/raid1/www/Hosts/bankrupt/TCREUR_Public/241025.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
Friday, October 25, 2024, Vol. 25, No. 215
Headlines
F R A N C E
LABORATOIRE EIMER: Fitch Affirms 'B' LongTerm IDR, Outlook Negative
G E R M A N Y
TTD HOLDING III: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
G R E E C E
PUBLIC POWER: S&P Rates New EUR500MM Sr. Unsecured Notes 'BB-'
I R E L A N D
BRIDGEPOINT CLO VII: S&P Assigns Prelim. B-(sf) Rating on F Notes
TIKEHAU CLO VII: Fitch Assigns 'B-sf' Final Rating on Cl. F-R Notes
TIKEHAU CLO VII: S&P Assigns B-(sf) Rating on Class F-R Notes
I T A L Y
ALMAVIVA SPA: Fitch Assigns BB+(EXP) Rating on EUR700MM Sec. Notes
CEME SPA: Fitch Assigns 'B' Final LongTerm IDR, Outlook Stable
MUNDYS SPA: Fitch Affirms 'BB' Rating on EUR10BB Unsecured Notes
OMNIA DELLA: Fitch Assigns B(EXP) First-Time LT IDR, Outlook Stable
L U X E M B O U R G
CONSTELLATION OIL: Fitch Assigns 'B' LongTerm IDRs, Outlook Stable
KERNEL HOLDINGS: Fitch Hikes LongTerm IDR to 'CCC-'
N E T H E R L A N D S
DYNAMO MIDCO: Fitch Assigns B Final LongTerm IDR, Outlook Positive
S P A I N
SANTANDER CONSUMO 7: Fitch Assigns 'B(EXP)sf' Rating on Cl. E Notes
S W E D E N
POLESTAR AUTOMOTIVE: Strategy Update Set for Jan. 16, 2025
U N I T E D K I N G D O M
CALIFORNIA BUYER: Fitch Assigns BB- First-Time IDR, Outlook Stable
DALE (MANSFIELD): Leonard Curtis Named as Joint Administrators
GM GEECO: RSM UK Named as Joint Administrators
HEALTHCARE COLLECTION: JT Maxwell Named as Joint Administrators
MARTINHASWELL LTD: Creditors' Meeting Set for Nov. 11
NEW CINEWORLD: S&P Affirms 'B-' ICR & Alters Outlook to Positive
PRECISE MORTGAGE 2020-1B: Fitch Keeps 'BB+sf' Rating on Watch Neg.
YEW TREE: AABRS Limited Named as Joint Administrators
X X X X X X X X
[*] BOOK REVIEW: Performance Evaluation of Hedge Funds
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F R A N C E
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LABORATOIRE EIMER: Fitch Affirms 'B' LongTerm IDR, Outlook Negative
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Fitch Ratings has affirmed Laboratoire Eimer Selas's (Lab Eimer)
Long-Term Issuer Default Rating (IDR) at 'B' with a Negative
Outlook. Fitch has also affirmed its senior secured instrument
rating at 'B+' with a Recovery Rating of 'RR3' and its senior
unsecured instrument rating at 'CCC+'/'RR6'.
The 'B' IDR of Lab Eimer, which owns the France-based lab-testing
company Biogroup, balances its aggressive gross leverage with a
defensive social infrastructure-like healthcare business model,
strong operating margins and solid free cash flow (FCF).
The Negative Outlook reflects its lower forecasts of profitability
in 2024 and 2025 due to an unexpectedly large tariff cut in place
since September. Fitc projects this to result in EBITDAR leverage
above 8x until at least 2025, significantly above its 7.0x gross
leverage negative sensitivity.
A return to leverage levels that are consistent with a 'B' IDR will
depend on the company's capacity to restore its margins with cost
savings while maintaining a conservative financial policy. Fitch
sees the company's financial policy and its underlying deleveraging
capabilities as critical to its near-term rating trajectory.
Key Rating Drivers
Unexpectedly Large Reimbursement Cut: In late August, the French
regulator CNAM announced a sharp tariff cut on selected routine
tests, which Fitch expects to affect less than half of Biogroup's
sales, effective from 9 September. This is expected to lower
Biogroup's portfolio pricing by about 8%. The decision aligns with
the 2024-2026 Tri-annual Act agreed with unions in July 2023, which
allows for a 0.4% annual growth in routine testing, with price cuts
offsetting volume increases. Fitch sees low risk of further
unexpectedly large tariff cuts in the next two years, as the
Tri-Annual Act ensures tariff cuts are dependent on volume growth.
Profitability to Re-Base Lower: Fitch expects the September tariff
cut to lead to moderately lower EBITDA margins in 2024, and
slightly further in 2025. The magnitude of the margin contraction
in 2025 will depend on Biogroup's ability to implement cost
efficiency measures on a timely basis. Fitch expects margins to
recover from 2026, but Fitch estimates that the profitability will
likely permanently re-base at a lower level than pre-pandemic
levels.
Healthy FCF Sustains Rating: FCF margins in 2023 were hit by higher
interest rates and lower profitability, but remained solid in the
high single digits. Fitch forecasts that FCF margins will remain at
mid-to-high single digits over 2024-2027 due to still overall
healthy operating margins, contained trade working capital and low
capex intensity. Strong cash flow profitability remains a key
factor in supporting the rating, mitigating its excessive
leverage.
Aggressive Leverage, Deleveraging Potential: Fitch expects EBITDAR
gross leverage to remain above 8x in 2024 and 2025 as a result of
weak margins, which is well above its 7.0x negative sensitivity for
the rating. Fitch assumes that the company will shift its focus
from acquisitive growth to deleveraging, pausing its M&A strategy
in 2024 and possibly in 2025. Biogroup's strong FCF, supported by
cost optimisation, results in an inherent deleveraging ability.
Absence of deleveraging amid contracted margins and approaching
debt maturities are likely to place ratings under pressure in the
next 12 months.
Tight Financial Flexibility: Higher cash debt service requirements
due to rising floating interest rates and lower margins weakened
Biogroup's EBITDAR/interest +rents to slightly above 2.0x in 2023,
which is tight for the rating. Fitch estimates it to remain at a
similar level in 2024 and 2025 despite lower floating interest
rates. This, together with persistently high leverage and weakening
FCF, could put the ratings under pressure.
Financial Policy Drives IDR: Lab Eimer's predictable financial
policy and funding mix have previously supported its highly
acquisitive growth strategy. Fitch assumes FCF will be fully
reinvested in bolt-on M&A, with mid-scale acquisitions funded with
a mix of own cash and fresh debt. Fitch assumes that potential
larger M&A in excess of EUR500 million would include equity
co-funding. Fitch assesses Biogroup's financial policy and
capital-allocation priorities, including its tolerance for higher
financial risks. Leverage outside its negative sensitivity on a
sustained basis would likely result in a rating downgrade in the
next 12 months.
Execution Risks: Biogroup is facing increased execution risks amid
higher-than-expected reimbursement pressure. Fitch believes that it
has the capacity to mitigate inflation by generating cost savings
in its personnel and non-reagent purchases. From 2027 the industry
remains exposed to the uncertainties of the medium-term regulatory
framework. The latter may include closer scrutiny over the sector's
profitability and growing market power of the top six lab-testing
groups, leading to more stringent reimbursement terms.
Defensive Business Model: Lab Eimer's business model is defensive
with stable, non-cyclical revenues and high and resilient operating
margins. The company benefits from scale-driven operating
efficiencies and proven M&A execution and integration, in addition
to high barriers to entry as it operates in a highly regulated
market. Acquisitions in other geographies reduce the impact of
adverse regulatory changes in any single country.
Derivation Summary
Biogroup's 'B' IDR is in line with that of its direct peers Inovie
Group (B/Negative) and Ephios Subco 3 S.a.l (Synlab, B/Positive),
both of whom are also European routine medical lab-testing groups.
The industry benefits from a defensive, non-cyclical business model
with stable demand, given the infrastructure-like nature of
lab-testing services.
The profitability, cash generation and leverage of Biogroup and its
direct peers benefited significantly from Covid-19 related activity
in 2020 to end-2022, before it normalised at much lower levels in
2023 that caused margins to reverse back to below pre-pandemic
levels.
Biogroup's high and stable operating and cash flow margins are
among the highest among peers, which Fitch largely attributes to
the particularities of the French and Belgian regulatory regimes
and the company's exposure to the private lab-testing market.
Biogroup's expected profitability is higher than Synlab's and
similar to slightly higher than of French peers. However, its FCF
generation is affected by dividends paid to minority shareholders,
who are biologists in the underlying operating companies.
The lab-testing market in Europe has attracted significant private
equity investment, leading to highly leveraged financial profiles.
Compared with investment-grade global medical diagnostic peers such
as Eurofins Scientific S.E. (BBB-/Stable) and Quest Diagnostics Inc
(BBB/Positive), Biogroup is materially smaller and geographically
concentrated, more exposed to the routine lab-testing market and
has much higher leverage.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue to grow 7.5% in 2024, including the full consolidation of
Analyza Spain. This will offset a 2% organic decline as Covid-19
test sales fall to EUR10 million from EUR50 million
- Organic revenue in routine tests to grow 0.5% in 2024, flat in
2025 and to grow slightly below 1% in 2026 and 2027, as volume
growth offsets price declines
- Slight EBITDA margin decline in 2024 and in 2025, followed by a
gradual recovery in 2026 and 2027
- Dividends to non-controlling interests estimated at 9%-10% of
consolidated EBITDA
- Small net working capital outflows to 2027
- Capex on average at 2.7% of sales to 2027
- Acquisitions including the purchase of minority stakes of
biologists to slow in 2024 to EUR70 million but to resume to around
EUR150 million in 2025 and to EUR200 million a year in 2026 and
2027
- No common dividend payments
Recovery Analysis
- Fitch follows a going-concern (GC) approach instead of
balance-sheet liquidation given the quality of Biogroup's network
and strong national market position
- Expected GC EBITDA at roughly a 25% discount to projected 2024
EBITDA, reflecting a post-restructuring EBITDA after dividends paid
to minority shareholders at operating company level
- Distressed enterprise value (EV)/EBITDA multiple of 6.0x, which
reflects Lab Eimer's strong market position, as well as product and
geographic diversification
- Structurally higher-ranking debt of around EUR101 million at
operating companies to rank on enforcement ahead of its revolving
credit facility (RCF), term loan B (TLB) and senior secured notes
(SSN)
- The senior secured TLB and SSN together at around EUR2.9 billion
and its RCF of EUR271 million, which Fitch assumes to be fully
drawn upon distress, rank equally among themselves after
higher-ranking debt. Senior unsecured bond ranks third in priority
- After deducting 10% for administrative claims from the estimated
post-restructuring EV, its waterfall analysis generates a ranked
recovery for the senior secured debt in the Recovery Rating 'RR3'
band, leading to a senior secured rating of 'B' with a
waterfall-generated recovery computation (WGRC) of 53%. For the
senior unsecured notes, Fitch estimates their recovery in the 'RR6'
band with a WGRC of 0%, corresponding to a 'CCC+' senior unsecured
rating
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Upgrade
- A larger scale, increased product/geographical diversification,
full realisation of contractual savings and synergies associated
with acquisitions or voluntary prepayment of debt from excess cash
flow
- EBITDAR gross leverage below 5.0x on a sustained basis
- High single-digit FCF margins on a sustained basis
- EBITDAR fixed charge coverage trending above 2.5x on a sustained
basis
Factors That Could, Individually or Collectively, Lead to the
Outlook Being Revised to Stable
- Visibility that EBITDAR gross leverage is trending lower towards
7.0x by 2026
- Stable operating performance leading to mid-single digit FCF
margins
Factors That Could, Individually or Collectively, Lead to
Downgrade
- Flat to negative like-for-like sales growth and declining EBITDA
margins due to a delay in M&A integration, competitive pressures or
adverse regulatory changes
- EBITDAR gross leverage above 7.0x on a sustained basis
- FCF margin falling below 5% on a sustained basis
- EBITDAR fixed charge coverage below 2.0x on a sustained basis
Liquidity and Debt Structure
Comfortable Liquidity: Fitch views Lab Eimer's liquidity as
comfortable. This is based on a high freely available cash balance
of EUR611 million (excluding EUR50 million that Fitch treats as not
readily available for debt service) as of end-June 2024. In
addition, the company has a committed RCF of EUR271 million
maturing in August 2027, which was fully undrawn as of end-June
2024. The company has no material debt maturities until February
2028.
Fitch forecasts adequate liquidity for 2024-2027 based on strong
FCF generation and its forecasts of annual M&A activity (including
purchases of minority stakes from biologists) averaging EUR100
million-EUR150 million a year, which could be funded by FCF
generation and the RCF.
Issuer Profile
Lab Eimer is one of Europe's largest providers of routine
diagnostic tests in the private lab-testing market, with leading
shares in France and Belgium.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Fitch does not provide ESG relevance scores for Lab Eimer.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose any ESG factor that is a
key rating driver in the key rating drivers section of the relevant
rating action commentary.
Entity/Debt Rating Recovery Prior
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Laboratoire
Eimer Selas LT IDR B Affirmed B
senior
unsecured LT CCC+ Affirmed RR6 CCC+
CAB societe d
exercice liberal
par actions
simplifiee
senior secured LT B+ Affirmed RR3 B+
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G E R M A N Y
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TTD HOLDING III: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed TTD Holding III GmbH's (TTD; also known
as Toi Toi and Dixi) Long-Term Issuer Default Rating (IDR) at 'B'.
The Outlook is Stable. Fitch has also affirmed TTD Holding IV
GmbH's EUR1,170 million senior secured term loans at 'B+' with an
'RR3' Recovery Rating.
The IDR reflects high leverage and adequate financial flexibility
for a 'B' rating. The rating is supported by the company's
entrenched market position, particularly in its home markets, with
its strong network density protecting against new entrants. FCF
margin has been sustained at low to mid-single digits despite a
challenging end-market.
The Stable Outlook reflects its expectations of TTD's continued
strong operational execution in a challenging market, with
sufficient headroom under Fitch's sensitivities for the 'B'
rating.
Key Rating Drivers
Negative Volumes, Improving in 2025: TTD's long-term cabin rental
volumes in Germany, a key indicator of underlying performance, were
down about 11% in the year to September 2024 versus last year. For
2025 Fitch expects volume declines to slow to low-to-mid-single
digits, albeit subject to the pace of ECB rate cuts and the
recovery of the German and other European construction markets.
Fitch's updated Global Economic Outlook forecasts a continued soft
German economic environment in 2025, with GDP growth revised
downwards to 1.1% for 2025 and a mild improvement towards 1.4% in
FY26.
Revenue Supported by Internal Initiatives: Fitch expects revenue
growth of 1%-2% in 2024, following internal measures such as
premiumisation, active selling to boost volumes, price increases
and bolt-on M&A. For 2025 Fitch forecasts mild but improved organic
growth, supported by increasing volumes, albeit with smaller price
hikes as wage and overall inflation decelerates. FCF margins have
been sustained at around low-to-mid single digits, supported by
lower capex requirements due to lower long-term cabin rentals.
Reduced Profitability, Cost Measures: Declining long-term cabin
rental volumes and weaker route-density, combined with wage and
cost growth affect margins. Fitch forecasts a Fitch-defined EBITDA
margin at 27% for 2024. TTD has effectively managed its cost
structure in 2023 and 2024, reducing full-time employees in
administrative roles and overheads and maintaining tight cost
control. Fitch expects profitability to improve once volumes begin
to recover.
M&A to Support Density: FCF-funded bolt-on acquisitions remain a
cornerstone of TTD's growth, by building on its scale and route
efficiencies. It made four bolt-on acquisitions in 1H24, versus 18
in 9M23. Fitch expects around EUR20 million of FCF-funded bolt-on
acquisitions in 2024 and another EUR30 million in 2025, supporting
revenues and EBITDA.
Sufficient Financial Flexibility: Fitch forecasts EBITDA leverage
at around 6x in 2024, before it reduces towards 5.7x in 2026. Fitch
forecasts EBITDA interest coverage at 2.6x-2.7x and cash flow from
operations (CFO) less capex/total debt at 2%-3% in 2024-2026. This
is adequate for the 'B' rating. TTD actively amended and extended
its EUR1,170 million term loan B (TLB) maturities into 2029 and
repriced all facilities earlier this year.
Modest Construction Sector Growth: High construction cost, wage
inflation and high interest rates continue to weigh on the German
construction market, with the biggest impact on residential
building activity. The latter accounts for around 30%-35% of TTD's
net sales. Residential and non-residential together represents
around 80% of TTD's construction business and around 55% of net
sales.
Defensive Route-Based Model: TTD's business model is concentrated
on network density, scale and logistics, which protect its
entrenched market position. In Germany, its national market share
is 15x its closest competitor's. With more stops per servicing
route, TTD can reduce the cost per stop, resulting in a margin
advantage. This creates a major barrier to entry, as it becomes
difficult for a competitor without a comparable presence to compete
effectively in a given area.
Longstanding Brand and Value Proposition: The Toi Toi & Dixi brands
enjoy decades of recognition, which reinforce TTD's leadership in
Germany and numerous other European markets. TTD's strength across
the value chain also makes it the preferred choice for customers,
given the essential yet less competitive nature of waste
management. Aside from premium toilet cabins, TTD also offers
bespoke sanitary containers and ancillary equipment for larger or
longer-term projects, which cannot be provided by regional
companies that compete mainly for smaller projects.
Derivation Summary
Fitch compares TTD with other services peers with strong
competitive positions and high visibility over recurring revenue,
including Irel Bidco S.a.r.l. (IFCO; B+/Stable) and Polygon Group
AB (B/Stable), but also ERP-software peer TeamSystem S.p.A
(B/Stable).
IFCO is larger and more diversified than TTD, allowing it a looser
EBITDA leverage sensitivity for the same rating. Polygon and TTD
have similar geographical diversification, but TTD's construction
end-market is more volatile than the insurance-based property
damage restoration market.
TeamSystem's revenue visibility is stronger than TTD's, but TTD is
more geographically diversified with lower leverage for the same
rating.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth of 1%-2% in 2024 and 2%-3% organic growth in the
following two years
- Fitch-defined EBITDA margin of 27% in 2024, before gradually
improving towards 28% to 2026 on volume recovery and lower
inflation
- Modest working capital outflow below 1% of sales to 2026
- Capex at EUR50 million-EUR60 million in 2024 and 2025, then
increasing with growing production volumes
- Bolt-on M&As of around EUR20 million-EUR30 million annually in
2024 and 2025, funded by FCF
Recovery Analysis
The recovery analysis assumes that TTD would be considered a going
concern (GC) in bankruptcy and that it would be reorganised rather
than liquidated. Fitch has assumed a 10% administrative claim.
The GC EBITDA of EUR150 million - increased from EUR137 million in
its last review - reflects a severe economic downturn with hampered
route density and pricing power. Fitch has used a distressed
enterprise value (EV) multiple of 5.5x to calculate a
post-reorganisation valuation. This multiple, lowered from 6.0x
previously, reflects TTD's dominant and entrenched market position
in its home markets, stemming from scale and network density, but
also its exposure towards the cyclical construction industry.
Fitch deducts administrative claims, local prior-ranking credit
lines, and EUR1,170 million in term loans and an equally ranking
EUR155 million revolving credit facility (RCF) from the liability
waterfall. Fitch assumes that the local lines and the RCF are fully
drawn at default. Based on current metrics and assumptions, the
waterfall analysis generates a ranked recovery at 54%, hence in the
Recovery Rating 'RR3' band, indicating a 'B+' instrument rating for
the senior secured TLBs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Return to volume growth in key markets and successful continued
roll-out of the transformation programme and bolt-on acquisitions
leading to:
- EBITDA gross leverage below 5.0x on a sustained basis
- Improved cash flow metrics with FCF margins in mid-single digits
- EBITDA interest coverage above 3.0x
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A worse-than-expected slowdown or downturn in TTD's end-markets
or failure to sustain EBITDA margin in line with its expectations
- EBITDA gross leverage above 7.0x on a sustained basis due to
operational underperformance or material debt-funded shareholder
remuneration or acquisitions
- EBITDA interest coverage below 2.0x
- Thin or neutral FCF margins
Liquidity and Debt Structure
Satisfactory Liquidity: Fitch views TTD's liquidity as
satisfactory. It had a cash position of EUR31 million at end-June
2024. Fitch forecasts positive FCF in 2024 and 2025, while TTD has
access to a committed EUR155 million RCF, which was drawn by EUR20
million in June 2024.
Manageable Refinancing Risk: TTD actively managed its liabilities
with an amend-and-extend in May 2024, extending its EUR1,170
million TLB maturities into 2029. Refinancing risk is manageable
with extended maturities, positive FCF, and planned deleveraging
towards 5.5x in 2027 based on Fitch's forecasts. TTD has swapped
around 70% of its floating-rate debt into fixed-rate debt until
April 2026.
Issuer Profile
TTD offers sanitary/toilet cabins, containers and ancillary
products and services to the construction and events industries.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
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TTD Holding IV GmbH
senior secured LT B+ Affirmed RR3 B+
TTD Holding III GmbH LT IDR B Affirmed B
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G R E E C E
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PUBLIC POWER: S&P Rates New EUR500MM Sr. Unsecured Notes 'BB-'
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S&P Global Ratings assigned its 'BB-' issue rating to Greek utility
Public Power Corp. S.A.'s (PPC's; BB-/Stable/--) proposed EUR500
million senior unsecured notes due 2031. The 'BB-' rating reflects
that the notes rank equally with PPC's outstanding unsecured debt
in the capital structure.
S&P said, "We assigned a recovery rating of '3' to the proposed
notes, indicating our expectation of high (60%-90%, rounded
estimate: 60%) recovery in a default scenario. The recovery rating
is supported by PPC's EUR4.3 billion regulated asset base of power
networks and offset by EUR2.8 billion of priority debt, mostly at
the subsidiary level. We understand the company's intention is to
issue most of the new debt at the holding company PPC S.A.
"We expect the company will use most of the proceeds from this
issuance to fund its large investment plan." The majority will fund
PPC's expected EUR2.3 billion-2.7 billion of annual net capital
expenditure over 2025-2026 dedicated to renewables and networks in
Greece and Romania.
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BRIDGEPOINT CLO VII: S&P Assigns Prelim. B-(sf) Rating on F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to
Bridgepoint CLO VII DAC's class A loan and class A to F European
cash flow CLO notes. At closing, the issuer will also issue unrated
subordinated notes.
Under the transaction documents, the rated loan and notes will pay
quarterly interest unless a frequency switch event occurs.
Following this, the loan and notes will switch to semiannual
payments. The portfolio's reinvestment period will end
approximately 4.7 years after closing, while the non-call period
will end 1.5 years after closing.
The preliminary 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 transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio benchmarks
Current
S&P Global Ratings' weighted-average rating factor 2,844.93
Default rate dispersion 334.45
Weighted-average life (years) 4.93
Obligor diversity measure 119.88
Industry diversity measure 19.79
Regional diversity measure 1.16
Transaction key metrics
Current
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.75
Actual 'AAA' weighted-average recovery (%) 36.16
Actual weighted-average spread (%) 4.03
Actual weighted-average coupon (%) 5.90
Rating rationale
S&P said, "We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted weighted-average spread (3.90%), the
covenanted weighted-average coupon (4.50%), and the 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."
Until the end of the reinvestment period on July 20, 2029, the
collateral manager may substitute assets in the portfolio for so
long as S&P's CDO Monitor test is maintained or improved in
relation to the initial ratings on the loan and notes. This test
looks at the total amount of losses that the transaction can
sustain as established by the initial cash flows for each rating,
and it compares that with the current portfolio's default potential
plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
S&P said, "Under our structured finance sovereign risk criteria, we
expect the transaction's exposure to country risk to be
sufficiently mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to E notes could withstand
stresses commensurate with higher preliminary ratings than those we
have assigned.
"However, as the CLO will be in its reinvestment phase starting
from closing, during which the transaction's credit risk profile
could deteriorate, we have capped our assigned preliminary ratings
on the notes."
The class A and F notes and class A loan can withstand stresses
commensurate with the assigned preliminary ratings.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe our
preliminary ratings are commensurate with the available credit
enhancement for the class A to F notes and class A loan.
"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 loan and
class A to E 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 notes."
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds. Bridgepoint Credit Management Ltd. will
manage the transaction.
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:
the production or trade of illegal drugs or narcotics; the
development, production, maintenance of weapons of mass
destruction, including biological and chemical weapons; manufacture
or trade in pornographic materials; payday lending; and tobacco
distribution or sale. 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, no
specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Ratings list
Prelim. Prelim. Amount Credit
Class rating* (mil. EUR) Interest rate (%)§ enhancement
(%)
A AAA (sf) 179.00 3mE + 1.30 38.00
A loan AAA (sf) 69.00 3mE + 1.30 38.00
B-1 AA (sf) 36.00 3mE + 1.95 26.50
B-2 AA (sf) 10.00 5.00 26.50
C A (sf) 23.00 3mE + 2.25 20.75
D BBB- (sf) 27.00 3mE + 3.10 14.00
E BB- (sf) 18.00 3mE + 6.00 9.50
F B- (sf) 12.00 3mE + 8.18 6.50
Sub NR 31.25 N/A N/A
*The preliminary ratings assigned to the class A loan and class A,
B-1, and B-2 notes address timely interest and ultimate principal
payments. The preliminary ratings assigned to the class C, D, E,
and F notes address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
3mE--Three-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
TIKEHAU CLO VII: Fitch Assigns 'B-sf' Final Rating on Cl. F-R Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Tikehau CLO VII DAC reset final
ratings.
Entity/Debt Rating Prior
----------- ------ -----
Tikehau CLO VII DAC
A-Loan LT PIFsf Paid In Full AAAsf
A-Note XS2513943691 LT PIFsf Paid In Full AAAsf
B-1 XS2513943428 LT PIFsf Paid In Full AAsf
B-2 XS2513943857 LT PIFsf Paid In Full AAsf
C XS2513944079 LT PIFsf Paid In Full Asf
Class A Loan-R LT AAAsf New Rating
Class A-R XS2906223875 LT AAAsf New Rating
Class B-1-R XS2906223958 LT AAsf New Rating
Class B-2-R XS2906224253 LT AAsf New Rating
Class C-R XS2906224410 LT Asf New Rating
Class D-R XS2906224683 LT BBB-sf New Rating
Class E-R XS2906224840 LT BB-sf New Rating
Class F-R XS2906225060 LT B-sf New Rating
D XS2513944236 LT PIFsf Paid In Full BBB-sf
E XS2513944400 LT PIFsf Paid In Full BB-sf
F XS2513944665 LT PIFsf Paid In Full B-sf
Transaction Summary
Tikehau CLO VII DAC reset is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds have been used to refinance existing notes except the
subordinated notes, and to top up the portfolio with a target par
of EUR400 million. At closing, the portfolio is fully ramped up.
The portfolio is actively managed by Tikehau Capital Europe
Limited. The CLO has a five-year reinvestment period and a
nine-year weighted average life test (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor of the identified portfolio is 24.8.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 60.9%.
Diversified Asset Portfolio (Positive): The transaction also
includes various other concentration limits, including a maximum
exposure to the three-largest Fitch-defined industries in the
portfolio at 43%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has four matrices;
two effective at closing with fixed-rate limits of 5% and 12.5%,
and two matrices that will be effective one year post-closing and
have the same fixed-rate limits. All four matrices are based on a
top-10 obligor concentration limit of 20%. The closing matrices
correspond to a nine-year WAL test while the forward matrices
correspond to an eight-year WAL test.
The switch to the forward matrices is subject to the aggregate
collateral balance (defaults at Fitch-calculated collateral value)
being at least at the target par. The transaction has reinvestment
criteria governing the reinvestment 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
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant at the issue date (subject to a floor of six years), to
account for the strict reinvestment conditions envisaged by the
transaction after its reinvestment period. These include, among
others, passing the coverage tests and the Fitch 'CCC' limit test
post reinvestment, as well as a WAL covenant that progressively
steps down over time, both before and after the end of the
reinvestment period. Fitch believes these conditions would reduce
the effective risk horizon of the portfolio during 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 lead to a downgrade of no more than
one notch for the class D-R and E-R notes, to below 'B-sf' for the
class F-R notes and have no impact on the class A-R,B-1-R, B-2-R
and C-R notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B-1-R,B-2-R D-R to F-R
notes each have a rating cushion of two notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would lead to downgrades of up to
four notches for the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches, except for
the 'AAAsf' rated notes.
During the reinvestment period, upgrades, based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, allowing
the notes to withstand larger-than-expected losses for the
transaction's remaining life. After the end of the reinvestment
period, upgrades may result from stable portfolio credit quality
and deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Tikehau CLO VII
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.
TIKEHAU CLO VII: S&P Assigns B-(sf) Rating on Class F-R Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Tikehau CLO VII
DAC's class A-R loan and class A-R to F-R European cash flow CLO
notes. The issuer has unrated subordinated notes outstanding from
the existing transaction.
The transaction is a reset of the already existing transaction
which closed in September 2022. The issuance proceeds of the
refinancing loan and notes were used to redeem the refinanced debt
(the original transaction's class A loan and class A, B-1, B-2, C,
D, E, and F notes). The ratings on the original loan and notes have
been withdrawn.
Under the transaction documents, the rated loan and notes pay
quarterly interest unless a frequency switch event occurs.
Following this, the loan and notes will switch to semiannual
payments.
The transaction has a two-year non-call period and the portfolio's
reinvestment period will end approximately five years after
closing.
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 loan and 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 2,785.14
Default rate dispersion 577.30
Weighted-average life (years) 4.38
Weighted-average life (years) extended
to cover the length of the reinvestment period 5.00
Obligor diversity measure 144.26
Industry diversity measure 21.39
Regional diversity measure 1.23
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.16
Target 'AAA' weighted-average recovery (%) 36.53
Actual target weighted-average spread (net of floors; %) 4.06
Actual target weighted-average coupon (%) 4.49
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 (which takes into account the recovery value on a
senior secured bond issued by Iqera Group SAS (XS2580885908),
currently rated 'SD'), the covenanted weighted-average spread
(4.06%), the covenanted weighted-average coupon (4.49%), and the
covenanted weighted-average recovery rates at 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.
"Until the end of the reinvestment period on Oct. 20, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the loan and notes. This test looks at
the total amount of losses that the transaction can sustain as
established by the initial cash flows for each rating, and it
compares that with the current portfolio's default potential plus
par losses to date. As a result, until the end of the reinvestment
period, the collateral manager may through trading deteriorate the
transaction's current risk profile, if the initial ratings are
maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe the assigned ratings are
commensurate with the available credit enhancement for the class
A-R loan and class A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R
notes.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1-R to F-R notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO will be in its reinvestment phase
starting from closing, during which the transaction's credit risk
profile could deteriorate, we have capped our ratings assigned to
the notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A-R loan and class A-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."
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds and is managed by Tikehau Capital Europe
Ltd.
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:
weapons of mass destruction, illegal drugs or narcotics,
pornography or prostitution, tobacco, and civilian firearms.
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, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities."
Ratings
Amount Credit
Class Rating* (mil. EUR) Interest rate§ enhancement
(%)
A-R AAA (sf) 173.00 3mE + 1.30% 38.00
A-R loan AAA (sf) 75.00 3mE + 1.30% 38.00
B-1-R AA (sf) 31.00 3mE + 1.90% 27.75
B-2-R AA (sf) 10.00 5.15% 27.75
C-R A (sf) 23.00 3mE + 2.25% 22.00
D-R BBB- (sf) 30.00 3mE + 3.40% 14.50
E-R BB- (sf) 19.00 3mE + 6.67% 9.75
F-R B- (sf) 12.00 3mE + 8.67% 6.75
Sub NR 37.70 N/A N/A
*The ratings assigned to the class A-R loan and class A-R, B-1-R,
and B-2-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 six-month Euro Interbank Offered Rate when a frequency
switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
=========
I T A L Y
=========
ALMAVIVA SPA: Fitch Assigns BB+(EXP) Rating on EUR700MM Sec. Notes
------------------------------------------------------------------
Fitch Ratings has assigned Almaviva S.p.A.'s proposed EUR 700
million notes due to 2030 an expected senior secured rating of
'BB+(EXP)' with a Recovery Rating of 'RR3'. The assignment of a
final rating is subject to the receipt of final documentation
conforming to the information reviewed.
The notes will be senior secured obligation of Almaviva. The
expected proceeds will be used to fund its USD335 million
acquisition of Iteris, Inc. and to refinance its existing EUR350
million notes due October 2026. The transaction will temporarily
raise gross leverage above its downgrade threshold but Fitch
expects EBITDA growth and positive free cash flow (FCF) generation
to allow for rapid deleveraging. This acquisition is consistent
with Almaviva's strategy to expand its IT services segment,
particularly in transportation.
Almaviva's 'BB' Long-Term Issuer Default Rating (IDR) reflects its
established positions as a leading Italian IT services company with
a large order backlog, stable relationships with key customers,
positive growth outlook and continuing deleveraging.
Key Rating Drivers
Debt-Funded Acquisition of Iteris: Almaviva announced a binding
offer to acquire 100% of Iteris, a NASDAQ-listed US-based provider
of smart mobile infrastructure management software and hardware
(such as sensors) solutions. The equity value of the transaction,
reported at USD335 million, will be entirely financed with newly
issued debt, hence conserving cash on its balance sheet. Iteris
does not have any major long-term debt.
Strategic Expansion: Iteris' business complements Almaviva's
transportation IT-services segment, which represented 26% of its
2023 revenues. Following the acquisition, this segment's share is
expected to rise to 40%. The deal will enable cross-selling and
sharing of proprietary IT solutions and aligns with Almaviva's
recent acquisition of Magna in Brazil, which boosted its IT
workforce by over 1,000 employees.
Spike in Leverage: Fitch estimates the transaction will likely
raise EBITDA gross leverage to, or slightly above, 3x on a
pro-forma basis at end-2024 but it should reduce to below 2.8x, a
level consistent with the rating, over 12-18 months post-closing.
EBITDA net leverage is, however, projected not to exceed 2.5x.
Deleveraging Drivers: Deleveraging is likely to be driven by
continuing revenue and EBITDA growth supported by new contract
wins. The latter was reported at EUR332 million in 1H24, while the
overall outstanding backlog was equal to 3.1 years of last 12-month
revenue to June 2024. The strong IT services backlog enhances
earnings visibility and reduces revenue volatility. Iteris' public
ambition is to achieve 13%-15% revenue CAGR in 2023-2027 while also
strongly improving its profitability.
Stable Customer Relationships: Almaviva maintains stable and
long-term customer relationships in the IT segment, with most IT
services revenue coming from customers with over 10-year
contractual relationships. The share of recurring revenue is
expected to rise to 50% in 2023 from 40% in 2021, which Fitch sees
as a positive credit factor. Almaviva's ability to provide
mission-critical IT services under high-standard service level
agreements is key to retaining its key customers. The strong IT
services backlog is supported by long-term contracts, including a
significant deal with Gruppo Ferrovie dello Stato.
Significant Customer Concentration: Almaviva faces significant
customer concentration risk, with around 20% of its IT services and
digital relationship management (DRM) revenues coming from a single
customer, and around 15% at the group revenue level. The Iteris
acquisition aims to diversify its customer base and reduce this
reliance.
Positive IT Growth Outlook: Almaviva benefits from a positive IT
growth outlook driven by increased IT service usage and large
investments under the Italian Recovery and Resilience Plan (PNRR)
in digitalisation in key sectors. Nevertheless, the DRM segment
remains more volatile than IT services, facing intense pricing
competition and lower service differentiation, which Fitch views as
dilutive to Almaviva's credit profile. The segment accounted for
27% of the group's reported EBITDA in 1H24.
Derivation Summary
Almaviva's closest domestic peer is Ingegneria Informatica S.p.A.
(Engineering; B/Stable), a leading Italian software developer and
provider of IT services to large Italian companies. Engineering has
a larger absolute size and wider industrial scope, faces lower
foreign-exchange (FX) risks, and does not have any low-credit
quality non-IT segments (such as customer relations management
(CRM) for Almaviva). This leads to more conservative leverage
thresholds for Almaviva than for Engineering but Almaviva is rated
higher than Engineering due to its lower leverage.
Almaviva's range of offered services has some overlap with large
multi-country, multi-segment IT services companies, such as DXC
Technology Company (BBB/Negative) and Accenture plc (A+/Stable),
but they are on a significantly smaller scale, with a focus on a
single country and fewer segments.
Almaviva is rated higher than enterprise resource planning (ERP)
software providers with higher leverage such as Italian-based
TeamSystem Holding S.p.A. (B/Stable), a leading Italian accounting
and ERP software company with over 75% of recurring revenue, and
Cedacri S.p.A. (B/Negative), a leading Italian provider of software
solutions, infrastructure and outsourcing services for the
financial sector in Italy.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
(Prior to Iteris Transaction):
- IT services revenue to grow by high-to-mid single-digit
percentages a year in 2023-2026 on average
- Substantial reduction in domestic CRM revenue, with this segment
no longer being a significant contributor to Almaviva's financial
profile
- Modestly improving overall EBITDA margin to 13%-15% in 2023-2026
- Capex at close to 2% of revenue in 2023-2026 (excluding R&D
capitalised capex, which Fitch treats as a cash expense)
- Working capital outflows slowing to EUR20 million per annum in
2024-2026 from EUR40 million in 2023
- Moderately growing dividends from 2022's EUR25 million
- Use of the factoring facility by EUR30 million treated as debt
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Gross EBITDA leverage sustained at below 2.5x
- A significant increase of recurring revenues in the revenue mix
and lower customer concentration
- A more diversified financing structure, with lower exposure to
bullet refinancing risk
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade Upgrade:
- Gross EBITDA leverage above 2.5x
- Weaker cash flow generation with pre-dividend FCF margin
declining to below 4% through the cycle
Liquidity and Debt Structure
Comfortable Liquidity: Fitch views Almaviva's liquidity as
comfortable. It had EUR147 million of cash on the balance sheet at
end-1H24, supported by an untapped EUR70 million super-senior
revolving credit facility (upsized to EUR160 million after the
refinancing) and positive cash flow generation. Its senior secured
debt is rated 'BB+'/'RR3' under a generic approach, reflecting caps
for Italy under Fitch's Country-Specific Treatment Recovery Ratings
Rating Criteria.
Issuer Profile
Almaviva is a leading Italian IT services company with strong
positions in the transport and public administration sectors. It
also has significant international DRM operations and is the
majority owner of Almawave, a publicly listed fast-growing
speech-recognition and artificial-intelligence subsidiary.
Date of Relevant Committee
October 17, 2023
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
----------- ------ --------
AlmavivA S.p.A.
senior secured LT BB+(EXP) Expected Rating RR3
CEME SPA: Fitch Assigns 'B' Final LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has assigned CEME S.p.A. a final Long-Term Issuer
Default Rating (IDR) of 'B' with a Stable Outlook. Fitch has also
assigned the floating-rate notes (FRN) a final senior secured
rating of 'B'/RR4.
The rating actions follow CEME's completion of the full refinancing
of its capital structure, with final terms being in line with its
prior expectations. The proceeds of the notes were largely used for
refinancing of the existing debt and shareholder funding.
The IDR reflects the strong position the company holds in the niche
market of pump and valve production primarily targeted at home
coffee machine end-markets, with a well-diversified and
long-standing customer base. The rating also reflects the company's
small size, limited product diversification and moderate financial
profile.
EBITDA margins are solid and Fitch expects they will be over 20%
after 2024, driven by revenue growth and available production
capacity. Its forecast free cash flow (FCF) is modest in the short
term, but Fitch anticipates an improvement with FCF margins of
about 3% in 2025. Fitch expects the higher pro-forma opening
leverage to quickly improve on accretive EBITDA generation to about
5.5x, a level that is commensurate with the rating and supportive
of the Stable Outlook.
Key Rating Drivers
Healthy Profitability: Fitch expects CEME's strong profitability to
further improve over its forecast horizon to 2027. This reflects a
EUR154 million order backlog driven by CEME's strategic investment
in the single-serve coffee segment, which is its most dynamic
source of revenue. It is also supported by CEME's increasing market
share in specialty applications. This is associated with the lowest
cost of goods sold (COGS) ratio among its revenue streams, and
effectively supports its margin resilience through the inherent
market cyclicality. Fitch expects the boost in profitability to be
helped by the subsiding impact of destocking, which has affected
the industry's performance in 2024.
Improving FCF Generation: Fitch views the expected FCF generation
as a credit strength for CEME. Fitch expects the temporary pressure
in 2024, which was a result of the acquisition of Fluid Control, to
subside as the group's operations become fully integrated in 2025.
Combined with plateauing capex but also increased interest costs,
Fitch expects this to drive consistent positive FCF generation of
over 3% for the remaining forecast horizon, which is strong for the
rating and compared with peers.
Healthy Liquidity Headroom: Fitch forecasts sustained satisfactory
liquidity in the medium term, exhibiting CEME's financial
flexibility, which is also a credit strength. CEME's liquidity
buffer consists of a EUR67.5 million undrawn revolving credit
facility (RCF), while the limited outstanding short-term maturities
relate to the ongoing factoring facility.
Limited Scale Constrains Rating: Fitch believes CEME's small size
exposes it to heightened risks in case of market shocks and
considering the inherent industry cyclicality. The latter arises
from CEME's cost construction being subject to raw material price
volatility as it represents about 75% of its total COGS. This is
shown by the destocking impact on the company's profitability,
especially affecting the food & beverage and professional coffee
revenue streams, mainly in the US.
Fitch expects the company's increasing geographical diversification
to mitigate market risks. Fitch assumes CEME will be able to
sustain its market leading position and maintain a competitive
advantage against industry peers, albeit modestly offset by its
limited product coverage.
High Leverage Metrics to Improve: Fitch expects the higher
consolidated EBITDA leverage to decrease to about 5x by 2026, and
interest coverage to remain above 2.0x, which is within the rating
sensitivities. This is driven by healthy EBITDA growth and limited
use of factoring and the RCF. Fitch views the long-term maturities
and simplified capital structure as supportive of the ratings.
Derivation Summary
CEME displays similar modest scale (annual revenue under EUR500
million) and end-market diversification to EVOCA S.p.A (B/Stable),
which also has a broadly comparable financial profile from 2025
onwards, characterised by an EBITDA margin of about 20%, gross
leverage of between 5x and 6x and mid-single digit FCF margins.
Other 'B' category rated companies in the diversified industrials
sector, such as Ammega Group B.V. (B-/Stable), INNIO Group Holding
GmbH (B/Positive), Nova Alexandre III S.A.S. (B+/Stable) and Expleo
Group (B-/Stable) and much larger with a more diversified product
range and global presence, although their capital structures, the
key rating driver in the 'B' category, is often similar at 5x-6x.
Key differences are evident in the earnings margins, with Ammega
and INNIO at a broadly similar level, while Nova Aleandre and
Expleo are in the mid-to-high single digit range.
Key Assumptions
- Revenue growth of about 6% between 2025 and 2027
- EBITDA margin trending above 22% driven by higher revenue,
product mix and spare capacity utilisation
- Cash interest paid of about EUR26 million per year, also
reflecting Fitch's latest Global Economic Outlook
- Broadly neutral working capital flows
- Capex to average 4.7% of revenue until 2027
- No further M&A or dividends paid until 2027
Recovery Analysis
- The recovery analysis assumes that CEME would be reorganised as a
going-concern (GC) in a bankruptcy, rather than liquidated upon
default.
- A 10% administrative claim.
- The GC EBITDA estimate of EUR50 million reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level upon which Fitch
bases the enterprise valuation (EV).
- An EV multiple of 5.0x EBITDA is applied to the GC EBITDA to
calculate a post-reorganisation EV, in line with industry median
and peers.
- The multiple of 5.0x reflects CEME's business model as a
multi-specialist manufacturer of solenoid pumps and valves serving
four different markets, relative to other manufacturing peers that
are mainly focused on food and beverage coffee machines. It is
further supported by a strong niche market position and a strong
customer base.
- The waterfall analysis is based on the new final capital
structure and consists of a super senior EUR67.5 million RCF fully
drawn in a post-reorganisation scenario, senior secured EUR360
million FRNs, factoring with the highest outstanding amount of
EUR21.2 million (as of June 2024) assumed and EUR10 million
outstanding bilateral facility.
- The principal waterfall analysis output percentage on current
metrics and assumptions is 38% for the FRNs, corresponding to
'RR4'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Gross EBITDA leverage below 4.5x
- FCF margins sustainably above 2%
- EBITDA interest coverage above 3.0x
- Cash flow from operations (CFO) minus capex/debt above 5.0%
- Successful implementation of expansion strategy leading to
structurally stronger business profile and product diversification
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Gross EBITDA leverage sustainably above 5.5x
- Consistently neutral to negative FCF margins
- EBITDA interest coverage below 2.0x
- CFO minus capex/debt below 2.0%
Liquidity and Debt Structure
Adequate Liquidity: The healthy post-transaction cash balance of
about EUR55 million (after its adjustment for intra-year
working-capital changes of 1% of sales) is supported by positive
FCF generation from 2025 onwards and the undrawn EUR67.5 million
RCF due in 2031. Fitch expects CEME to remain reliant on the
factoring facility, which had an outstanding balance of EUR21.2
million at end-June 2024, and EUR10 million outstanding bilateral
facility post-transaction.
CEME's new, final capital structure is concentrated in the EUR360
million senior secured FRNs due in 2031.
Issuer Profile
CEME is an Italian industrial manufacturing platform active in the
production of solenoid pumps and valves for high precision fluid
control technology solutions serving global markets.
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
----------- ------ -------- -----
CEME S.p.A. LT IDR B New Rating B(EXP)
senior secured LT B New Rating RR4 B(EXP)
MUNDYS SPA: Fitch Affirms 'BB' Rating on EUR10BB Unsecured Notes
----------------------------------------------------------------
Fitch Ratings has affirmed Mundys S.p.A.'s EUR10 billion euro
medium-term senior unsecured notes (EMTN) at 'BB' with Stable
Outlook.
RATING RATIONALE
The rating affirmation reflects the group's robust operational
performance in 2023 and 1H24, leading to a projected consolidated
leverage profile that is consistent with the rating, with some
upside to the metrics. However, the group's acquisitive strategy
creates uncertainty around the target capital structure.
KEY RATING DRIVERS
Revenue Risk - Volume: 'Stronger'
Mundys operates more than 50 concessions, predominantly in France,
Spain, Italy and Latin America, with a weighted average life of
around 14 years at end-2023. Its business is well diversified with
toll roads accounting for around 70% of consolidated 2023 EBITDA
and airports at 14%. Despite the geographical diversification, it
has some concentration in French toll roads, which accounted for
around 30% of 2023 consolidated EBITDA.
Most assets are either national networks with no material exposure
to competition (Sanef) or strategic assets located in large urban
areas or industrial corridors. Traffic is predominantly made up of
light vehicles, which is more stable. The overall portfolio has a
modest 2007-2019 traffic peak-to-trough change of 5% due to its
geographical diversification. The group's airports have high
exposure to resilient origin-and-destination leisure traffic.
Revenue Risk - Price: 'Midrange'
Mundys' concession frameworks are robust and generally track
inflation or a portion of it. Some jurisdictions also allow the
recovery of capex via tariffs, modestly de-linking the group's cash
flow generation from traffic volumes. Generally, tariffs have
regularly increased. Recent fiscal policy changes in France create
some uncertainty around the stability of the regulatory
environment.
Infrastructure Dev. & Renewal: 'Stronger'
The group's capex plan is manageable and has some flexibility.
Fitch believes Mundys is well-equipped to deliver on its investment
programme as it has extensive experience and expertise in
implementing investments on time and on budget.
Debt Structure: 'Midrange'
The non-amortising nature of the majority of Mundys' debt and the
lack of material structural protection are weaknesses. However,
refinancing risk is mitigated by a well-diversified range of bullet
maturities, a proactive and prudent debt management policy and
proven access to banks and capital markets, even in uncertain
times.
The liquidity position for the restricted group including Mundys,
Abertis and Aeroporti di Roma (AdR) is solid. Cash and committed
lines cover debt maturities at least until end-2026 under Fitch's
Rating Case (FRC).
Financial Profile
The Fitch Base Case (FBC) projects a decrease in the group's
proportional consolidated leverage from 6.7x as of 2024 to 5.2x in
2028, mainly reflecting the progressive deleveraging of Abertis
driven by increasing EBITDA contribution from its north and south
American assets.
The FRC assumes more cautious operational growth and higher
refinancing interest rates during the period of analysis. This
results in a slightly higher proportional consolidated leverage of
6.8x in 2024, declining to 6.3x in 2028.
Fitch excludes the US toll road SH-288 in its projections in both
cases and Fitch assumes dividend distributions of EUR750 million
per annum.
PEER GROUP
Mundys has common features with France's Vinci SA (A-/Stable). Both
are global infrastructure operators with a clear focus on
brownfield toll road and airport concessions and resilient traffic
profiles due to their diversification, which is reflected in their
'Stronger' volume risk assessment.
Pricing systems in the different jurisdictions and the senior
unsecured bullet debt structure are also similar to Vinci's. Both
enjoy significant balance-sheet flexibility. Nevertheless, Vinci's
considerably lower projected leverage of less than 3.0x places its
rating in the 'A' category, although exposure to the construction
and energy-transition businesses results in tighter rating
sensitivities as opposed to a pure concessionaire.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A material increase in Mundys' debt from its current expectation,
deterioration in Mundys' liquidity to below the next 12 months of
debt maturities, or a reduction in group balance-sheet flexibility,
could lead to a widening of the notching on Mundys' notes rating
from the consolidated group credit assessment
- Proportional consolidated net leverage above 7.5x net debt/EBITDA
on a sustained basis under FRC. Fitch may tighten this trigger and
associated debt capacity if the business risk profile or average
concession tenor adversely changes
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Greater visibility on capital structure, combined with
proportional consolidated net debt-to-EBITDA consistently below
6.5x under FRC
Fitch rates Mundys' debt on the basis of the group's proportional
consolidation considering its majority stakes and operational
control over its subsidiaries. Further, Fitch assesses Mundys'
access to the cash flow generation of most subsidiaries through
control of their dividend and financial policies and therefore its
ability to re-leverage these assets if needed. Abertis is included
on a proportional consolidated basis in line with Mundys' 50%
equity stake.
Fitch rates Mundys' debt one notch below the proportional
consolidated credit profile given its structural subordination to
subsidiaries' debt.
Good financial flexibility and appropriate liquidity mitigate the
high leverage at Mundys Holding and the restrictions embedded in
Abertis's governance.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Mundys S.p.A.
Mundys S.p.A./Toll
Revenues - Senior
Unsecured Debt/1 LT LT BB Affirmed BB
OMNIA DELLA: Fitch Assigns B(EXP) First-Time LT IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has assigned Italian-based diversified manufacturing
company Omnia Della Toffola S.p.A. (Omnia Technologies) a
first-time expected Long-Term Issuer Default Rating (IDR) of
'B(EXP)'. The Rating Outlook is Stable. Fitch has also assigned an
expected rating of 'B(EXP)' with a Recovery Rating of 'RR4' to
Omnia Technologies' proposed senior secured floating rate notes.
The rating reflects Omnia Technologies' moderate business profile
with a leading market position in a niche industry. The company has
good geographical and customer diversification, a modest product
range, and a highly profitable service revenue contribution. Fitch
expects the group to generate solid EBITDA profitability comparable
with other Fitch-rated industrial peers. The rating is constrained
by high leverage, Fitch's forecast of volatile FCF generation, and
the group's small scale.
The Stable Outlook indicates its expectation that Omnia
Technologies will generate sustainable revenue and EBITDA
underpinned by stable demand from the underlying end-markets,
primarily the beverage industry.
Final ratings are subject to completion of refinancing and final
documentation conforming to information already received.
Key Rating Drivers
Growth via Acquisitions: Omnia Technologies has increased its scale
and diversification through 23 acquisitions (majority bolt-on) over
the last four years, particularly in 2023 and 2024. This increased
the group's revenue line to about EUR 700 million on an annual
run-rate basis, while reported revenue in 2023 was about EUR 300
million (excluding the majority of the acquisitions). Management is
focusing on improving the group's profitability and completing the
integration of the recent acquisitions. No further material
transformative acquisitions are planned.
Leverage to Improve: Fitch forecasts EBITDA leverage to decrease to
5.7x by the end of 2025 based on the full consolidation and
contribution from all the acquired assets over the last four years.
Fitch forecasts steady improvement of EBITDA thereafter, due to
revenue growth and margin improvement with EBITDA leverage reaching
4.8x by the end of 2027.
Solid Profitability Expected: Historical statutory financials are
not representative as the group has undergone many acquisitions.
Its rating case incorporates expected EBITDA margins in the
13%-14.5% range through the rating horizon. Fitch expects the group
will benefit from management's optimization initiatives, the
completion of the integration process, and other synergy effects.
Steady profitability improvement is also supported by a growing
share of aftermarket revenue, which contributes about 26% of total
group sales.
Volatile FCF: Fitch forecast a minimal FCF margin in 2025, partly
eroded by expected capex. With no dividend payments, a sustainable
capex level, and expected improvement in EBITDA generation, Fitch
forecasts FCF will become sustainably positive in the low single
digits during 2026-2027. This should support the group's
deleveraging capacity over the rating horizon.
Good Diversification: Omnia Technologies' business profile reflects
good geographical and customer diversification. About 21% of pro
forma revenue in 1H24 is exposed to Italy, 32% to the rest of
Europe, 17% to North America, 14% to Asia, and 16% to other
regions. The group also benefits from a wide range of customers,
with the top ten representing only 10% of revenue.
Leading Market Position: The group produces machinery primarily for
the beverage sector, particularly in wine, soft drinks, water, and
spirits end-markets. In this niche market, Omnia Technologies holds
a leading position, selling its products globally. It has a
well-established footprint and long-term relationships with
customers. Its product portfolio covers the full value chain across
end markets, which provides a sustainable order backlog and certain
revenue visibility.
Lower Cyclical End-Markets: The group's underlying market is
represented by the variety of the beverage industry, known for its
stable demand and non-cyclical industry nature. Beverage industry
demand is supported by population growth, urbanization, and the
rise of disposable income. This provides visibility and
sustainability for Omnia Technologies' revenue and EBITDA
generation.
Integration Risk: Fitch expects heightened integration risk for
ACMI, a producer of high-speed end-of line equipment, and the SACMI
beverage division, a producer of high-speed blowing and filling
equipment, as these acquisitions are of much larger scale than
previously completed. The execution risk is somewhat mitigated by a
well-defined M&A execution and integration playbook. Omnia
Technologies has developed and refined its approach since 2020 with
10 companies already successfully fully integrated and EUR 16
million synergies of EBITDA achieved. Nevertheless, if further
synergies are not achieved, EBITDA growth will not be met, and this
will put pressure on the rating.
Derivation Summary
Omnia Technologies has a leading position in the niche markets of
producing manufacturing equipment used in the spirits and wine
segments of the beverage industry. Similar to Flender International
GmbH (B/Stable), EVOCA S.p.A. (B/Stable), Ammega Group B.V.
(B-/Stable), Omnia Technologies' business profile is constrained by
a less diversified product range and end-markets exposure in
comparison to larger industrial peers. Nevertheless, the group has
good geographical diversification similar to Ahlstrom Holding 3 Oy
(B+/Stable), Ammega, Flender, and INNIO Group Holding GmbH
(B/Positive).
Omnia Technologies' financial profile is characterized by an
expected solid double-digit EBITDA margin from FY2024 onwards,
which is similar to some Fitch-rated diversified industrial peers
such TK Elevator Holdco GmbH (B/Stable), and Ahlstrom. Fitch
forecasts a material improvement in FCF margins reaching low
sing-digits from 2025 that will be comparable with those expected
for Ahlstrom but lower than Evoca's and Ammega.
Fitch forecasts Omnia Technologies' net leverage will reach 5.5x at
2025YE, which would be commensurate with that of Ahlstrom but lower
than Flender, TK Elevator and Ammega.
Key Assumptions
- Revenue growth of around 50%-60% for 2024 and 2025 due to recent
large acquisitions that were made part way through 2024, growth to
slow down low single digits in 2026 and 2027;
- Optimisation programme and synergies from acquisitions to drive
EBITDA margin to about 13% in 2024 and to 14.5% by 2027;
- Capex at about EUR24 million in 2024-2026 decreasing to EUR22
million in 2027 once growth capex from acquisitions slows;
- No M&As to 2027;
- No dividend payments to 2027.
Recovery Analysis
The recovery analysis assumes that Omnia Technologies would be
reorganised as a going concern (GC) in bankruptcy rather than
liquidated.
- A 10% administrative claim.
- Fitch estimates the going concern EBITDA of Omnia Technologies at
EUR70 million. The going concern EBITDA reflects its view of a
sustainable, post-reorganisation EBITDA on which Fitch bases the
valuation of the group.
- An enterprise value multiple of 5.0x is applied to going concern
EBITDA to calculate a post-reorganisation valuation. It reflects
Omnia Technologies' good market position in the production of
equipment for beverage industry, good geographical and customer
diversification. The enterprise value multiple also reflects the
group's constrained scale in comparison to peers.
- Fitch estimates senior debt claims at EUR616 million, which
include a proposed EUR90 million super senior secured revolving
credit facility (RCF), proposed EUR500 million senior secured notes
and an additional EUR26 million of other debt which ranks pari
passu with proposed notes.
- Its waterfall analysis generates a ranked recovery for Omnia
Technologies' notes equivalent to a Recovery Rating of 'RR4',
leading to a 'B(EXP)' rating. The waterfall generated recovery
computation output score is 43%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage below 5.0x;
- FCF margin consistently above 2%;
- Successful implementation of strategic optimisation initiatives
and integration following the acquisitions that leads to EBITDA
margin growth.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage above 7.0x;
- EBITDA interest coverage ratio below 2.0x;
- FCF margin consistently negative;
- Aggressive shareholder-friendly policies, or acquisitions leading
to a further increase in leverage.
Liquidity and Debt Structure
Sufficient Liquidity: Post-transaction, Omnia Technologies expects
to have EUR 41 million cash on hand and a new EUR90 million RCF
facility with a maturity of 6.5 years. This will be adequate to
fund the forecasted negative FCF for FY2024. FCF generation from
FY2026 provides additional liquidity in the medium term.
No Significant Maturities until 2031: Post-transaction, the company
will have EUR526 million of debt, with the majority consisting of
EUR 500 million senior secured floating rate notes. The planned
maturity of this facility is seven years; therefore, the company
will have no material scheduled debt repayments until 2031.
Issuer Profile
Omnia Technologies is an Italian-based company providing automated
machinery and end-to-end solutions, mainly for the wine and
beverage industry but also the pharmaceutical industry. Their
product portfolio focuses on processing, bottling, packaging
systems, vial filling, capping and water treatment.
Date of Relevant Committee
October 17, 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery
----------- ------ --------
Omnia Della Toffola
S.p.A. LT IDR B(EXP) Expected Rating
senior secured LT B(EXP) Expected Rating RR4
===================
L U X E M B O U R G
===================
CONSTELLATION OIL: Fitch Assigns 'B' LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned Constellation Oil Services Holding S.A.
(Constellation) Long-Term Foreign and Local-Currency Issuer Default
Ratings (IDRs) of 'B'. Fitch has also assigned a 'B' rating with a
Recovery Rating of 'RR4' to Constellation's USD650 million
five-year senior secured notes. The Rating Outlook for the
corporate ratings is Stable.
The ratings reflect Constellation's limited business scale in the
highly competitive and capital-intensive offshore drilling services
sector as well as its exposure to contract renewals. The company
has significant revenue concentration in the volatile oil and gas
industry, particularly with Petroleo Brasileiro S.A. (Petrobras:
BB/Stable). Constellation benefits from strong demand for its
drilling services, an adequate backlog of USD1.6 billion, high
barriers to entry, and a long-standing relationship with
Petrobras.
The Stable Outlook assumes Constellation will renew contracts at
higher day rates in 2025, thereby increasing average utilization in
2026 and strengthening its credit metrics. It also assumes that
contracts will start on time with effective uptime above 80%.
Key Rating Drivers
Limited Global Scale: Constellation is Brazil's largest drilling
rig operator, with a 22% market share and 44 years of expertise. It
specializes in midwater, deep-water, and ultra-deep-water offshore
basins, and its seven own vessels and one third party management
agreement, including four drill ships, three semisubmersibles, and
one moored rig. On a global scale, the company's fleet and
operational scale ranks at the lower end of dominant international
peers with larger fleets and broader service portfolio.
Client Concentration: Constellation mitigates Petrobras' 81%
revenue concentration by structuring longer contract terms that
average between 900-1,000 days, compared to a global average of
300-400 days. The longer terms result in the company's day rates
lagging global price changes, but they are more resilient during
downcycles.
Exposure to Brazil and Petrobras's Capex: Constellation's contract
structures with Petrobras are capex-based rather than operational
expenditures (opex). This results in greater exposure to short-term
commodity fluctuations compared to operators dependent on client
production activities. Fitch views capex structure risk as
mitigated by resilient contract clauses, including higher day rates
and lower competition due to high barriers to entry.
Constellation's geographic concentration in Brazil is mitigated by
its longstanding tenure and highly efficient operations within a
booming market.
Moderate Re-Contracting Risk: Oil service providers face
re-contracting risks that varies ultimately based on commodity
price fluctuations. This risk is moderate due to the scarcity of
vessels, which is reflected in rising day rates. Despite
Petrobras's attempts to lower day rates in the past downcycle, it
has ultimately honored all remaining fees agreed with
Constellation. The backlog as of Sept. 30, 2024 totaled USD1.6
billion. Constellation expects to convert about USD150 million of
backlog into revenue in 2024, USD585 million in 2025, and USD417
million in 2026, and the remaining thereafter.
Effective utilization is expected to reach 90% in 2024, drop to 75%
in 2025 due to contract mobilizations, and recover to 80% plus in
2026, according to Fitch's estimates. Day rates are projected to
average USD239,000 in 2024, USD263,000 in 2025, and increase to
USD356,000 in 2026, based on the latest bids in Brazil of
USD360,000/day for semi-submersibles and USD460,000/day for drill
ships.
Positive FCF in 2026: Fitch's base case assumes that Constellation
will successfully renew its contracts in 2025 at significantly
higher day rates, given the strong demand for its services and
limited competition, with benefits materializing in 2026. The
expected drop in average utilization in 2025 should temporarily
pressure EBITDA, cash flow, and leverage. Fitch projects an EBITDA
of USD193 million and cash flow from operations (CFO) of USD128
million in 2024, falling to USD142 million and USD115 million,
respectively, in 2025.
By 2026, with the recovery of the efficiency at better day rates,
Fitch forecasts an EBITDA of USD376 million and a CFO of USD256
million. FCF will be near breakeven in 2024 and 2025 after
accounting for an annual average capex of USD120 million, and it
should exceed USD200 million in 2026, driven by higher EBITDA, a
reduction in capex and no dividends.
Mid-term Leverage Reduction: Constellation's net leverage is
expected to remain at a moderate 3.9x in 2025, declining to below
1.0x in 2026. Higher leverage has been driven by legacy contracts
with medium day rates and will be pressured by contract renewals
and the temporary mismatch between adequacy and mobilization capex
and their corresponding revenues in 2025. By 2026, with expected
increases in day rates and the majority of the fleet in operation,
leverage is projected to significantly decrease. As of the last
twelve months (LTM) ending June 2024, net leverage was 4.2x, as per
Fitch's metrics.
Positive Sector Outlook: Offshore drilling rig services in Brazil
are set to benefit from a shortage of vessels needed to support the
deployment of approximately 14 new Floating Production Storage and
Offloading (FPSO) units over the next five years. The sector will
also capitalize on the decommissioning obligations of mature
fields. Brazil will need 38 drill rigs for the next five years
compared to the current fleet of 37. Meanwhile, there are no new
drilling ships under construction worldwide. Vessels could take
four to five years to build at a unitary cost between USD800
million and USD1.2 billion and would depend on firm contracts of
10-15 year tenure at high day rates.
Derivation Summary
Constellation's ratings are commensurate with Oceanica's. Both are
highly exposed to Petrobras and concentrated in Brazil. Day rates
and entry barriers are higher for Constellation, which also has a
small advantage in terms of operational scale. This is somewhat
offset by the higher margins expected of Oceanica in 2025.
Constellation's focus on Petrobras's capex, in contrast to
Oceanica's exposure to the opex could translate in more volatility
in long downcycles of oil prices. Fitch expects Oceanica to
deleverage in 2025, one year ahead of Constellation. Most of its
contracts with higher day rates will begin in 2025 as compared to
in 2026 for Constellation.
Constellation is rated one notch below Seadrill Limited and Valaris
Limited, as both companies report larger revenues (USD1.8 billion
and USD2.6 billion, respectively), are more diversified in terms of
clients and geography on top of carrying a more conservative
capital structure (net leverages of -0.1x and 2.8x, respectively).
The issuer is two notches below Noble and Precision Drilling, which
benefits from its operational scale, diversification, margins and
near zero net leverage. Nabors Industries is six times larger than
Constellation (2023 revenues of USD3 billion), though it is
one-notch below due to refinance risks looming in 2026-2028 on a
softening U.S. drilling market.
Key Assumptions
- Brent oil price of USD80/bbl in 2024, USD70/bbl in 2025,
USD65/bbl in 2026-2027 and USD60/bbl thereafter;
- Number of vessels: seven own and one third-party agreement in
2024 and 2025;
- Average utilization rate of 99% in 2024 and 82% in 2025;
- Average efficiency rate of 91% in 2024 and 92% in 2025;
- Average day rates of USD239,000 in 2024 and USD263,000 in 2025;
- Investments of USD115 million in 2024 and USD123 million in
2025;
- No dividends;
- USD650 million bond issuance in 2024.
Recovery Analysis
Key Recovery Rating Assumptions
Despite the slight advantage for the liquidation value over the
going concern EV approach, Fitch assumes Constellation would most
likely be considered a going concern in bankruptcy rather than
liquidated. Its assumption is based on the Brazilian bankruptcy law
that favors the maintenance of a business to preserve direct and
indirect jobs. Fitch assumes a 10% administrative claim.
Going Concern Approach
Constellation's going concern EBITDA estimate reflects Fitch's view
of a sustainable, post-reorganization EBITDA level upon which Fitch
bases the enterprise valuation. The going concern EBITDA assumption
for commodity price sensitive issuers at a cyclical peak reflects
the industry's move from top of the cycle commodity prices to
mid-cycle conditions and intensifying competitive dynamics.
The going concern EBITDA assumption of USD140 million represents a
point between a distress level EBITDA observed in 2022 and a more
mid-cycle level EBITDA. This represents an emergence from a
prolonged commodity price decline. Fitch's stress case assumes
Brent oil prices are USD65/barrel in 2024, USD35/barrel in 2025,
USD45/barrel in 2026 and USD48/barrel for the long term. These
prices could lead to a marked difference in the company's cash flow
generation given the impact a period of prolonged oil prices could
have on day rates and rig utilization.
The going concern EBITDA assumption reflects a loss of customers
and lower margins than the near-term forecast, as exploration and
production companies cut costs. The EBITDA assumption also
incorporates weak offshore drilling market fundamentals and overall
high rig supply but improving demand. An enterprise value multiple
of 5.5x EBITDA is applied to the going concern EBITDA to calculate
a post-reorganization enterprise value.
The choice of this multiple considered the following factors:
- The historical bankruptcy case study exit multiples for peer
energy oilfield service companies have a wide range with a median
of 6.1x.
- The oil field service subsector ranges from 2.2x to 42.5x due to
the more volatile nature of EBITDA swings in a downturn.
- Fitch used a multiple of 5.5x to estimate the enterprise value of
Constellation due to concerns of a downturn with a longer duration,
a high exposure to offshore drilling rigs that can see meaningful
volatility in demand and continued capital investment to reactivate
rigs.
Liquidation Approach
The liquidation estimate reflects Fitch's view of the value of
balance sheet assets that can be realized in sale or liquidation
processes conducted during a bankruptcy or insolvency proceeding
and distributed to creditors. Fitch assigns standard discounts to
the liquidation value of the company's cash, accounts receivable,
inventory and net PP&E. Despite the material write down on the
company's PP&E, Fitch is still using a 30% liquidation value to the
company's June 2024 book value due to the high uncertainty of
assets valuations during a downturn.
An up to USD50 million super senior secured financing facility is
assumed to be fully drawn upon default and is the most senior in
the waterfall. The allocation of value in the liability waterfall
results in a recovery corresponding to 'RR3' for the proposed
senior secured notes of USD650 million.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Midcycle net leverage below 3.0x on a recurring basis;
- EBITDA margins above 35% sustainably;
- Maintenance of adequate liquidity.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Midcycle net leverage greater than 4.0x on a recurring basis;
- EBITDA margins below 25% on a recurring basis;
- EBITDA interest coverage below 3.0x;
- Perception of failure in renewing contracts and/or material
reduction in day rates;
- Inability to refinance upcoming maturities.
Liquidity and Debt Structure
Liquidity to Improve: Fitch expects Constellation's liquidity to
significantly improve with the bond issuance, pushing the maturity
wall to 2029, from 2026. As of last June, the company had USD81
million in cash and marketable securities, and a total debt of
USD950 million, of which USD48 million was due in the short term.
New notes will allow Constellation to eliminate all restructured
debt and downsize nearly USD300 million from a combination of
pre-payment and equity conversion.
As of June 30, 2024, the total debt comprised restructured ALB
debts of USD567 million (60% of the total), restructured corporate
bonds (35%), and restructured working capital (5%). Following the
new issuance, the company will be left with only the USD650million
2029 notes at the holding level. Constellation plans to raise a
super senior revolving credit facility (RCF) of USD20 million-50
million post-issuance. The expected issuance of a HoldCo PIK
subordinated and mandatorily convertible notes will be considered
as equity, as per Fitch's Corporate Ratings Criteria.
Issuer Profile
Constellation is the largest provider of offshore drilling rigs
services in Brazil. It has seven own offshore rigs and one managed
third-party rig, all floaters. Seven are ultra-deep-water rigs and
one is mid-water. Its fleet includes four drill ships and four
semi-submersibles. The company mainly works for Petrobras.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Constellation Oil
Services Holding S.A. LT IDR B New Rating WD
LC LT IDR B New Rating WD
senior secured LT B New Rating RR4
KERNEL HOLDINGS: Fitch Hikes LongTerm IDR to 'CCC-'
---------------------------------------------------
Fitch Ratings has upgraded Kernel Holding S.A.'s Long-Term Issuer
Default Rating (IDR) to 'CCC-' from 'CC' in light of the timely US
dollar bond redemption and improved operating performance.
The 'CCC-' rating still reflects Kernel Holding S.A.'s high credit
risks given the company's challenging operating environment since
Russia's invasion of Ukraine. The company continues to operate with
healthy results, with a Fitch-estimated EBITDA of around USD500
million in the financial year ending 30 June 2024 (FY24).
Refinancing risk has moderated after Kernel repaid in full its
USD300 million bond, which matured on 17 October 2024, despite some
capital control restrictions imposed by the National Bank of
Ukraine being still in place.
Fitch has removed the Rating Watch Negative (RWN) on the senior
unsecured debt upon repayment, and upgraded the debt rating to
'CCC-' from 'CC' following the IDR upgrade.
Key Rating Drivers
Timely Redemption of USD Bond: The company has confirmed full and
timely redemption of its USD300 million bond, which matured on 17
October 2024. This proves sufficient and adequately managed
liquidity to meet its obligations on time. As a result, Fitch
removed the RWN from the debt rating, signalling relaxed
refinancing risks, from being acute, as the remaining Eurobond is
only maturing in 2027. Fitch expects Kernel will maintain some
access to external funding (including international and
supranational lenders), as well as improved liquidity management
after the recent National Bank of Ukraine partial cross-border
relaxation.
Improving Leverage: Fitch does not anticipate the recent bond
redemption to be replaced with a similar instrument in the short
term, but Fitch assumes the company will rebalance its capital
structure in the medium term with some other longer-term
instrument. Kernel repaid its short-term borrowings, including
bilateral secured and unsecured loans, but given its business
nature it requires ongoing access to pre-export facilities (PXF)
facilities with international lenders, as reflected in its recovery
analysis.
Fitch estimates that Kernel's secured working-capital financing
will be sufficient to cover its trading needs for the peak season,
while Fitch projects the company will operate on lower debt levels
than in FY22 and FY23.
Strong Performance Despite War: Fitch estimates Kernel will
generate around USD500 million of Fitch-adjusted EBITDA in FY24.
Favourable weather conditions together with a new corridor in the
Black Sea boosted volumes. However, despite new capacity being
added and the increased stability of the new grain corridor,
visibility on profitability for FY25 remains limited by uncertainty
about the stability of Kernel's operating environment, harvest
volumes, commodity prices and freight costs.
Reinforced Export Routes Availability: The Ukrainian Navy has
established a new temporary corridor along the Black Sea, which
Fitch views as a more sustainable and efficient solution than the
previous grain deal, which expired in 2023. Since November 2023,
Kernel has been exporting over 80% of its trading goods through
this route, with no bottlenecks, inspections or quotas, resulting
in around a 50% increase in export volumes during FY24. Kernel
could also use the alternative Danube river route, with a new port
terminal. However, the corridor remains important for Kernel as it
is vital for large-scale trading operations.
Derivation Summary
Kernel's rating is driven by a highly challenging operating
environment, with Ukraine being under martial law. The rating
reflects heightened operational and financial risks, as well as
limited access to capital markets and cross-border payment
restrictions.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue to decline by 6.6% and 8.3% in FY24 and FY25,
respectively, due to lower export volumes and soft commodity
prices;
- EBITDA margin at 16.3% in 2024, declining to 10.5% in 2025;
- Capex of USD180 million in 2024 and USD130 million in 2025;
- Net acquisitions of USD46 million in 2024 - of agricultural land
and trans-shipments; and
- No dividends.
Recovery Analysis
Key Recovery Rating Assumptions
The recovery analysis assumes that Kernel would be considered a
going concern (GC) in bankruptcy and that it would be reorganised
rather than liquidated. Fitch has assumed a 10% administrative
claim.
Fitch assesses Kernel's GC EBITDA through the cycle, reflecting the
volatility of grain and sunflower oil prices, the impact of
foreign-exchange risks, as well as taking into account potential
severe disruptions in exports and local operations resulting from
Russia's invasion. The USD200 million GC EBITDA estimate reflects
its view of a sustainable EBITDA level post-reorganisation, on
which Fitch bases the valuation of Kernel.
Fitch uses an enterprise value/EBITDA multiple of 3.5x to calculate
a post-reorganisation valuation and to reflect a mid-cycle
multiple. The multiple is in line with that for MHP SE, a leading
Ukrainian poultry producer.
There was a reduction in prior-ranking debt (mainly PXF facilities)
completed in 2023. However, assuming the Black Sea route will
remain operational, Fitch has assumed an increase in PFX facilities
based on the company's reiterated intention to expand its PFX
funding, given its importance in the financing of Kernel's
operations, the record and magnitude of Kernel's use of PXF in the
past, and its assumptions of Kernel's ability to generate
sufficient levels of eligible exports backing the PFX drawdowns.
This weighs on the recovery prospects of the senior unsecured
notes.
Fitch is not including the USD152 million trade financing
facilities of Avere, Kernel's trading subsidiary, in its waterfall
as these are uncommitted lines and, therefore, Fitch assumes these
will not be available in a distressed scenario.
Based on the assumptions above, the principal waterfall analysis
generates a ranked recovery for the senior unsecured debt in the
recovery rating 'RR4' band, indicating a 'CCC-' rating for senior
unsecured bonds, in line with the IDR. The waterfall analysis
output percentage on current metrics and assumptions indicates a
recovery rate of 41% (versus 39% before).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade is unlikely at this point. De-escalation of the
Russia-Ukraine war, facilitating a reopening of export routes and
reducing operating risks along with relaxation of the restrictions
on cross-border foreign-exchange payments, could result in positive
rating action.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Significant operational disruptions or liquidity constraints as a
result of the war could lead to negative rating action.
- A temporary waiver or standstill following non-payment of
remaining financial obligations could also lead to negative rating
action.
- Reversal of restrictions on cross-border foreign-exchange
payments.
Liquidity and Debt Structure
Improved Liquidity: As of October 2024, following the USD300
million bond repayment, Fitch estimates Kernel has USD550 million
of cash on balance sheet (part of which is held offshore), which,
together with undrawn facilities of about USD250 million, is
sufficient for operational needs and coupon payment on remaining
senior unsecured bonds in 2024. The company also counts on around
USD150 million available limit of trading financing facilities on
the Avere subsidiary, which Fitch does not consider as liquidity as
these are uncommitted.
Fitch still consider refinancing risk as very high due to the
restricted access to capital markets and the capital controls on
cross-border foreign-currency payments imposed by the National Bank
of Ukraine. However, in its view, Fitch estimates that Kernel's
working capital financing will be sufficient to service
foreign-currency debt obligations and that it has slightly improved
with the recent partial liberalisations.
Issuer Profile
Kernel is the world's largest sunflower oil producer and exporter.
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
----------- ------ -------- -----
Kernel Holding
S.A. LT IDR CCC- Upgrade CC
LC LT IDR CCC- Upgrade CC
Natl LT CCC-(ukr)Upgrade CC(ukr)
senior
unsecured LT CCC- Upgrade RR4 CC
=====================
N E T H E R L A N D S
=====================
DYNAMO MIDCO: Fitch Assigns B Final LongTerm IDR, Outlook Positive
------------------------------------------------------------------
Fitch Ratings has assigned Dynamo Midco B.V. (Innomotics) a final
Long-Term Issuer Default Rating (IDR) of 'B' with a Positive
Outlook. Fitch has also assigned the notes and term loans of Dynamo
Newco II GmbH and Dynamo US Bidco Inc. final senior secured rating
of 'B+' with a Recovery Rating of 'RR3'. This follows the
completion of the full refinancing of its capital structure, with
final terms broadly in line with its prior expectations.
The IDR is constrained by historically low profit margins, high
EBITDA leverage and volatile free cash flow (FCF) in the short
term. Rating strengths are Innomotics' robust business profile with
a leading market position in the low & high voltage motors (LVMs
and HVMs) and medium voltage drives (MVDs), innovative products,
product diversification as well as revenues from services and
aftermarket.
Fitch expects Innomotics to improve its profitability on cost
optimisation and following the expiry of legacy contracts in HVMs
that are associated with lower profitability. This will help to
improve FCF and reduce leverage, driving the Positive Outlook.
Key Rating Drivers
High Leverage Metrics to Improve: Fitch expects high consolidated
EBITDA leverage to decrease to around 5x by 2026, which is below
the positive sensitivity for the rating. This is supported by the
company's stated aim to deleverage. Fitch also expects stronger
interest coverage, driven by healthy EBITDA growth on broadly
stable debt. Fitch views the final diversified financing structure
and its long-term maturity profile as supportive of the ratings.
Strategic Actions Drive Profitability: Fitch forecasts EBITDA
margin to improve to about 11% by 2027 from 8% in 2023 on
efficiency measures, a new pricing strategy and as onerous
contracts phase out. Fitch anticipates the positive impact of
various cost-reduction measures to be realised by end-2025,
following the elimination of fixed-cost contracts, updated pricing
especially in HVMs and MVDs and an increasing order backlog. This
should all help drive profitability closer to some of its
competitors.
Volatile FCF To Strengthen: Fitch expects the temporary pressure on
FCF to subside in 2026 with FCF turning positive from neutral in
2025. Increased interest payments and capex will cause the neutral
FCF in 2025, despite positive working-capital fluctuations due to
improved inventory management. Higher interest expenses are a
result of the company's new final capital structure, while
investments are aimed at supporting sales growth and maintaining
Innomotics' competitive advantage in innovative product
customisation through LVM automation.
Healthy Liquidity Headroom: Fitch anticipates satisfactory
liquidity in the medium term to provide financial flexibility for
Innomotics, which Fitch views as a credit strength. Fitch expects
its liquidity buffer to consist of EUR159 million Fitch-adjusted
readily available cash and an undrawn EUR400 million revolving
credit facility (RCF) as of year-end 2024. Its short-term maturity
is only the company's prospective factoring facility.
Robust Business Profile: Innomotics' market-leading position and
its reasonable geographic and end market diversification are a
credit strength. Around 80% of its 2023 revenue stemmed from
overseas, including 19% from China and 22% from the Americas,
across over 13 end-markets, such as minerals, chemicals and metals.
Its product offering is firmly positioned to serve the global trend
of combustion engines transitioning to electrical, new energy
applications and to meet the demands of urbanisation. Innomotics'
ability to offer bespoke products reinforces its competitive edge
and brand reputation.
Derivation Summary
Innomotics' business profile (annual revenue over EUR3,000 million)
is among the strongest within its peer group, ranking above Innio
Group Holding GmbH (B/Positive), Flender International GmbH
(B/Stable) and Ahlstrom Holding 3 Oy (B+/Stable). This is further
supported by its reasonable geographic diversification, with 79% of
its revenue generated outside Germany, and continuous product
expansion, similar to higher-rated peers such as Ahlstrom and Regal
Rexnord Corporation (BBB-/Stable).
Innomotics' limited diversification of its customer portfolio, with
the top 15 customers accounting for about 30% of order intake, in
comparison with Ahlstrom, results in the one-notch difference,
albeit partly offset by its longstanding relationships.
Innomotics' market-leading position as a specialist manufacturer
underpins through-the-cycle EBITDA and EBIT margins of 10.4% and
8.3%, respectively. These are similar to other 'B' rated
diversified industrial companies such as Flender and Project Grand
Bidco (UK) Limited (B+/Stable), albeit weaker than Innio's and TK
Elevator Holdco GmbH's (B/Stable). However, its strong
profitability is offset by weaker FCF margins than Project's, which
Fitch expects to remain broadly neutral until 2027. This is a key
rating constraint, driving the one-notch rating difference with
Project.
Innomotics' new, final capital structure will drive EBITDA leverage
to a peak of 6.3x at end-2024. This is comparable with that of
Flender and higher-rated peers, such as Ahlstrom, while
considerably lower than TK Elevator's.
Key Assumptions
Key Assumptions in Fitch's Rating Case for the Issuer
- Revenue growth on average of 2.1% in 2025-2027
- EBITDA margin to improve to around 11% by 2027 on efficiency
gains and repricing
- Cash interest paid around EUR124 million post-refinancing,
reflecting Fitch's latest Global Economic Outlook on interest
rates
- Broadly neutral working-capital flows
- Capex to average around 3% of revenue until 2027 (also reflecting
its more conservative revenue assumption)
- No further M&A post-transaction or dividends paid until 2027
Recovery Assumptions
- The recovery analysis assumes that Innomotics would be
reorganised as a going-concern (GC) in a bankruptcy, rather than
liquidated in a default
- A 10% administrative claim
- Its GC EBITDA estimate of EUR275 million reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level on which Fitch
bases the enterprise valuation (EV)
- An EV multiple of 5.5x is applied to the GC EBITDA to calculate a
post-reorganisation EV, in line with the industry median and
peers'
- The multiple of 5.5x reflects Innomotics´ business model as a
multi-specialist manufacturer of electric motors serving diverse
end-markets. It is further supported by its leading market
position, a strong customer base, expertise and Siemens' branding
in the short term.
- The waterfall analysis is based on the final capital structure,
which consists of all equally ranking senior RCF Fitch assumes to
fully drawn in a post reorganisation scenario, senior secured
notes, a euro term loan B (TLB), an US dollar TLB and a guarantee
facility Fitch assumes to be 50% utilised, in line with Fitch's
criteria. This changed to a final EUR420 million from a proposed
EUR400 million resulting in a change in its waterfall analysis
output percentage by 1%.
- The principal waterfall analysis output percentage on current
metrics and assumptions is 56% for the rated notes, corresponding
to 'RR3'.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA margins above 11%
- FCF margins sustained above 2%
- EBITDA leverage below 5.5x, supported by a conservative financial
policy towards deleveraging
- EBITDA interest coverage above 2.5x
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA margins below 8%
- Negative FCF margins on a sustained basis
- EBITDA leverage above 6.5x
- EBITDA interest coverage consistently below 1.5x
- Consistently flat to negative cash from operations less
capex/debt
Liquidity and Debt Structure
Comfortable Liquidity: The company's healthy cash balance of around
EUR159 million (after its adjustment for intra-year working-capital
changes of 1% of sales) is supported by positive FCF and a final
EUR400 million RCF, which Fitch assumes to be undrawn at the
financial year ending October 2024. The instruments in the final
capital structure are to mature in 2031, further supporting the
liquidity profile.
Issuer Profile
Innomotics is a market leading, Germany-based manufacturer of low
to high voltage motors and medium voltage drives.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
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
----------- ------ -------- -----
Dynamo Newco II
GmbH
senior secured LT B+ New Rating RR3 B+(EXP)
Dynamo Midco B.V. LT IDR B New Rating B(EXP)
Dynamo US Bidco
Inc.
senior secured LT B+ New Rating RR3 B+(EXP)
=========
S P A I N
=========
SANTANDER CONSUMO 7: Fitch Assigns 'B(EXP)sf' Rating on Cl. E Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Santander Consumo 7, FT expected
ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
Entity/Debt Rating
----------- ------
Santander
Consumo 7, FT
Class A LT AA+(EXP)sf Expected Rating
Class B LT A+(EXP)sf Expected Rating
Class C LT BBB+(EXP)sf Expected Rating
Class D LT BB+(EXP)sf Expected Rating
Class E LT B(EXP)sf Expected Rating
Class F LT NR(EXP)sf Expected Rating
Transaction Summary
The transaction is a securitisation of a EUR1,200 million static
portfolio of fully amortising general-purpose consumer loans
originated by Banco Santander S.A. (A-/Stable/F2) to Spanish
residents. Around 87% of the portfolio balance is linked to
pre-approved loans underwritten to existing Santander customers.
KEY RATING DRIVERS
Asset Assumptions Reflect Pool Profile: Fitch calibrated a base
case lifetime default and recovery rate of 4.0% and 20.0%,
respectively, for the portfolio, reflecting the historical data
provided by Santander, Spain's economic outlook, pool features and
the originator's underwriting and servicing strategies. For a 'AA+'
rating case commensurate with the class A notes' rating, the
lifetime default and recovery rates are 16.5% and 11.3%,
respectively.
Static and Pro Rata Amortisation: The deal is static and does not
have a revolving period. Classes A to E notes will be repaid pro
rata unless a sequential amortisation event occurs, primarily
linked to performance triggers like cumulative defaults exceeding
certain thresholds.
Fitch views these triggers as robust to prevent the pro rata
mechanism from continuing upon early signs of performance
deterioration, and believes the tail risk posed by the pro rata
paydown is mitigated by the mandatory switch to sequential
amortisation when the outstanding collateral balance (including
defaults) falls below 10% of the initial balance.
Counterparty Arrangements Cap Ratings: The maximum achievable
rating for the transaction is 'AA+sf' in line with Fitch's
Counterparty Criteria. This is due to the minimum eligibility
rating thresholds defined for the transaction account bank and the
hedge provider of 'A-' or 'F1', which are insufficient to support
'AAAsf' ratings.
Liquidity Protection Mitigates Servicing Disruption: Servicing
disruption risk is mitigated by a dedicated cash reserve, which
covers senior costs, net swap payments and interest on the class A
to E notes for more than three months, providing sufficient time to
resume collections by a replacement servicer. There is no back-up
servicer appointed at closing date, but the management company acts
as back up servicer facilitator.
Interest Rate Hedge: An interest rate swap will hedge the risk
arising from 100% of the portfolio paying a fixed interest rate for
life and the floating rate securitisation notes. The interest rate
swap notional amount is the outstanding balance of the
non-defaulted receivables.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Long-term asset performance deterioration such as increased
delinquencies or reduced portfolio yield, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices or the legislative landscape.
For the class E notes, a combination of reduced excess spread and
the late reception of recovery cash flows, particularly at the tail
of the life of the transaction. This considers the thin layer of
credit enhancement protection from subordination available to the
class E notes, which is only provided by the reserve fund.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in upside and
downside environments. The results below should only be considered
as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Sensitivity to Increased Defaults:
Original ratings (class A/B/C/D/E): 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf'/ 'BB+(EXP)sf'/ 'B(EXP)sf'
Increase defaults by 10%: 'AA-(EXP)sf' / 'A(EXP)sf' /
'BBB+(EXP)sf'/ 'BB(EXP)sf'/ 'CCC(EXP)sf'
Increase defaults by 25%: 'A+(EXP)sf' / 'A(EXP)sf' / 'BBB(EXP)sf'/
'BB-(EXP)sf'/ 'NR(EXP)sf'
Increase defaults by 50%: 'A-(EXP)sf' / 'BBB+(EXP)sf' /
'BBB-(EXP)sf'/ 'B(EXP)sf'/ 'NR(EXP)sf'
Sensitivity to Reduced Recoveries:
Reduce recoveries by 10%: 'AA(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf'/ 'BB(EXP)sf'/ 'B-(EXP)sf'
Reduce recoveries by 25%: 'AA(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf'/ 'BB(EXP)sf'/ 'CCC(EXP)sf'
Reduce recoveries by 50%: 'AA-(EXP)sf' / 'A(EXP)sf' /
'BBB-(EXP)sf'/ 'BB(EXP)sf'/ 'NR(EXP)sf'
Sensitivity to Increased Defaults and Reduced Recoveries:
Increase defaults by 10%, reduce recoveries by 10%: 'AA-(EXP)sf' /
'A(EXP)sf' / 'BBB+(EXP)sf'/ 'BB(EXP)sf'/ 'CCC(EXP)sf'
Increase defaults by 25%, reduce recoveries by 25%: 'A+(EXP)sf' /
'A(EXP)sf' / 'BBB(EXP)sf'/ 'BB-(EXP)sf'/ 'NR(EXP)sf'
Increase defaults by 50%, reduce recoveries by 50%: 'A-(EXP)sf' /
'BBB+(EXP)sf' / 'BBB-(EXP)sf'/ 'B(EXP)sf'/ 'NR(EXP)sf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
For the senior notes rated 'AA+sf', modified transaction account
bank and derivative provider minimum eligibility rating thresholds
compatible with 'AAAsf' ratings under Fitch's Structured Finance
and Covered Bonds Counterparty Rating Criteria.
Increasing credit enhancement ratios, as the transaction
deleverages to fully compensate for the credit losses and cash flow
stresses commensurate with higher rating cases.
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.
===========
S W E D E N
===========
POLESTAR AUTOMOTIVE: Strategy Update Set for Jan. 16, 2025
----------------------------------------------------------
Polestar delivered approximately 11,900 cars in the third quarter,
taking total deliveries for the first nine months of the year to
32,300 (2023: 41,844).
Michael Lohscheller, Polestar CEO, says: "Polestar has a great
foundation to build upon, with access to the best EV technology, a
global manufacturing capability and strong support from Geely.
Together with the management team, we are conducting a review of
our strategy and operations, to set out a clear path for Polestar's
development."
"A key to our future success will be the development of our
commercial capabilities: going from showing to actively selling
cars. Adopting a more active sales model is already supporting our
ambitions, as the first markets to implement it are showing solid
order intake."
Outlook
With current market conditions and announced import duties
impacting the automotive industry, the Company expects revenue in
2024 to be similar to 2023 and to achieve a positive gross profit
margin in the fourth quarter. The Company reaffirms its target of
achieving cash flow break-even towards the end of 2025 – at lower
volume than previously targeted.
Given market conditions and the Company's anticipated performance
in 2024, the Company, alongside Geely, is engaged in constructive
dialogue with its club loan lenders, who remain supportive,
regarding its loan covenants.
Upcoming events
On the 16th of January 2025, Polestar management will host a live
webcast to provide a business and strategy update, including the
publication of select Q3 financial and operational highlights.
Reducing Q3 reporting disclosures will help focus company resources
on the ongoing business and strategy review and on fulfilling 2024
annual reporting requirements.
Webcast access details will be made available on the Polestar
Investor Relations website: https://investors.polestar.com/
About Polestar Automotive
Polestar Automotive Holding UK PLC manufactures and sells premium
electric vehicles. The company was founded in 2017 and is
headquartered in Gothenburg, Sweden.
As of December 31, 2023, the Company had $4.1 billion in total
assets, $5.4 billion in total liabilities, and $1.3 billion in
total deficit.
Gothenburg, Sweden-based Deloitte AB, the Company's auditor since
2021, issued a 'going concern' qualification in its report dated
August 14, 2024, citing that the Company requires additional
financing to support operating and development activities that
raise substantial doubt about its ability to continue as a going
concern.
===========================
U N I T E D K I N G D O M
===========================
CALIFORNIA BUYER: Fitch Assigns BB- First-Time IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned a first-time IDR of 'BB-' to California
Buyer Limited (California Buyer) and a senior secured rating of
'BB+' with a Recovery Rating of 'RR2'. Fitch has also assigned an
instrument rating of 'BB-' with a Recovery Rating of 'RR4' to the
proposed issuance of approximately $1.3 billion of unsecured debt
to finance the acquisition of Atlantica Sustainable Infrastructure
PLC (Atlantica) announced earlier this year.
Fitch has also downgraded Atlantica's IDR to 'BB-' from 'BB+', and
removed Atlantica's ratings from Rating Watch Negative and assigned
a Stable Rating Outlook. The rating downgrade is reflective of the
new capital structure expected to be put in place once the
acquisition closes. Early this year, Fitch placed Atlantica's
ratings on RWN pending clarity on the capital structure following
the announcement of the acquisition by Energy Capital Partners
(ECP).
Fitch has also affirmed a 'BB+' rating with a Recovery Rating of
'RR2' for the 2021 Unsecured Green Senior Notes. The rating
affirmation is contingent on the Green Notes being secured with the
provision of a collateral pledge pari passu with the new proposed
secured RCF. In addition, Fitch has downgraded a 'BBB-'/'RR2'
senior secured rating of the existing RCF to 'BB+'/'RR2'. The
Outlook on all ratings is Stable.
California Buyer/Atlantica's ratings are supported by stable,
predictable nature of contracted cash flows from well-diversified,
long-term contracted or regulated assets, such as Spanish solar
assets and a Chilean transmission line, with minimal commodity
risk. The ratings are based on ECP's financial policy to fund
growth through internal cash flow and non-recourse project debt,
without significantly increasing holding company (Holdco) debt.
Key Rating Drivers
Financing Put in Place: California Buyer, an indirect subsidiary of
ECP, plans to issue $1.3 billion senior unsecured notes and receive
about $2 billion in sponsor equity to fund the $2.56 billion
acquisition of Atlantica and repay about $715 million of its $1.2
billion Holdco debt. The notes will be issued by California Buyer,
and Atlantica as a co-issuer post-transaction close. Fitch expects
Green Senior Notes and approximately $77 million of commercial
paper and other unsecured debt to remain at Atlantica, while $4.2
billion in project-level debt remains unaffected by the
transaction.
Deal Approval Process: ECP, with over 10 institutional
co-investors, is acquiring Atlantica, which will become a fully
owned subsidiary of California Buyer. The transaction is expected
to close in 4Q24 or early 1Q25, pending regulatory approvals. In
August 2024, shareholders voted to support the transaction. It
requires regulatory approvals in different jurisdictions, including
clearance under the Hart-Scott-Rodino Act, by the Committee on
Foreign Investment in the U.S., by the Federal Energy Regulatory
Commission, and by the High Court of Justice of England and Wales,
some of which have already been obtained.
Fitch assumes the approval process will proceed smoothly. There
have been a number of renewable deals that closed in recent years
without any material delays. Fitch expects to withdraw the RCF
rating as it will be replaced with the new RCF once the deal
closes. If the deal falls through, Fitch will re-assess Atlantica's
ratings independently. The proposed unsecured notes will be
redeemed if the deal does not close by May 27, 2025.
Stable Cash Flow and Asset Diversity: Atlantica's asset portfolio
produces stable, predictable cash flows underpinned by long-term
contracts with a weighted average remaining contract life of 12
years. Most counterparties have strong investment-grade ratings.
These fixed-price contracts typically include annual escalation
mechanisms. Atlantica's portfolio does not bear material resource
availability risk or commodity risk, and does not depend on a
single project for more than 15% of its project distributions. In
addition, the company has internalized its operations and
maintenance management for its solar assets in Spain, resulting in
additional operational savings and better expense control.
The forecast cash distributions to the Holdco from the project
subsidiaries are largely derived from renewable assets at 69%, with
the remainder split between natural gas plants, transmission lines
and water. Geographically, the split is 38% from North America, 35%
from Europe, 20% from South America and 7% from the rest of the
world. Close to 60% of project distributions are generated from
solar projects; solar resource availability has typically been
strong and predictable.
Leverage Post-Deal Closing: Fitch Ratings projects California
Buyers/Atlantica's gross Holdco FFO leverage following the deal
closure (Holdco-only debt/cash available for distribution prior to
Holdco interest expense) to be elevated for the 'BB-' rating at
over 6.0x in 2025. High leverage stems primarily from temporary
expected lower cash flows from Spanish solar assets impacted by
lower than projected power prices in 2024-2025. Holdco FFO leverage
is expected to improve to mid-5.0x by 2026, which is supportive of
the current ratings. Fitch calculates California Buyer/Atlantica's
credit metrics on a deconsolidated basis as its operating assets
are largely financed with nonrecourse project debt held at the
ring-fenced project subsidiaries.
With a target annual investment of around $600 million, Fitch
expects most of the cash flow to be reinvested into growth in the
next several years, with the remainder funded by project level
debt. The ratings are predicated on the expectation that ECP will
manage any distributions in a credit supportive manner. ECP
indicated it does not plan to take dividends from Atlantica in the
medium term while leverage remains above 5.5x. A more aggressive
dividend policy could have a negative effect on ratings.
Private Ownership: Private ownership by ECP and co-investors is
beneficial versus a publicly held yieldco. Altantica will no longer
face public growth targets and dividend policy, a credit positive.
ECP does not require dividends from Atlantica, allowing it to fund
growth by internally generated cash and project-level debt.
Previously, high capital costs and mandatory dividends limited
growth in 2022 and 2023. However, private ownership is usually less
transparent. Altantica's primarily uses non-recourse project debt,
designed to amortize before the end of PPA, with distribution tests
typically set at a debt service coverage ratio of 1.10x-1.25x. The
ratings reflect expectations of continued conservative growth
funding.
Transitioning to Development Pipeline: Most of the near-term growth
is expected to come from the development pipeline, as Atlantica
transitions from its previously more acquisition-oriented strategy.
The company identified a potential for 2.1 GW of renewable assets
and more than 10.9 GWh of energy storage development, concentrated
in solar and battery storage assets in North America and supported
by the passage of the U.S. Inflation Reduction Act. About 16% of
the pipeline is expected to be ready to build in 2024-2025,
supporting near-term growth. The projects are predominately located
adjacent to assets or on land the company already owns, limiting
permitting and interconnection risk. In addition, projects are
relatively small in size, limiting exposure to large project
development risk.
Robust Outlook for Wind and Solar Generation: In Fitch's view, the
accelerating decarbonization trend in power generation and customer
demand for cleaner generation should continue to drive wind and
solar generation growth. The enhanced federal tax incentives
provided by the Inflation Reduction Act further support significant
growth in renewable technologies. The increase in power demand is
coming at a time when new supply is being constrained by grid
interconnection delays, supply chain bottlenecks and stricter
environmental rules. Fitch expects renewable generators to benefit
from higher margins on bilateral power purchase agreements, in
particular for carbon free generation.
Spanish Regulatory Framework: Fitch views temporary changes in the
Spanish regulatory framework as relatively credit-neutral to
Atlantica, although current lower market power prices put pressure
on cash flow until the recovery mechanism resets in 2026. However,
the principles of the framework remain unchanged, and it provides
multiyear guaranteed internal rate of return on the Spanish assets,
currently set at 7.1%-7.4%. In March 2022, the Spanish government
issued a decree to reduce pressure on ratepayers from unusually
high market power prices. The recovery mechanism was modified for
2023-2025, as the regulation expected high market power prices and
set lower regulated revenue. In 2024, actual market prices are
lower than expected. Lower revenue in 2024 and lower expected
revenue in 2025 will be compensated from 2026.
Parent-Subsidiary Linkage: Fitch rates California Buyer on a
standalone basis. Consistent with Fitch's approach regarding ECP
affiliates, Fitch views ECP as a financial investor and does not
apply parent and subsidiary linkage. There will be parent
subsidiary linkage between California Buyer and Atlantica once the
transaction closes. Fitch equalized the IDRs of California Buyer
and Atlantica as they will be co-issuers of the new debt once the
transaction closes. Legal ring-fencing is expected to be open and
access and control are open as well.
Derivation Summary
Fitch views Atlantica's/California Buyer's portfolio of assets as
favorably positioned due to asset type compared with those of
Pattern Energy Operations, LP (PEO; BB-/Stable) and TerraForm Power
Operating, LLC (TERPO; BB-/Stable), owing to Atlantica's large
concentration of solar generation assets which have less resource
variability. PEO's portfolio consists of wind projects, and TERPO's
portfolio consists of 44% solar and 56% wind projects.
Fitch views PEO's geographic exposure in the U.S. and Canada
favorably. Atlantica and TERPO are exposed to the Spanish
regulatory framework for renewable assets, but the current
construct provides clarity of return. About one-third of
Atlantica's power generation portfolio by total MW is in Spain,
compared with approximately one-quarter for TERPO. Atlantica's
long-term contracted fleet has a remaining contracted life of 12
years, similar to PEO's of about 12 years and TERPO's 11 years.
Nearly 100% of Atlantica's output is contracted or regulated,
compared with PEO's 89% and TERPO's 96%. PEO's faces higher risks
than its peers due to it contracted and hedged exposure in Texas,
distribution concentration, and significant project development
risk.
Atlantica/California Buyer's credit metrics are expected to be in
line with those of TERPO and weaker than PEO's. Fitch forecasts
Atlantica/California Buyer's gross leverage ratio (Holdco-only
debt/cash available for distribution) to remain below 6.0x in 2026
and beyond following the transaction closure, compared to mid-5.0x
for TERPO and low 4.0x for PEO.
TERPO and PEO have strong parental support and benefit from private
ownership, with Brookfield Asset Management and Canada Pension Plan
Investment Board (CPPIB) serving as their respective sole owners.
Similar to PEO and TERPO, Atlantica has been taken private and is
no longer subject to public growth targets. It also has a moderate
and relatively stable growth strategy. Strong private sponsors
provide a more predictable funding source and remove capital market
uncertainties.
Fitch rates Atlantica, NEP and TERPO with a deconsolidated approach
as their portfolios comprise assets financed using nonrecourse
project debt or tax equity.
Key Assumptions
The base case assumes the transaction closes as per the currently
understood terms:
- Assumes sponsor equity contribution of approximately $2 billion;
- Equity purchased and existing Holdco debt refinanced with $600
million secured revolver, $755 million senior unsecured notes and
€500 million senior unsecured notes;
- Approximately $77M of existing commercial paper remains in
place;
- Existing unsecured Green Senior Notes remain in place and are
provided with new first-lien collateral pledge pari passu with new
RCF.
The below assumptions reflect the post-deal closure base case:
- Annual growth capital investment averaging about $600 million
financed using a combination of internally generated cash flow and
project finance debt;
- No additional Holdco debt issuance and average outstanding RCF at
$50 million annually over the forecast period;
- No dividend payout until Holdco FFO leverage is below 5.5x.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Holdco FFO leverage below 5.0x on sustainable basis coupled with
company-stated financial policy to maintain the leverage at those
levels;
- Moderate growth strategy supportive of the stable and predictable
cash flows;
- A record of a conservative and consistent approach in executing
the business plan in line with the currently articulated management
strategy.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A materially negative change in financial policy;
- Lower than expected performance at its largest assets and absence
of mitigating measures to replace lost cash available for
distribution;
- Growth strategy is underpinned by aggressive acquisitions or
construction of assets that bear material volumetric, commodity,
counterparty or interest rate risks;
- Unfavorable regulatory developments in Spain;
- Holdco FFO leverage ratio exceeding 6.0x on sustained basis;
- For 2021 Green Senior Notes issued by Atlantica, absence of a
collateral pledge pari passu with the new secured RCF would lead to
a two-notch downgrade.
Liquidity and Debt Structure
Adequate Liquidity: As of June 30, 2024, Atlantica's corporate cash
on hand was $20.0 million. In addition, as of June 30, 2024, the
company had $266.3 million available under its revolving credit
facility and a total corporate liquidity of $286.3 million,
compared with $411.1 million as of Dec. 31, 2023.
The debt at Atlantica is structurally subordinated to the project
debt at the operating subsidiaries. Project debt is nonrecourse to
the parent, but the distribution test in project finance agreements
is typically set at a Debt Service Coverage Ratio (DSCR) of
1.10x-1.25x.
Atlantica had about $1.2 billion of Holdco debt outstanding as of
June 30, 2024. Atlantica's corporate debt agreements contain
provisions where a change of control without the consent of the
relevant required holders would trigger the obligation to make an
offer to purchase the respective notes. In the case of the Green
Senior Notes, about $400 million of Holdco debt, such a prepayment
obligation would be triggered only if there is a credit rating
downgrade of the notes by any of the rating agencies.
Fitch considers secured debt issued at the California
Buyer/Atlantica level to be Category 2 first lien since it is
secured by a subsidiary equity pledge and there is material
subsidiary level debt. Category 2 secured ratings at 'BB-' IDR are
capped at two notches higher than the IDR, resulting in the secured
ratings being rated 'BB+'.
Issuer Profile
Atlantica owns and manages a diversified portfolio of contracted
assets in the power and environmental sectors predominately located
in Spain and North and South America. California Buyer is a newly
formed entity that will house the debt issued to finance ECP's
acquisition of Atlantica.
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
----------- ------ -------- -----
California Buyer
Limited LT IDR BB- New Rating
senior secured LT BB+ New Rating RR2
senior unsecured LT BB- New Rating RR4
Atlantica
Sustainable
Infrastructure Plc LT IDR BB- Downgrade BB+
senior unsecured LT BB+ Affirmed RR2 BB+
senior secured LT BB+ Downgrade RR2 BBB-
DALE (MANSFIELD): Leonard Curtis Named as Joint Administrators
--------------------------------------------------------------
Dale (Mansfield) Limited was placed in administration proceedings
in the High Court of Justice, Court Number: CR-2024-LDS-000978, and
Richard Pinder and Sean Williams of Leonard Curtis were appointed
as administrators on Oct. 15, 2024.
Dale (Mansfield) is a manufacturer of lifting and handling
equipment.
Its registered office is at 21 Gander Lane, Barlborough,
Chesterfield S43 4PZ. Its principal trading address is at 14
Rotherham Road, New Houghton, Mansfield, NG19 8TF.
The administrators can be reached at:
Richard Pinder
Leonard Curtis
21 Gander Lane, Barlborough
Chesterfield, S43 4PZ
-- and --
Sean Williams
Leonard Curtis
9th Floor
7 Park Row, Leeds, LS1 5HD
For further information, contact:
The Joint Administrators
E-mail: recovery@leonardcurtis.co.uk
Tel No: 01246 385 775
Alternative contact: Bradley Sanderson
GM GEECO: RSM UK Named as Joint Administrators
----------------------------------------------
GM Geeco Limited was placed in administration proceedings in the
High Court of Justice, Court Number: CR-2024-006115, and David
Shambrook and James Dowers of RSM UK Restructuring Advisory LLP
were appointed as administrators on Oct. 16, 2024.
GM Geeco engages in the retail of medical and orthopaedic goods in
specialised stores.
Its registered office is at c/o RSM UK Restructuring Advisory LLP,
25 Farringdon Street, London, EC4A 4AB. Its principal trading
address is at 150 High Street, Sevenoaks, TN13 1XE.
The joint administrators can be reached at:
David Shambrook
James Dowers
RSM UK Restructuring Advisory LLP
25 Farringdon Street, London
EC4A 4AB
Correspondence address & contact details of case manager:
Kirsty Baillie
RSM UK Restructuring Advisory LLP
25 Farringdon Street,
London, EC4A 4AB
Tel No: 0203 201 8000
Further details contact:
Joint Administrators
Tel No: 020 3201 8000
HEALTHCARE COLLECTION: JT Maxwell Named as Joint Administrators
---------------------------------------------------------------
The Healthcare Collection Limited was placed to administration
proceedings in the Court of Session, Scotland, Court Number:
CP956-24, and Andrew Ryder of JT Maxwell Limited was appointed as
administrator on Oct. 17, 2024.
Healthcare Collection engages in human health activities.
Its registered office and principal trading address is at The
Hatrack, 4th Floor, 144 St Vincent Street, Glasgow, G2 5LQ.
The administrator can be reached at:
Andrew Ryder
JT Maxwell Limited
Unit 1 Lagan House
1 Sackville Street, Lisbur Co
Antrim, BT27 4AB
For further information, contact:
JT Maxwell Limited
Email: claims@jtmaxwell.co.uk
Tel No: 02892 448 110
MARTINHASWELL LTD: Creditors' Meeting Set for Nov. 11
-----------------------------------------------------
Martinhaswell Ltd was placed in administration proceedings in the
High Court of Justice, Business & Property Courts of England &
Wales, Insolvency & Companies List (ChD), Court Number: 005803 of
2024, and Andrew Turpin and Matthew Douglas Hardy of Poppleton &
Appleby were appointed as administrators on Oct. 17, 2024.
The joint administrators disclosed that a decision is to be sought
from the creditors of Martinhaswell at a virtual meeting to be held
on November 11, 2024 at 11:00 a.m. The purpose of the virtual
meeting is to approve the Joint Administrators' remuneration and
expenses and pre-administration costs.
In order for their votes to be counted, creditors must attend the
virtual meeting and vote either personally or by proxy, and must
also have submitted proof of their debt (if not already lodged) at
Poppleton & Appleby, The Silverworks, 67-71 Northwood Street,
Jewellery Quarter, Birmingham, B3 1TX by no later than 4 p.m. on
the business day before the meeting and their proxy in advance of
the meeting. Failure to do so will lead to their vote(s) being
disregarded.
Martinhaswell Ltd, trading as Furniture by Martin, engages in
business support service activities.
Its registered office is at Seven Stars House, 1 Wheler Road,
Coventry, CV3 4LB.
The joint administrators can be reached at:
Andrew Turpin
Matthew Douglas Hardy
Poppleton & Appleby
The Silverworks
67-71 Northwood Street
Jewellery Quarter, Birmingham
B3 1TX
For further information, contact:
Helen Taylor
Email: info@poppletonandappleby.co.uk
Tel No: 0121 200 2962
NEW CINEWORLD: S&P Affirms 'B-' ICR & Alters Outlook to Positive
----------------------------------------------------------------
S&P Global Ratings revised the outlook on global cinema operator
New Cineworld Midco Ltd. to positive. S&P also affirmed its 'B-'
long-term issuer credit rating on New Cineworld Midco Ltd.
Additionally, S&P assigned a 'B-' issue-level rating and '3'
recovery rating (60% rounded recovery) to the proposed senior
secured term loan facility.
The positive outlook reflects S&P's expectation that improving
cinema admissions in 2025 could allow Cineworld to reduce adjusted
leverage to below 6.0x, improve EBITDAR cash interest coverage to
about 1.5x, and turn free operating cash flow (FOCF) after leases
positive once the capital expenditure (capex) investment cycle is
over.
The revision reflects momentum in box office performance and our
expectation for the company's credit metrics to recover in the next
12-18 months.
S&P said, "We expect the strong slate of film releases through 2025
will support recovery in cinema admissions and Cineworld's box
office revenue and EBITDA. Although, we forecast 2025 revenue to
decline 5.8% due to lingering effects from the actor and writer
strikes in 2024, we expect adjusted EBITDA to reach $785
million--45% higher than last year. This is based on much lower
one-off costs and overall improving cost management, dropping
adjusted leverage down to about 6.2x from 8.9x in 2023. In 2025, we
expect admissions will demonstrate a strong recovery, supporting
adjusted EBITDA growth to about $1.1 billion. This results in
leverage dipping below 6.0x in 2025. We also expect the proposed
refinancing will lower cash interest costs for 2026 more than we
previously forecast and will strengthen the company's liquidity and
FOCF in longer term.
"We expect operating performance to recover in 2025. Last year's
actor and writer strikes, which disrupted the film release
schedule, affected the box office in 2024. However, we now expect
the impact to be less severe for 2025 than we previously
forecast."
In the first half of 2024, global box office declined 18%-20%
compared to 2023. We now forecast the company's 2024 admissions to
be about 8% lower than last year (compared to our previous forecast
of a decline of 13%) due to a stronger performance in the second
half of the year. This incorporates the success of "Inside Out 2"
(the highest-grossing animated film of all time, earning $1.5
billion worldwide), "Wolverine & Deadpool", "Beetlejuice
Beetlejuice", as well as major titles due to be released, including
"Gladiator II", "Wicked", and "Moana 2".
Ticket and concession price indexations also support the group's
revenue, so S&P forecasts total reported revenue will decline just
5.8% to $3.2 billion. S&P estimates the company's 2025 admissions
to recover by at least 6.5%, resulting in revenue increase up to
$3.5 billion. This has supported from a strong pipeline of
releases, with strong titles such as "Captain America: Brave New
World", "Mission: Impossible 8", and "Jurassic World Rebirth".
S&P said, "However, average ticket prices are at an all-time high
and we believe that cinemas are facing a high substitution risk
from on-demand streaming services and advanced consumer
electronics. Therefore, if the macroeconomic environment turns
weaker than we forecast, consumers may be increasingly sensitive to
discretionary spending and choose lower-cost, in-home viewing
options, prompting cinema exhibitors to adjust pricing and slowing
revenue growth.
"UK restructuring will reduce the group's lease liabilities. In
September 2024, Cineworld's restructuring of its U.K. business was
approved by the court and most of the company's creditors. We
expect in the U.K., Cineworld will reduce rents, exit nonprofitable
sites, implement cost-control initiatives, and optimize operations
to accommodate lower attendances, making this business financially
self-sufficient. We estimate this will result in $20 million-$25
million of annual lease expense savings and reduce consolidated
lease liabilities around $100 million in 2025."
The proposed capital structure will reduce interest costs in the
longer term. The company plans to issue a new $1.9 billion senior
secured TLB due in 2031, along with a $350 million super senior RCF
due in 2029, to fully refinance its existing capital structure. We
expect the company will benefit from more favorable interest rates
under the new capital structure, improving its EBITDAR interest
coverage to 1.7x by 2026. Additionally, the new RCF will be fully
undrawn at closing and will support the company's liquidity
position.
A sizeable investment program will lower Cineworld's FOCF after
leases in 2024-2025. Earlier this year, the company secured a $250
million cash equity injection from shareholders to support
investments in recliner seats. This will lead to elevated capex of
approximately $140 million in 2024, peaking at about $380 million
in 2025, including some additional investment into prime cinema
infrastructure. This discretionary spending will temporarily
pressure the company's FOCF after leases, which we expect to be
negative during this period. However, S&P assumes that in 2026, as
the investment cycle concludes, FOCF after leases will rocket up to
$200 million-250 million.
S&P said, "The positive outlook reflects our expectations that box
office recovery, favorable ticket pricing, tight control over
operating costs and reduction in lease expenses could improve
Cineworld's S&P Global Ratings-adjusted leverage to below 6.0x and
EBITDAR cash interest coverage to about 1.5x by the end of 2025.
"We could revise our outlook to stable if recovery in admissions is
slower than we expect. This could be due to a weaker film slate and
lower-than-expected profitability, such that Cineworld's adjusted
leverage stays above 6.0x and FOCF after leases remains negative.
"We could raise the rating if Cineworld's credit metrics improve
line with our expectations, leading to adjusted leverage below
6.0x, EBITDAR cash interest coverage of about 1.5x, and positive,
sustained FOCF after leases sustainably."
PRECISE MORTGAGE 2020-1B: Fitch Keeps 'BB+sf' Rating on Watch Neg.
------------------------------------------------------------------
Fitch Ratings has maintained the Rating Watch Negative (RWN) on
Precise Mortgage Funding 2020-1B PLC's (PMF 2020-1B) class D and E
notes and affirmed the rest.
Entity/Debt Rating Prior
----------- ------ -----
Precise Mortgage
Funding 2020-1B PLC
A1 XS2097423060 LT AAAsf Affirmed AAAsf
A2 XS2097425354 LT AAAsf Affirmed AAAsf
B XS2097426246 LT AAAsf Affirmed AAAsf
C XS2097426329 LT AA+sf Affirmed AA+sf
D XS2097426832 LT A+sf Rating Watch Maintained A+sf
E XS2097426915 LT BB+sf Rating Watch Maintained BB+sf
Transaction Summary
The transaction is a securitisation of buy-to-let (BTL) mortgages
originated by Chartered Court Financial Services, trading as
Precise Mortgage in the UK.
KEY RATING DRIVERS
Re-Fixes Increase Under-Hedging: In the last rating action, Fitch
placed the class D and E notes on RWN as a result of under-hedging
caused by the re-fixing of loans. These re-fixes are not treated as
product switches (which must be repurchased) but according to the
servicer, are agreed with borrowers to control or manage actual or
anticipated arrears, as permitted by the transaction documentation.
Loans have continued to re-fix since the last review, and,
therefore, the proportion of fixed-rate loans covered by the
transaction's fixed-to-floating swap has decreased to 8% from 23%,
as the swap notional does not consider re-fixes and decreases in
line with the original fixed-rate proportion of the portfolio.
Fitch tested a sensitivity to assess the potential impact of
re-fixes, should the notes not be redeemed on the first optional
redemption date in December 2024. Fitch assumed the current
proportion of floating-rate loans would obtain a two-year
fixed-rate at below current market rates. This had a one-notch
negative impact on the transaction's class D notes and up to two
notches on its class E notes.
Increasing CE: Credit Enhancement (CE) has increased since the last
rating action in May 2024, as a result of the sequential
amortisation of the notes. CE for the transaction's senior notes
has increased to 34.0% from 30.3% since the last review, and this
supports the rationale behind the affirmations in this rating
action.
Increase in Arrears, but Strong Asset Performance: The proportion
of loans in arrears for more than one month has increased to 2.2%
from 1.3% between February and August 2024, due to high interest
rates and cost-of-living pressures. However, the overall asset
performance for this transaction remains stronger than peer BTL
transactions. The increase in arrears has also been offset by the
build-up of CE.
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 economic environment. A weakening economic
performance would be strongly correlated with increasing levels of
delinquencies and defaults that could reduce CE available to the
notes.
Also, unanticipated declines in recoveries could also result in
lower net proceeds, which may make certain notes susceptible to a
potential negative rating action, depending on the extent of the
decline in recoveries. Fitch conducts sensitivity analyses by
stressing both a transaction's base-case foreclosure frequency (FF)
and recovery rate (RR) assumptions, and examining the rating
implications for all classes of notes.
Fitch tested a sensitivity assuming a 15% increase in the
weighted-average (WA) FF and a 15% decrease in the WARR. The
results indicate an impact of three notches for the transaction's
class D and E notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A stable-to-improved asset performance driven by stable
delinquencies and defaults would lead to increasing CE and
potential upgrades. Fitch tested an additional rating sensitivity
scenario by applying a 15% decrease in the FF and a 15% increase in
the RR. The results indicate a three-notch impact for the
transaction's class D notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
Prior to the transactions closing, Fitch sought to receive a
third-party assessment conducted on the asset portfolio
information, but none was available for these transactions.
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.
YEW TREE: AABRS Limited Named as Joint Administrators
-----------------------------------------------------
Yew Tree Residential Care Home Limited 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-2024-006212, and Nicola Meadows and Mark Newton of AABRS Limited
were appointed as administrators on Oct. 18, 2024.
Yew Tree engages in human health activities.
Its registered office and principal trading address is at 60 Main
Road, Dowsby, Lincolnshire, PE10 0TL.
The joint administrators can be reached at:
Nicola Meadows
Mark Newton
AABRS Limited
Langley House
Park Road, London
N2 8EY
For further information, contact:
Melanie Costello
AABRS Limited
Email: mco@aabrs.com
Tel: 020 8444 3400
===============
X X X X X X X X
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[*] BOOK REVIEW: Performance Evaluation of Hedge Funds
------------------------------------------------------
Performance Evaluation of Hedge Funds: A Quantitative Approach
Edited by Greg N. Gregoriou, Fabrice Rouah, and Komlan Sedzro
Publisher: Beard Books
Hardcover: 203 pages
List price: $59.95
Review by Henry Berry
Order your copy at https://bit.ly/3yPU9oz
Hedge funds can be traced back to 1949 when Alfred Winslow Jones
formed the first one to "hedge" his investments in the stock market
by betting that some stocks would go up and others down. However,
it has only been within the past decade that hedge funds have
exploded in growth. The rise of global markets and the
uncertainties that have arisen from the valuation of different
currencies have given a boost to hedge funds. In 1998, there were
approximately 3,500 hedge funds, managing capital of about $150
billion. By mid-2006, 9,000 hedge funds were managing $1.2
trillion in assets.
Despite their growing prominence in the investment community, hedge
funds are only vaguely understood by most people. Performance
Evaluation of Hedge Funds addresses this shortcoming. The book
describes the structure, workings, purpose, and goals of hedge
funds. While hedge funds are loosely defined as "funds with no
rules," the editors define these funds more usefully as "privately
pooled investments, usually structured as a partnership between the
fund managers and the investors." The authors then expand upon
this definition by explaining what sorts of investments hedge funds
are, the work of the managers, and the reasons investors join a
hedge fund and what they are looking for in doing so.
For example, hedge funds are characterized as an "important avenue
for investors opting to diversify their traditional portfolios and
better control risk" -- an apt characterization considering their
tremendous growth over the last decade. The qualifications to join
a hedge fund generally include a net worth in excess of $1
million;
thus, funds are for high net-worth individuals and institutional
investors such as foundations, life insurance companies,
endowments, and investment banks. However, there are many
individuals with net worth below $1 million that take part in hedge
funds by pooling funds in financial entities that are then eligible
for a hedge fund.
This book discusses why hedge funds have become "notorious as
speculating vehicles," in part because of highly publicized
incidents, both pro and con. For example, George Soros made $1
billion in 1992 by betting against the British pound. Conversely,
the hedge fund Long-Term Capital Management (LTCP) imploded in
1998, with losses totaling $4.6 billion. Nonetheless, these are
the exceptions rather than the rule, and the editors offer
statistics, studies, and other research showing that the
"volatility of hedge funds is closer to that of bonds than mutual
funds or equities."
After clarifying what hedge funds are and are not, the book
explains how to analyze hedge fund performance and select a
successful hedge fund. It is here that the book has its greatest
utility, and the text is supplemented with graphs, tables, and
formulas.
The analysis makes one thing clear: for some investors, hedge funds
are an investment worth considering. Most have a demonstrable
record of investment performance and the risk is low, contrary to
common perception. Investors who have the necessary capital to
invest in a hedge fund or readers who aspire to join that select
club will want to absorb the research, information, analyses,
commentary, and guidance of this unique book.
Greg N. Gregoriou (1956–2018) was a professor of finance and
a native of Montreal, Quebec, Canada. He received his joint Ph. D.
in 2004 with a specialization in the area of finance from the
University of Quebec at Montreal, Canada. He taught at U.S. and
Canadian universities and did research for large corporations.
Fabrice Douglas Rouah is a Director with Sapient Global Markets and
is based in New York City. He specializes in financial risk
management and is the co-author and co-editor of several books.
Komlan Sedzro, Ph. D., is the Dean of the School of Management,
University of Quebec in Montreal. He has been a professor in the
Department of Finance at ESG UQAM since 1997. He holds a master's
degree in business economics from the University of Clermont in
France and a doctorate in Business Administration (Finance and
Insurance) from Laval University.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2024. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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contact Peter Chapman at 215-945-7000.
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