currently forecast reported FOCF
after lease payments to be limited at GBP20 million-GBP50 million
over the next 12 months. We consider this modest for a company of
Morrisons' scale and debt level. However, we expect any further
working capital improvements will become more evident in the
group's cash flows."
The proposed amend-and-extend transaction proactively address the
company's debt maturities. Since the take-private transaction
completed in October 2021, the group raised about GBP2.4 billion in
cash proceeds from the disposal of its PFS business and
sale-and-leaseback transactions. These proceeds were used to repay
GBP2.3 billion of senior secured debt, reducing the group's
financial debt from GBP6.2 billion from October 2022 to
approximately GBP4 billion as of July 2024. The group's current
financial debt comprises the GBP1 billion RCF (currently undrawn),
GBP1.4 billion-equivalent term loan B, GBP824 million senior
secured notes, GBP503 million equivalent euro-denominated senior
secured notes, and GBP1.2 billion senior notes. S&P expects a
portion of the group's recent ground rent transaction, which raised
about GBP331 million, will be utilized to repay part of the term
loan B debt as part of the proposed amend-and-extend transaction.
Through this proposed transaction, the group aims to extend the
debt maturities associated with its RCF and term loan B to 2030
from 2027. However, the documentation stipulates that if more than
GBP413 million of the group's senior secured notes remains
outstanding as of August 2027, the maturity date of the term loan B
will be brought forward to November 2027. In addition, if more than
GBP300 million of the GBP1.2 billion of senior subordinated debt is
outstanding as of July 2028, the maturity date of the term loan B
will be brought forward to October 2028.
S&P said, "We believe the collateral over the group's still
material freehold real estate and the subordination support from
the GBP1.2 billion senior notes underpin our 'B+' issue-level
rating on the group's senior secured debt. The senior secured
debt benefits from mortgages over the group's material real estate,
which is unusual for highly leveraged transactions in this sector.
The terms of the securities facility agreement require the group to
apply proceeds from asset sales toward the repayment of senior
secured debt until the net senior secured leverage ratio reaches
3.0x. The company expects this ratio will be 3.1x as of June 28,
2024, pro forma the recent ground rent transaction. We note that
pro forma the recent ground rent transaction, the majority of the
group's retail stores included within the scope of consolidation of
Market Bidco Ltd. are freehold; this compares favorably to the
average for the industry. If the company undertakes further asset
sale transactions, including ground rent or sale-and-leaseback
transactions, the manner in which future asset disposal proceeds
are utilized could have implications for the overall rating on the
group or the issue-level rating on its senior secured debt.
"The stable outlook reflects our expectation that the company will
maintain its like-for-like revenue growth due to the expansion of
its customer loyalty programs to its online and convenience
channels, and that its efficiency measures will help keep its S&P
Global Ratings-adjusted EBITDA margins above 5%. However, it also
reflects the group's high financial leverage, with S&P Global
Ratings-adjusted debt to EBITDA of 9.0x (about 7.1x excluding
preference shares).
"We could lower our ratings on Morrisons if the group's operating
performance falls short of our current base case, reflecting a
deterioration in the group's competitive position or adverse
working capital development, leading to prolonged high leverage and
weak credit metrics for an extended period." Specifically, S&P
could take a negative rating action if, over the next 12 months:
-- S&P Global Ratings-adjusted leverage exceeded 10.0x (8.0x
excluding preferred equity); or
-- Annual FOCF after lease payments declined materially,
potentially constraining the group's liquidity.
S&P could also downgrade Morrisons if the group's credit metrics
deteriorated as it pursues material sale-and-leaseback transactions
or debt-funded acquisitions, or if it raised additional debt for
shareholder returns (including preference share repayments), even
if the debt documentation permits such actions.
S&P could raise its ratings on Morrisons if it can demonstrate:
-- Sustained organic growth in the retail and wholesale business
while maintaining its S&P Global Ratings-adjusted EBITDA margin
above 5%;
-- Successful implementation of its strategic plan to strengthen
its market offering while achieving the full extent of its GBP700
million cost-saving plan and GBP500 million working capital
improvement program; and
-- Sustained improvement in credit metrics, with leverage
materially below 9.0x (materially below 7.0x excluding preference
shares on a sustained basis) and FOCF after lease payments above
GBP100 million annually.
PRISM ELECTRONICS: FRP Advisory Named as Joint Administrators
-------------------------------------------------------------
Prism Electronics Limited was placed in administration proceedings
in the High Court of Justice Business and Property Courts in
Manchester, Court Number: CR-2024-MAN-001314, and Tom Bowes and
Richard Goodall of FRP Advisory Trading Limited were appointed as
administrators on Oct. 14, 2024.
Prism Electronics is a manufacturer of loaded electronic boards.
Its registered office is at 30 Burrel Road, Burrel Road Industrial
Estate, St Ives, Cambridgeshire, PE27 3NF 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 30 Burrel
Road, Burrel Road Industrial Estate, St Ives, Cambridgeshire, PE27
3NF.
The joint administrators can be reached at:
Tom Bowes
Richard Goodall
FRP Advisory Trading Limited
4th Floor, Abbey House
32 Booth Street, Manchester
M2 4AB
For further information, contact:
The Joint Administrators
Tel No: 0161-833-3344
Alternative contact:
Ben Smith
Email: cp.manchester@frpadvisory.com
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2024. All rights reserved. ISSN 1529-2754.
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