/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/241105.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, November 5, 2024, Vol. 25, No. 222 Headlines F R A N C E ERAMET SA: Fitch Alters Outlook on 'BB' LongTerm IDR to Negative I R E L A N D CAPITAL FOUR VIII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes CAPITAL FOUR VIII: S&P Assigns B-(sf) Rating on Class F Notes GROSVENOR 2024-2: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes JUBILEE CLO 2014-XII: Fitch Assigns B-sf Rating on Cl. F-RR Notes JUBILEE CLO 2014-XII: S&P Assigns B-(sf) Rating on Cl. F-R Notes PRIMROSE RESIDENTIAL 2022-1: Fitch Affirms 'B-sf' Rating on F Notes K A Z A K H S T A N BEINEU-SHYMKENT GAS: Fitch Cuts LongTerm IDR to BB+, Outlook Stable N E T H E R L A N D S SOLIDUS SOLUTIONS: EUR180MM Bank Debt Trades at 25% Discount P O L A N D ALIOR BANK: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable R U S S I A NAVOIYAZOT: Fitch Assigns BB-(EXP) LongTerm IDR, Outlook Stable S E R B I A TELEKOM SRBIJA: Fitch Assigns 'B+' LongTerm Foreign Currency IDR S P A I N KRONOSNET CX: EUR870MM Bank Debt Trades at 25% Discount NEINOR HOMES: Fitch Assigns 'B+' LongTerm IDR, Outlook Stable [*] Fitch Affirms & Withdraws Ratings on TDA 25 & 28 Spanish RMBS T U R K E Y TURKIYE: S&P Raises LongTerm Sovereign Credit Rating to 'BB-' U K R A I N E DTEK ENERGY: Fitch Affirms 'CC' LongTerm IDRs U N I T E D K I N G D O M AFRICELL GLOBAL: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable CLARA.NET HOLDINGS: EUR290MM Bank Debt Trades at 21% Discount CLARA.NET HOLDINGS: GBP80MM Bank Debt Trades at 25% Discount PAVILLION MORTGAGES 2024-1: Fitch Assigns 'Bsf' Rating on F Notes RETRAC GROUP: Alvarez & Marsal Named as Administrator SPA ENVIRONMENTAL: Leonard Curtis Named as Joint Administrators - - - - - =========== F R A N C E =========== ERAMET SA: Fitch Alters Outlook on 'BB' LongTerm IDR to Negative ---------------------------------------------------------------- Fitch Ratings has revised Eramet S.A.'s Outlook to Negative from Stable and affirmed its Long-Term Issuer Default Rating (IDR) at 'BB'. Fitch has also affirmed Eramet's senior unsecured notes at 'BB'. The Recovery Rating is 'RR4'. The Negative Outlook reflects an increase in debt levels and leverage following Eramet's acquisition of a 49.9% minority stake of its greenfield lithium project in Argentina. The step-up in debt comes at a time when earnings remain weak due to subdued market conditions for steel production in China. Fitch expects EBITDA net leverage to be around 3.5x at end-2024, well above its downgrade sensitivity of 2.5x, before it moderates to or below 2.5x by 2026. The 'BB' IDR is supported by Eramet's portfolio of large, cost-competitive assets across the manganese, minerals sands, nickel ore, and lithium segments, albeit mostly in geographies with weaker operating environments. Key Rating Drivers Turbulent Manganese Market: Supply disruptions saw manganese prices rise sharply in 2Q24 and 3Q24, before falling sharply due to faltering Chinese steel production in August and September, with many mills undertaking early maintenance due to weak market conditions. Eramet cut manganese ore sales volumes to 6.0 millon-6.5 million tonnes in 2024 and is suspending production for at least three weeks at its Moanda mine to cut oversupply (production and transport volumes of 6.5 million-7.0 million tonnes). Fitch has materially revised down its EBITDA forecast for manganese (ore and alloys) to EUR475 million for 2024, improving to around EUR535 million by 2026. Indonesia Cuts Nickel Growth: WedaBay recently received its permit for 2024-2026, which currently limits mining volumes to 32 million wet metric tonnes (wmt; one third limonite; two thirds saprolite). The government is restricting nickel mining, which has led premiums above the floor price to rise to more than USD20/wmt for high-grade saprolite ore. Fitch expects this premium to moderate in 2025 towards USD10/wmt as revised permit applications may be successful from mid-year. Fitch has slightly increased its forecast for dividend receipts to EUR120 million on average (less in 2024 and more in the later years). Taking Full Ownership of Centenario: Eramet acquired Tsingshan's 49.9% interest in the greenfield lithium project in Argentina for EUR663 million. The project, which has a capacity of 24,000 tonnes, is due to start production by end-2024. The project has incurred some cost overruns over the construction period and delays have pushed out first sales to 2025. Since the supply/demand balance has tempered prices since April, Fitch has lowered its EBITDA estimates to EUR60 million for 2025, increasing to EUR190 million by 2027. Leverage Spike in 2024: Fitch anticipates that earnings, based on EBITDA (excluding Société Le Nickel (SLN)) plus dividends received from WedaBay less minority dividends, will be around EUR500 million in 2024. Factoring in the acquisition of the minority stake in Centenario, Fitch-defined EBITDA net leverage will rise to around 3.5x in 2024, which is above Fitch's negative rating sensitivity of 2.5x. However, expected earnings growth over the following two years should allow Eramet to deleverage to 2.5x or below by 2026. Financial Policy in Focus: Eramet has a target net debt/adjusted EBITDA below 1.0x (as per company definition) on average through the cycle. This is commensurate with its 'BB' rating (assuming reasonable variations in factoring from year to year, which Fitch includes in its debt calculations). Fitch expects company-reported leverage to be around 2.0x for 2024. Management is implementing measures to preserve cash, including optimising working capital, re-prioritising capex and tightening cost control across operations. If they succeed in lowering Fitch-defined net debt/EBITDA to or below 2.5x by 2026 (company-defined leverage closer to 1.0x), Fitch is likely to revise the Outlook to Stable over the next 12-18 months. Indonesian Country Ceiling Applied: EBITDA from operations in France, Norway and the US, together with repatriation of dividends from Indonesia, are sufficient to comfortably cover hard-currency gross interest expense over 2024-2028. Fitch has applied Indonesia's Country Ceiling of 'BBB' as it is the lowest among these countries. Derivation Summary Endeavour Mining plc (BB/Stable) has a commitment to maintaining net debt/EBITDA below 0.5x, but may exceed this target during capital-intensive growth. Its financial policy is more conservative than Eramet's. Endeavour sold two mines in Burkina Faso, and Eramet is about to start production at its lithium project in Argentina. As a result, country risk for the two mining companies is broadly similar. Their cost positions are also comparable, but Endeavour's reserve life is shorter. Sibanye-Stillwater Limited (BB/Negative) produces precious group metals that are required for the energy transition (mainly for catalytic converter processes) and prospectively for battery materials (the Keliber lithium project is anticipated to come online in 2026). Sibanye also has gold assets in South Africa that sit in the fourth quartile of the global cost curve. Both Sibanye and Eramet experienced material price declines linked to major earnings-contributing commodities in 2023. While Sibanye's EBITDA net leverage remained below 1x at end-2023, profitability has weakened to an extent that a number of operations are pursuing economic restructuring. Across the portfolio, Eramet has a better cost position and, prospectively, wider diversification of commodities, with mine lives either similar to Sibanye's, or slightly longer. Key Assumptions - Manganese ore price CIF China of USD5.25 per dry metric tonne unit (dmtu) in 2024, USD4.75 in 2025, USD4.87 in 2026 and USD5.00 in 2027 - LME spot nickel price of USD17,000 per tonne in 2024, USD16,000 in 2025, USD15,000 in 2026 and beyond - Lithium carbonate price of USD12,300 per tonne in 2024, USD10,300 in 2025, USD12,000 in 2026 and USD14,000 in 2027 - Volumes in line with management guidance for 2024, with manganese ore production increasing to around 8 million tonnes by 2026 - WedaBay sales quota remaining at 29 million wet metric tonnes for external sales in 2025 and 2026 - As Eramet has committed to not provide any more funding to SLN in New Caledonia, Fitch has taken the most economic financial view by de-consolidating SLN. Its forecasts for EBITDA, gross debt, net debt and leverage therefore exclude SLN - On average, gross capex of around EUR440 million over 2025-2027, excluding phase 2 in Argentina and the ReLieVe recycling project in France as management reassesses its capex programme and timing of growth projects - Dividends received from associates net of dividends to be paid to minorities of EUR50 million in 2024, EUR110 million in 2025, and EUR75 million-EUR85 million thereafter - No defined pay-out ratio for dividends. Fitch expects limited dividends of EUR40 million-EUR45 million a year, unless earnings significantly outperform its rating case and leverage falls towards 1.0x (based on company's definition) RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade The Negative Outlook makes a positive rating action unlikely in the short term. The following factors could lead to a revision of the Outlook to Stable: - EBITDA net leverage (capturing recurring dividends from associates and minority dividends paid) below 2.5x on a sustained basis - Successful ramp-up of the lithium project in Argentina, while achieving a competitive cost position Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA net leverage above 2.5x on a sustained basis (2024: expected 3.6x) - EBITDA interest remaining below 5.0x on a sustained basis (2024: expected 3.1x) - Operating EBITDA margin below 20% - Adverse changes to the operating environment in any important jurisdiction, including changes to capital controls or repatriation requirements, re-negotiation of royalties, or adverse changes to mining legislation that affect operations - Intention or commitment to absorb losses at, or provide new funding to, SLN Liquidity and Debt Structure Comfortable Liquidity: Following the acquisition of Tsingshan's minority stake in the Centenario project, Eramet should have around EUR1.4 billion of liquidity in cash and revolving credit facilities, which mature in June 2029. It is funded beyond December 2026, but the liquidity buffer is not as robust as observed in recent years. Therefore, Fitch would expect Eramet to raise additional funds over the next six to 12 months. Issuer Profile Eramet is a French mid-sized metals & mining company with competitive assets in manganese (ore and alloys), nickel, and mineral sands; construction of its greenfield lithium project in Argentina has been completed and the processing plant will start production before end-2024. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Eramet S.A. LT IDR BB Affirmed BB senior unsecured LT BB Affirmed RR4 BB ============= I R E L A N D ============= CAPITAL FOUR VIII: Fitch Assigns 'B-sf' Final Rating on Cl. F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Capital Four CLO VIII DAC final ratings. Entity/Debt Rating ----------- ------ Capital Four CLO VIII DAC Class A XS2883974144 LT AAAsf New Rating Class B XS2883974656 LT AAsf New Rating Class C XS2883976354 LT Asf New Rating Class D XS2883976941 LT BBB-sf New Rating Class E XS2883977832 LT BB-sf New Rating Class F XS2883978483 LT B-sf New Rating Class X XS2883973682 LT AAAsf New Rating Subordinated Notes XS2883978996 LT NRsf New Rating Transaction Summary Capital Four CLO VIII DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds have been used to fund a portfolio with a target par of EUR425 million. The portfolio is managed by Capital Four CLO Management II K/S and Capital Four Management Fondsmæglerselskab A/S. The CLO has a 4.5-year reinvestment period and a 7.5-year weighted average life (WAL) test at closing. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/ 'B-' category. The Fitch weighted average rating factor (WARF) of the identified portfolio is 24.8. High Recovery Expectations (Positive): At least 90% of the portfolio comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the identified portfolio is 61.6%. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year at the step-up date, which is one year after closing. The WAL extension is subject to conditions, including fulfilling the portfolio-profile, collateral-quality, coverage tests and collateral principal amount being at or above the reinvestment target par, with defaulted assets at their collateral value on the step-up date. Diversified Asset Portfolio (Positive): The transaction includes various concentration limits, including a maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has four matrices; two effective at closing with fixed-rate limits of 5% and 10%, and two one year after closing (or 18 months after closing if the WAL is extended) with fixed-rate limits of 5% and 10%, provided that the portfolio balance (defaults at Fitch-calculated collateral value) is above target par. All four matrices are based on a top-10 obligor concentration limit of 20%. The closing matrices correspond to a 7.5-year WAL test while the forward matrices correspond to a seven-year WAL test. The transaction has an approximately 4.5-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL used for the transaction's matrix and stress portfolio analysis is 12 months less than the WAL covenant. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing both the coverage tests and the Fitch 'CCC' bucket limitation 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 two notches for the class B and C notes, one notch for the class D and E notes, to below 'B-sf' for the class F notes and have no impact on the class X and A 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 and C notes have a rating cushion of one notch and the class D, E and F notes 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 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 Capital Four CLO VIII 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. CAPITAL FOUR VIII: S&P Assigns B-(sf) Rating on Class F Notes ------------------------------------------------------------- S&P Global Ratings assigned credit ratings to Capital Four CLO VIII DAC's class X, A, B, C, D, E, and F notes. At closing, the issuer also issued subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will permanently switch to semiannual payments. The portfolio's reinvestment period will end 4.5 years after closing, while the non-call period will end 1.5 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 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 S&P's counterparty rating framework. Portfolio benchmarks S&P Global Ratings' weighted-average rating factor 2,785.33 Default rate dispersion 474.25 Weighted-average life (years) 5.14 Obligor diversity measure 122.78 Industry diversity measure 19.78 Regional diversity measure 1.26 Transaction key metrics Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.00 Actual 'AAA' weighted-average recovery (%) 36.05 Actual floating-rate assets (%) 93.32 Actual weighted-average coupon 5.39 Actual weighted-average spread (net of floors; %) 3.91 S&P said, "The portfolio is 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 EUR425 million target par amount, the actual targeted weighted-average spread (3.91%), and the covenanted targeted weighted-average coupon (3.00%) as indicated by the collateral manager. We assumed the actual targeted 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. "Our credit and cash flow analysis shows that the class B to E notes benefit from break-even default rate and scenario default rate cushions that we would typically consider to be in line with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings on the notes. The class X, A, and F notes can withstand stresses commensurate with the assigned ratings. "Until the end of the reinvestment period on April 25, 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating and 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 are bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for the class X to F notes. "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we also included the sensitivity of the ratings on the class X 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." 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 the following industries: controversial weapons; nuclear weapon programs; illegal drugs or narcotics; thermal coal; tobacco production; pornography; payday lending; prostitution; oil and gas from unconventional sources*; palm oil; tar and oil sands*; electrical utility*; highly hazardous materials; endangered or protected wildlife; and alcohol*." *When company revenues are above a threshold. Accordingly, since the exclusion of assets from these industries and areas does not result in material differences between the transaction and S&P's ESG benchmark for the sector, no specific adjustments have been made in its rating analysis to account for any ESG-related risks or opportunities. Ratings list Balance Credit Class Rating* (mil. EUR) enhancement (%) Interest rate§ X AAA (sf) 2.125 N/A Three/six-month EURIBOR plus 0.65% A AAA (sf) 261.00 38.59 Three/six-month EURIBOR plus 1.29% B AA (sf) 47.50 27.41 Three/six-month EURIBOR plus 1.85% C A (sf) 26.50 21.18 Three/six-month EURIBOR plus 2.15% D BBB- (sf) 30.50 14.00 Three/six-month EURIBOR plus 3.25% E BB- (sf) 17.00 10.00 Three/six-month EURIBOR plus 5.95% F B- (sf) 14.90 6.49 Three/six-month EURIBOR plus 8.47% Sub. NR 32.30 N/A N/A *The ratings assigned to the class X, A, and B notes address timely interest and ultimate principal payments. The 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. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. Sub.--Subordinated. GROSVENOR 2024-2: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Grosvenor Place CLO 2024-2 DAC expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed. Entity/Debt Rating ----------- ------ Grosvenor Place CLO 2024-2 DAC Class A Notes LT AAA(EXP)sf Expected Rating Class B Notes LT AA(EXP)sf Expected Rating Class C Notes LT A(EXP)sf Expected Rating Class D Notes LT BBB-(EXP)sf Expected Rating Class E Notes LT BB-(EXP)sf Expected Rating Class F Notes LT B-(EXP)sf Expected Rating Sub Notes LT NR(EXP)sf Expected Rating Transaction Summary Grosvenor Place CLO 2024-2 DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds will be used to fund a portfolio with a target par of EUR400 million that is actively managed by CQS (UK) LLP. The CLO has an approximately 2.3-year reinvestment period and an approximately six-year weighted average life (WAL) test. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'. The Fitch-weighted average rating factor of the identified portfolio is 23.8. High Recovery Expectations (Positive): At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rate of the identified portfolio is 63.5%. Diversified Portfolio (Positive): The transaction includes a top-10 obligor concentration limit at 20%. The transaction will also have various concentration limits, including the maximum exposure to the three largest (Fitch-defined) industries in the portfolio at 40% and a maximum fixed-rate asset limit of 12.5%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has a 2.3-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would have no impact on the class A, B, C and E notes, and lead to a one-notch downgrade of the class D notes, and to below 'B-sf' for the class F notes. Based on the actual 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, all notes display a two-notch rating cushion except the class A notes, which are already at the highest rating. Should the cushion between the identified portfolio and the stress portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of up to three notches for the class A to C notes, two notches for the class D notes and to below 'B-sf' for the class E and F notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the RDR across all ratings and a 25% increase in the RRR across all ratings of the Fitch's Stress Portfolio would lead to an upgrade of up to three notches for the rated notes, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch's Stress Portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, leading to the ability of the notes to withstand larger than expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may occur in case of stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover for losses on the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations Fitch does not provide ESG relevance scores for Grosvenor Place CLO 2024-2 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. JUBILEE CLO 2014-XII: Fitch Assigns B-sf Rating on Cl. F-RR Notes ----------------------------------------------------------------- Fitch Ratings has assigned Jubilee CLO 2014-XII DAC reset final ratings. Entity/Debt Rating Prior ----------- ------ ----- Jubilee CLO 2014-XII DAC A-RRR XS2307738745 LT PIFsf Paid In Full AAAsf A-RRRR XS2916439065 LT AAAsf New Rating B-1-RR XS1672950299 LT PIFsf Paid In Full AA+sf B-2-RRR XS2308294110 LT PIFsf Paid In Full AA+sf B1-RRR XS2916439222 LT AAsf New Rating B2-RRRR XS2916439578 LT AAsf New Rating C-R XS1672951180 LT PIFsf Paid In Full A+sf C-RR XS2916439735 LT Asf New Rating D-R XS1672951776 LT PIFsf Paid In Full BBB+sf D-RR XS2916439909 LT BBB-sf New Rating E-R XS1672952154 LT PIFsf Paid In Full BB+sf E-RR XS2916440154 LT BB-sf New Rating F-R XS1672952311 LT PIFsf Paid In Full B+sf F-RR XS2916440311 LT B-sf New Rating Z XS2916440584 LT NRsf New Rating Transaction Summary Jubilee CLO 2014-XII DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans, first-lien last-out loans and high-yield bonds. Note proceeds were used to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Alcentra Limited. The transaction has a 4.5-year reinvestment period and a 7.5-year weighted average life (WAL) test. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors to be in the 'B'/'B-' category. The Fitch weighted average rating factor of the identified portfolio is 24.97. 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 62.25%. Diversified Portfolio (Positive): The transaction has four matrices; two effective at closing with fixed-rate limits of 6% and 12.5%, and two one year after closing (or two years after closing if the WAL is extended) with fixed-rate limits of 6% and 12.5%, provided that the portfolio balance (defaults at Fitch-calculated collateral value) is above target par. All four matrices are based on a top-10 obligor concentration limit of 20%. The closing matrices correspond to a 7.5-year WAL test while the forward matrices correspond to a 6.5-year WAL test. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year at the step-up date one year after closing. The WAL extension is subject to conditions including fulfilling the collateral-quality tests and the aggregate collateral balance being at or above the reinvestment target par, with defaulted assets at their collateral value on the step-up date. Portfolio Management (Neutral): The transaction has an approximately 4.5-year reinvestment period, which is governed by reinvestment criteria that are 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 Fitch modelled is 12 months less than the WAL covenant. This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include passing both the coverage tests and the Fitch 'CCC' maximum limit, 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 the stress period. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would have no impact on the class A, B-1 and B-2 notes, and would lead to downgrades of one notch for the class C, D and E notes and to below 'B-sf' for the class F notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B-1 to E notes have a cushion of two notches and the class F notes have a cushion of three notches. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR 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 for the rated notes, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, leading to the ability of the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may occur in case of stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover for 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 Jubilee CLO 2014-XII DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations Fitch does not provide ESG relevance scores for Jubilee CLO 2014-XII 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. JUBILEE CLO 2014-XII: S&P Assigns B-(sf) Rating on Cl. F-R Notes ---------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Jubilee CLO 2014-XII DAC's class A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes. The issuer has unrated subordinated notes outstanding from the existing transaction and, at closing, also issued unrated class Z notes. This transaction is a reset of the already existing transaction. The existing classes of notes were fully redeemed with the proceeds from the issuance of the replacement notes on the reset date. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs, upon which the notes pay semiannually. This transaction has a 1.45 year non-call period, and the portfolio's reinvestment period will end approximately 4.46 years after closing. The ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. --The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with our counterparty rating framework. Portfolio benchmarks S&P Global Ratings' weighted-average rating factor 2,949.46 Default rate dispersion 648.79 Weighted-average life (years) 3.86 Weighted-average life (years) allowing for the reinvestment period 4.46 Obligor diversity measure 110.32 Industry diversity measure 20.08 Regional diversity measure 1.15 Transaction key metrics Total par amount (mil. EUR) 400.00 Number of performing obligors 131 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 1.91 'AAA' actual portfolio weighted-average recovery (%) 37.05 Actual weighted-average spread (%) 3.97 Actual weighted-average coupon (%) 3.29 Rating rationale S&P said, "Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio primarily comprises broadly syndicated speculative-grade senior secured term loans and senior secured bonds on the effective date. Therefore, we 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 par amount, the covenanted weighted-average spread (3.80%), the covenanted weighted-average coupon (4.50%), and the actual portfolio weighted-average recovery rates for all rating levels except for the 'AAA' rating level where we have considered the actual portfolio weighted-average recovery rate minus 1%.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. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "Until the end of the reinvestment period on April 15, 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, if the initial ratings are maintained. "The transaction's legal structure is bankruptcy remote, in line with our legal criteria. "The operational risk associated with key transaction parties (such as the collateral manager) that provide an essential service to the issuer is in line with our operational risk criteria. "Our credit and cash flow analysis indicate that the available credit enhancement for the class B-1-R to E-R notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we capped our assigned ratings on the notes. The class A-R and F-R notes can withstand stresses commensurate with the assigned ratings. "In addition to our standard analysis, to indicate how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we also included the sensitivity of the ratings on the 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." 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 weapons or firearms, illegal drugs or narcotics, tobacco, pornographic or prostitution, coal, or oil sands, etc. 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." Jubilee CLO 2014-XII is a European cash flow CLO securitization of a revolving pool, comprising mainly euro-denominated senior secured loans and bonds issued by speculative-grade borrowers. Alcentra Ltd. manages the transaction. Ratings list Amount Class Rating* (mil. EUR) Sub(%) Interest rate§ A-R AAA (sf) 248.00 38.00 Three/six-month EURIBOR plus 1.30% B-1-R AA (sf) 34.00 27.00 Three/six-month EURIBOR plus 1.95% B-2-R AA (sf) 10.00 27.00 4.75% C-R A (sf) 24.00 21.00 Three/six-month EURIBOR plus 2.30% D-R BBB- (sf) 28.00 14.00 Three/six-month EURIBOR plus 3.45% E-R BB- (sf) 16.00 10.00 Three/six-month EURIBOR plus 6.21% F-R B- (sf) 13.20 6.70 Three/six-month EURIBOR plus 8.66% Z NR 2.00 N/A N/A Sub. Notes NR 47.80 N/A N/A *The ratings assigned to the 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 EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. PRIMROSE RESIDENTIAL 2022-1: Fitch Affirms 'B-sf' Rating on F Notes ------------------------------------------------------------------- Fitch Ratings has affirmed Primrose Residential 2022-1 DAC's notes. Entity/Debt Rating Prior ----------- ------ ----- Primrose Residential 2022-1 DAC A XS2460259752 LT AAAsf Affirmed AAAsf B XS2460260255 LT AA-sf Affirmed AA-sf C XS2460260842 LT A-sf Affirmed A-sf D XS2460260925 LT BBBsf Affirmed BBBsf E XS2460261147 LT BBsf Affirmed BBsf F XS2460267771 LT B-sf Affirmed B-sf G XS2460267938 LT CCCsf Affirmed CCCsf Transaction Summary Primrose Residential 2022-1 DAC is a securitisation of first-lien residential mortgage assets that were originated before the global financial crisis by three Irish lenders. The seller is Ailm Residential DAC and the provider of representations and warranties is Morgan Stanley Principal Funding, Inc. Mars Capital Finance Ireland DAC and Pepper Finance Corporation (Ireland) DAC service the portfolio and remain the legal title holders. KEY RATING DRIVERS Updated Criteria Assumptions: Fitch has analysed the transaction under the updated version of its European RMBS Rating Criteria, dated 30 October 2024 at www.fitchratings.com. For this analysis, a transaction adjustment of 2.0x and a borrower-level recovery rate cap of 85.0% have been applied, which in conjunction with the updated Criteria lead to a loss expectation close to the 2023 rating analysis. Weakening in Asset Performance: As of end-July 2024, Fitch-calculated loans in arrears by more than 90 days had increased to almost 20% from 14%, as at last review. Fitch believes that high interest rates have put pressure on borrower performance, given the adverse features of the assets. The portfolio includes a significant portion of restructured loans, about 44% by current balance as of July 2024. The build-up of available credit enhancement has offset the worse performance, leading to the affirmations with Stable Outlooks. Non-Liquidity Reserve Depleted: As at August 2024, the non-liquidity reserve fund had been fully depleted after recording uncleared performance deficiency ledger (PDL) for an amount equal to about EUR10 million, which represents 100% of the class Z notes and about 8% of the class G notes outstanding balance. Under its stressed rating scenarios, Fitch believes the non-liquidity reserve will not be replenished in the near future, also in light of the upcoming notes coupon step-up date. Unhedged Basis Risk: As at July 2024, about 60% of the outstanding portfolio was made up of ECB tracker rate loans. There is no swap to hedge the mismatch between the ECB tracker-linked assets and the Euribor-based notes, exposing the transaction to potential basis risk. For these loans, Fitch has stressed the transaction cash flows for this mismatch, in line with its criteria. The rest of the floating rate loans are on standard variable rate (about 28% of the portfolio balance). These have a minimum documented weighted average (WA) margin of one-month Euribor plus 2.5%, which largely mitigates the mismatch with the notes. Fixed-rate loans represents about 12% of the pool. Rising Rate Exposure Partially Hedged: At closing, an interest rate cap was put in place for 10 years to hedge against rising interest rates. As at August 2024, the scheduled notional amount stood at EUR75 million (around 25% of the outstanding asset balance) and a strike rate that rises incrementally to a maximum of 3.5%. The cap has a premium of 30bp running for the first three years, rising to 60bp for the remaining seven years. The premium is included as an issuer senior expense. Fitch tested an amended stressed interest rate path with a plateau of 3.5% to assess whether as a result of the interest rate cap, a lower plateau would be significantly more stressful than Fitch's standard upward interest rate curves as outlined in its Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria. The outcome of this test did not affect the current ratings RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. In addition, unanticipated declines in recoveries could result in lower net proceeds, which may make certain notes susceptible to negative rating action depending on the extent of the decline in recoveries. Fitch found that a 15% increase in the WA foreclosure frequency (FF) and a 15% decrease in the WA recovery rate (RR) indicate downgrades of two notches for the class D notes and one notch for the other classes of notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement levels and potential upgrades. Fitch found a decrease in the WAFF of 15% and an increase in the WARR of 15% indicate upgrades of up to five notches for the class C, E and F 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 Primrose Residential 2022-1 DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. =================== K A Z A K H S T A N =================== BEINEU-SHYMKENT GAS: Fitch Cuts LongTerm IDR to BB+, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has downgraded Beineu-Shymkent Gas Pipeline LLP's (BSGP) Long-Term Issuer Default Rating to 'BB+' from 'BBB-' and its National Long-Term Rating to 'AA-(kaz)' from 'AA+(kaz)'. The Outlooks are Stable. RATING RATIONALE The rating action follows the downgrade of JSC National Company QazaqGaz (NC QG), which is the sponsor and the sole shipper of the transported gas, to 'BB+'/Stable from 'BBB-'/Stable. The rating reflects BSGP's strong market position, supported by a cost pass-through tariff framework, and its very low net leverage at around 0.5x as of 30 June 2024. However, the rating is constrained by NC QG's rating. KEY RATING DRIVERS Revenue Risk - Volume - Midrange Limited Competition, Resilient Volume: BSGP has a strong position as the only route for Kazakhstan to export gas to China and to supply own gas to the southern regions. Kazakhstan's Soviet-era pipeline infrastructure has large gaps. It mostly connects western producing regions to Russia, leaving eastern, central and southern regions disconnected. BSGP's sole shipper and major counterparty is its 50% shareholder, NC QG (national gas pipeline monopoly), resulting in a cap on BSGP's rating. Gas export volumes are based on the agreement between Kazakhstan and China and the contract between NC QG and PetroChina Company Limited (PetroChina, subsidiary of China National Petroleum Corporation, 'A+'/Negative) for the supply of 5-10 billion cubic metres per year (bcma). Domestic demand is driven by gas consumption in southern Kazakhstan, which consumes at least 3-4 bcma. The only alternative for this region to receive gas imports from Uzbekistan. Revenue Risk - Price - Stronger Regulated Cost-Based Tariff: BSGP operates under a regulatory framework with five-year regulatory periods and a cost-based tariff for gas transmission. The latter is designed to recover all operational costs, including debt repayment and to provide a return equal to the weighted average cost of capital (WACC) on the regulated asset base. Infrastructure Dev. & Renewal - Stronger Newly-built Pipeline, Low Maintenance: BSGP is a newly-built operational pipeline with an asset life of over 30 years, which is well beyond the tenor of its debt. The long asset life and modern facilities - most works were completed in 2019 - reduce the need for major maintenance and repairs in the early life of the assets. Debt Structure - 1 - Midrange Corporate-like Debt with FX Risk: As at end-September 2024, debt was USD203.4 million and comprised a single senior unsecured loan, which benefits from an amortising maturity profile and reasonable leverage-based covenants. BSGP's debt is US dollar-denominated and has a floating rate, exposing the project to FX and interest-rate risks. BSGP mitigates FX risk by maintaining a large US dollar cash balance. As of October 2024, cash was around USD171 million equivalent, of which more than half was held in US dollars. Financial Profile BGSP's net debt/EBITDA as of 30 June 2024 was around 0.5x and may even become negative during the projected period if cash generation continues accumulating, as under its Fitch rating and base case. BSGP prepaid USD211 million and USD110 million during 2023 and 2024, leading to a reduced gross debt amount, while continuing to accumulate cash. Fitch views the financial projections as not being material driver for BGSP's rating which, despite its low leverage, is capped by NC QG. PEER GROUP BSGP is not directly comparable with any peer in Fitch's infrastructure portfolio but closest pipelines rated are JSC Astana Gas KMG (AG, 'BBB-'/Stable) and Abu Dhabi Crude Oil Pipeline LLC ('AA'/Stable). AG is another Kazakhstan gas pipeline, which is also remunerated based on a fixed tariff. Its rating is derived by using a bottom-up approach based on the assessment of linkage with its ultimate shareholder, the Republic of Kazakhstan ('BBB'/Stable), and AG's 'bb+' Standalone Credit Profile (SCP), under Fitch's updated Government-Related Entities (GRE) Rating Criteria. AG's 'bb+' SCP is constrained by Intergas Central Asia JSC (ICA; 'BB+'/Stable), the sole off-taker of the pipeline, which pays AG rental payments. Like BSGP, the project benefits from cost-based availability-like revenue framework but BSGP is exposed to tariff revisions every five years and some volatility in volume. Rent payments from ICA are irrespective of volume and cover debt service and taxes. ICA's role as the only revenue counterparty caps AG's SCP at 'bb+'. Abu Dhabi Crude Oil Pipeline's rating relies on its supportive use and operational agreement with the national oil company Abu Dhabi National Oil Company, which underpins the long-term predictability of the project's cash flows. Similarly, both Abu Dhabi Crude Oil Pipeline and BGSP benefit from long-term stable and predictable revenue, but BSGP is exposed to tariff revisions every five years and some volatility in volume. BSGP's operating risk is outsourced to NC QG's subsidiary, ICA, on a three-year rolling basis, which is a weaker arrangement than for Abu Dhabi Crude Oil Pipeline. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative rating action on NC QG - Material deterioration of the SCP accompanied by weaker parent-subsidiary linkages Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action on NC QG Summary of Financial Adjustments Finance and operating leases are removed from financial liabilities. Lease expenses are captured as an operating expense, reducing EBITDA. 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 ----------- ------ ----- Beineu-Shymkent Gas Pipeline LLP LT IDR BB+ Downgrade BBB- Natl LT AA-(kaz)Downgrade AA+(kaz) ===================== N E T H E R L A N D S ===================== SOLIDUS SOLUTIONS: EUR180MM Bank Debt Trades at 25% Discount ------------------------------------------------------------ Participations in a syndicated loan under which Solidus Solutions Group BV is a borrower were trading in the secondary market around 75.5 cents-on-the-dollar during the week ended Friday, November 1, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR180 million Term loan facility is scheduled to mature on September 7, 2026. The amount is fully drawn and outstanding. Solidus Solutions Group BV provides paper containers and packaging products. The Company offers album covers, all weather display, bag in box, cardboard calendars, cores, tubes, envelops, and puzzles. Solidus Solutions Group serves clients worldwide. The Company's country of domicile is the Netherlands. =========== P O L A N D =========== ALIOR BANK: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable ------------------------------------------------------------- Fitch Ratings has upgraded Alior Bank S.A.'s (Alior) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB' and Viability Ratings (VRs) to 'bb+' from 'bb'. Fitch has also upgraded the bank's National Long-Term Rating to 'A-(pol)' from 'BBB+(pol)'. The Outlooks on the Long-Term IDR and National Long-Term Rating are Stable. The upgrade reflects continuing improvements in Alior's financial and business profile. This includes in particular a meaningful strengthening of the bank's capital buffers, which together with improving internal capital generation and asset quality, increase the bank's capacity to absorb unexpected credit losses from its higher-risk business model. Key Rating Drivers Standalone Creditworthiness Drives Ratings: Alior's ratings reflect its moderate franchise and a business model that is characterised by higher risk appetite and lower earnings diversification than higher-rated peers'. This makes it more vulnerable to adverse changes in business and economic conditions and interest rates. The ratings also reflect Alior's strengthened capital buffers and improved ability to generate capital internally, above-average, albeit reducing, level of impaired loans and a typically stable funding and liquidity profile. Alior's National Ratings reflect the bank's creditworthiness relative to Polish peers'. Moderate Domestic Franchise: Alior is a second-tier bank in Poland, with a strategic focus on retail mass market and SME segments. Its customer relationships and pricing power are weaker than larger well-established domestic banks, but its deposit franchise is reasonably strong. The bank's declining, but still meaningful, exposure to higher-risk asset classes and only moderate revenue diversification weigh on its assessment of its business profile. Higher Risk Appetite than Peers: The gradual evolution of Alior's loan book, with a greater focus on secured lending and tighter underwriting discipline in the non-retail segment, has led to an improvement in the bank's asset quality performance and concentration metrics. Nonetheless, its strategic focus on unsecured consumer lending and inherently higher-risk second-tier SMEs exposes it to larger loan losses, as underlined by its historically more volatile performance and higher-than-sector average loan impairment charges (LICs). Above-Average Impaired Loans: Alior's impaired loans ratio has further reduced over the last 12 months, although it remains materially higher than most Fitch-rated Polish banks'. Fitch expects that its impaired loans ratio will stabilise at around current levels in the medium term. This is based on an advanced clean-up of legacy bad debts, improved underwriting standards and contained negative effects of a challenging macroeconomic environment on loan book performance. High Rates Support Profitability: In the medium term, Alior's profitability will continue to benefit from its above-average margins and LICs stabilising at lower than historical levels, which should improve the bank's structural ability to sustainably generate profits. Fitch expects the bank's operating profit to stabilise and operating profit/risk-weighted assets (RWAs) to peak in 2024 and then weaken on RWA inflation, but to remain well above historical performance. Moderate Capitalisation, Reduced Vulnerability: Solid internal capital generation and a reduced burden from unreserved impaired loans have strengthened Alior's capitalisation, making the bank less vulnerable to shocks than in the past. Fitch forecasts a broadly stable common equity Tier 1 (CET1) ratio at above 16% by end-2026. This is despite likely continued dividend payments and a potential negative impact from the implementation of Basel III endgame rules. Stable Funding and Liquidity: Alior's funding and liquidity benefit strongly from its stable and granular customer deposit-based funding. The combination of deposits cost being close to the industry average and a substantial portion of insured deposits coming from private individuals further support its assessment. Fitch expects the gross loans/deposits ratio to remain around 90% in the medium term. The bank's liquidity is well-managed, and supported by an adequate stock of high-quality liquid assets relative to deposits and total assets. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The ratings could be downgraded if Alior's CET1 ratio falls below 15% on a sustained basis due to excessive loan growth or profit distributions that materially exceed Fitch's projections. The ratings could also be downgraded on a substantial and prolonged deterioration of asset quality (with an impaired loans ratio trending towards 10%) that would put significant pressure on the bank's profitability and capitalisation without clear prospects for recovery. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Further upgrade of Alior's VR and Long-Term IDR would require tangible improvements in the bank's risk profile driven by changes in its loan mix towards lower-risk assets classes and customer types. This would be manifested in an impaired loans ratio consistently below 5% and LICs being closer to industry averages. It would also require a longer record of less volatile profitability with operating profit materially and sustainably above 1.5% of RWAs, while maintaining its CET1 ratio at around current levels. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS The 'B' Short-Term IDR is the only option corresponding to the 'BB+' Long-Term IDR. The 'A-(pol)' and 'F1(pol)' National Ratings reflect Alior's creditworthiness relative to Polish peers. Its Short-Term National Rating of 'F1(pol)' is the higher of two options mapping to a 'A-(pol)' Long-Term Rating, reflecting Alior's 'bbb-' funding and liquidity score relative to Polish peers. Alior's Government Support Rating (GSR) of 'No Support' expresses Fitch's opinion that potential sovereign support for the bank cannot be relied on. This is underpinned by the Polish resolution legal framework, which requires senior creditors to participate in losses, if ahead of a bank receiving sovereign support. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES The National Ratings are sensitive to changes to the bank's Long-Term IDR and its credit profile relative to Polish peers. Alior's Short-Term IDR would be upgraded if the Long-Term IDR is upgraded. A downgrade would require a multi-notch downgrade of Alior's Long-Term IDR, which is unlikely. Domestic resolution legislation limits the potential for positive rating action on the bank's GSR. Fitch could assign Alior a Shareholder Support Rating if it sees at least a limited probability of support from Powszechny Zaklad Ubezpieczen S.A., which effectively controls the bank. VR ADJUSTMENTS The business profile score of 'bb' is below the 'bbb' implied category score for Alior, due to the following adjustment reasons: business model (negative) and market position (negative). The asset quality score of 'bb-' is above the 'b' implied category score for Alior, due to the following adjustment reason: historical and future metrics (positive). The earnings and profitability score of 'bb+' is below the 'bbb' implied category score for Alior, due to the following adjustment reason: earnings stability (negative). ESG Considerations Alior has an ESG Relevance Score of '4' for Management Strategy due to heightened execution risk of its business plan given high management turnover at the bank. The score also incorporates its view of heightened government intervention risk in the Polish banking sector affecting the banks' operating environment and their ability to define and execute on their strategies. These have a negative impact on the credit profile, and are relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Alior Bank S.A. LT IDR BB+ Upgrade BB ST IDR B Affirmed B Natl LT A-(pol)Upgrade BBB+(pol) Natl ST F1(pol)Affirmed F1(pol) Viability bb+ Upgrade bb Government Support ns Affirmed ns =========== R U S S I A =========== NAVOIYAZOT: Fitch Assigns BB-(EXP) LongTerm IDR, Outlook Stable --------------------------------------------------------------- Fitch Ratings has assigned JSC Navoiyazot an expected Long-Term Issuer Default Rating (IDR) of 'BB-(EXP)'. The Outlook is Stable. Navoiyazot's rating is equalised with that of its parent JSC Uzkimyosanoat (UKS; BB-/Rating Watch Negative) due to high strategic and operational incentives to support between the parent and its subsidiary, in line with Fitch's Parent and Subsidiary Linkage (PSL) Rating Criteria. In 2023, Navoiyazot contributed around 85% to UKS's group revenues, and 70% to the group's EBITDA. The expected rating is based on its expectation that majority ownership of Navoiyazot will be transferred to UKS by end-2024. The assignment of the final rating is subject to formal finalisation of the transfer. Should Navoiyazot remain majority owned by the state for a protracted period, Fitch will re-assess the criteria application and likely apply the Government-Related Entities Rating Criteria rather than PSL Rating Criteria. Navoiyazot's Standalone Credit Profile (SCP) of 'b-' reflects its small asset base generating approximately USD180 million EBITDA through the cycle, limited revenue diversification with the majority derived from ammonium nitrate and urea, and average cost position. Additionally, Navoiyazot's assets require new investments to enhance cost-efficiency. The SCP is constrained by high leverage, with EBITDA gross leverage at above 5x in 2023, rising to around 7x in 2024, before declining to 5.6x in 2025. Key Rating Drivers Parental Linkage Supports Ratings: Navoiyazot's rating is equalised with UKS's due to its assessment of high strategic and operational incentives. Most of Navoiyazot's debt is guaranteed by the state but Fitch expects the share to gradually decline in the medium term. As there are no guarantees from UKS for Navoiyazot's debt, Fitch views legal incentive between the two as low. Fitch understands from UKS's management that it has controlled Navoiyazot's assets and operations, despite the share transfer to the state and the company expects majority ownership to be transferred back to UKS in 2024. Navoiyazot accounted for 70% of UKS's EBITDA in 2023 and if it remains consolidated in UKS, its contribution is likely to increase. The companies have the same management. Growth and Cost-Efficiency Strategy: Navoiyazot has been upgrading its Soviet-era facilities with an emphasis on cost efficiency. Management aims to boost production volumes by 15% in 2024, increasing overall plant capacity to 93% from 83% and to expand sodium cyanide production for the mining sector. Projects include replacing the tubes, capturing previously flared gas to diversify the product base, building new solar panels and construction of new facilities to optimise the in-situ leaching process for the mining industry. The modernisation programme will total USD100 million-USD150 million capex to be financed by external borrowings with no state guarantees. Limited Deleveraging Capacity: The comprehensive plant modernisation and upgrade completed in 2021 significantly improved Navoiyazot's efficiency and EBITDA margins. However, EBITDA declined by 25% in 2023 to USD200 million due to low price environment, leading to EBITDA gross leverage increasing to 5.3x from 4.6x in 2022. Under Fitch's fertilisers price assumptions and increased energy costs, Fitch forecasts EBITDA to continue declining to around USD150 million in 2024. As modernisation projects are gradually completed, Fitch expects EBITDA to gradually increase to USD200 million by 2027, with leverage reaching 6.8x in 2024 and decreasing to 5.6x in 2025. Small Sized Nitrogen Producer: Navoiyazot mainly produces nitrogen fertilisers (61% of revenue in 2023), sodium cyanide (23%) and PVC (8%) with more than 50% of products being sold to the miners. In 2023, Navoiyazot generated USD200 million EBITDA with 49% EBITDA margin. Its market share is around 30% and exports make up around 25% of revenues and can earn a premium compared with domestic prices, due to limited competition in central Asia. Medium Cost Position: Latest CRU cost-curves for ammonium nitrate place Navoiyazot in the third quartile of the global cost curve, and for ammonia and urea in the second quartile of the global cost curves. Historically, natural gas has been relatively cheap at below USD3-4/mcf due to state subsidies. The government has announced increased natural gas and electricity prices for industrial off-takers, in line with its agenda for market reform. Derivation Summary Navoiyazot has significantly smaller scale and weaker diversification than most Fitch-rated EMEA fertiliser producers. This is slightly mitigated by its status as the sole domestic producer of fertilisers and its dominant share in landlocked Uzbekistan, with high transportation costs for competing importers. Navoiyazot enjoys relatively low electricity and natural gas prices compared with the market. However, its assets require substantial modernisation investments, which reduces its cost-efficiency relative to its peers. The group's ammonia and urea assets are comfortably placed in the second quartile of the respective CRU global cost curves, and its ammonia nitrate asset is in the third quartile of the cost curve. Among its wider peer group, Roehm Holding GmbH (B-/Stable), a European producer of methyl methacrylate, is a larger and diversified company with a robust cost position in Europe, but it is exposed to raw material price volatility and has higher leverage since its acquisition by a private equity sponsor. Lune Holdings S.a r.l. (Kem One; B/Stable) is of similar size, less diversified, has a weaker cost position and weaker margins than Navoiyazot. However, it has a more-conservative balance sheet, with EBITDA gross leverage forecast to return to 3.4x in 2025 after rising to 5.3x in 2024. Root Bidco S.a.r.l. (Rovensa; B/Negative) has higher leverage than peers and limited diversification but operates on a similar scale that Navoiyazot. Rovensa has price and cash flow visibility as well as steady growth that are supported by the essential nature of its products for crop growth and its strategic focus on niche products. Navoiyazot's commodity exposure makes it more exposed to volatility in feedstock and selling prices than Rovensa. However, both companies maintain high margins. Navoiyazot's leverage is higher than Lune Holdings's, with Fitch's expectations for EBITDA gross leverage to reach 6.8x in 2024, but lower than Roehm's and Rovensa's. Key Assumptions - The majority of Navoiyazot's shares to be transferred back to UKS in 2024 and remain in the group over the forecast horizon - Fertiliser prices assumptions in line with Fitch's price deck - EBITDA margin around 35% in 2024, gradually increasing to 38% in 2027 - Debt to equity conversion of USD98 million in 2025 - Dividend payout of 50% in 2024-2027 - Capex UZS135 billion in 2024, UZS1,100 billion in 2025-2026, then UZS140 billion in 2027 RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action on parent UKS, assuming Navoiyazot is majority-owned by UKS and ties remain strong - EBITDA gross leverage below 5x on a sustained basis would be positive for the SCP but not necessarily the IDR Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative rating action on parent UKS, assuming Navoiyazot is majority-owned by UKS - Weakening of ties with UKS - EBITDA gross leverage above 6x on a sustained basis would be negative for the SCP but not necessarily the IDR UKS (rating action commentary dated 23 October 2024) Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - The rating is on RWN, so no positive rating action is expected - The RWN will be resolved and Stable Outlook assigned upon the successful transfer of the majority ownership of Navoiyazot back to UKS and once more clarity of the consolidated group's strategy regarding Navoiyazot is provided Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Failure to transfer the majority of shares of Navoiyazot back to UKS leading to the material change in business profile and its reassessment of the state ties Assuming UKS regains majority ownership of Navoiyazot: - Negative sovereign rating action - Material weakening of links and support from the state - Unsuccessful implementation, material delays and/or cost overruns in cluster projects resulting in EBITDA gross leverage above 6x on a sustained basis, which would be negative for the SCP and the IDR - Liquidity issues, leading to inability to secure the capex funding or refinancing of the UKS's near-term maturities Liquidity and Debt Structure Tight Liquidity: As of 30 June 2024, Navoiyazot had a cash balance of UZS385 billion with no access to revolving facilities. Fitch expects cash flow generation in 2024-2026 to be weak due to high working capital requirements and modernisation capex. The company has received UZS1,300 billion loan in 2024 from the state. Navoiyazot has average annual maturities of around UZS2,500 billion in the next two years, which Fitch expects will be refinanced by state banks. Issuer Profile Navoiyazot is the main subsidiary of UKS, the Uzbek producer of mineral fertilisers and other chemical products. In 2023 Navoiyazot contributed to 70% of UKS's EBITDA. Date of Relevant Committee 21 October 2024 Public Ratings with Credit Linkage to other ratings Navoiyazot's rating is equalised with that of its parent JSC Uzkimyosanoat. 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 Navoiyazot has an ESG Relevance Score of '4' for Governance Structure due to limitations of board independence and effectiveness, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. Navoiyazot has an ESG Relevance Score of '4' for Financial Transparency due to delays in the publication of IFRS accounts compared with international best practice and the absence of interim IFRS reporting, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating ----------- ------ JSC Navoiyazot LT IDR BB-(EXP) Expected Rating =========== S E R B I A =========== TELEKOM SRBIJA: Fitch Assigns 'B+' LongTerm Foreign Currency IDR ---------------------------------------------------------------- Fitch Ratings has assigned Telekom Srbija a.d. Beograd (TS) a final Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'B+'. The Outlook is Positive. Fitch has also assigned TS's USD900 million senior unsecured notes a final rating of 'B+' with a Recovery Rating of 'RR4'. The assignment of final ratings follows the successful issuance of senior unsecured notes and receipt of final documents conforming to information already reviewed. TS's ratings are supported by its leading market position in its domestic market of Serbia and a rational market structure in each of its core markets where it owns network infrastructure (97% of EBITDA for last 12 months to 1H24). The ratings are constrained by a negative free cash flow (FCF) profile, primarily driven by investments in content and relatively low interest coverage. TS's IDR benefits from a one-notch uplift from the company's Standalone Credit Profile (SCP) of 'b'. This reflects the Serbian government's (Serbia; BB+/Positive) ownership of around 58% and voting rights of 73% and Fitch's assessment of strong control and incentives of the sovereign to support the company in case of distress. The Positive Outlook reflects Fitch's expectations of leverage declining below its positive sensitivity of 5.2x in 2026 and, potentially, faster FCF growth than its base case, depending on the uptake of content services. Key Rating Drivers Incumbent with Strong Market Positions: TS is a fully integrated telecoms operator in Serbia with leading market positions in all domestic telecom segments. Its subscriber market share in Serbia in 2Q24 was around 72% in fixed voice, 57% in fixed broadband, 44% in mobile and 54% in multimedia services, according to Serbia's telecoms regulator. TS also has operations in Republika Srpska (Bosnia and Herzegovina) and Montenegro, accounting for 27% of its company-defined EBITDA in 1H24. It holds either first or second positions in various telecoms segments in these neighbouring countries. Rational Market Structure: The telecoms market in Serbia is represented by three mobile network operators (TS, A1 - a subsidiary of Telekom Austria, Yettel - a subsidiary of PPF Group) and two main fixed-line network operators (TS and SBB - subsidiary of United Group). Fitch views this market structure as stable and likely to facilitate rational competition among market participants. This should allow TS to manage churn and grow average revenue per user through data monetisation, bundled offers and price increases. High Leverage, Deleveraging Capacity: Its base case envisages that TS's Fitch-defined EBITDA net leverage will decrease to 6.4x at end-2024 and 5.1x at end-2026 from 7.7x at end-2023 and a peak of 8.0x at end-2022. This compares with its threshold for an upgrade of below 5.2x. The spike in leverage in 2022-2023 was mainly driven by high investments in content, with Fitch treating content cost amortisation as an operating expense. The decrease in leverage will be driven by potentially double-digit revenue growth in 2024-2025 (16.3% reported in 1H24) and Fitch-defined EBITDA margin expansion to 32% in 2026 from 24% in 2023. It will also be supported by receipt of proceeds from towers sales, the majority of which was received in 1H24. Content-Driven Growth Strategy: Part of TS's mid-to-long-term growth strategy is centered around content-leadership and adoption. It has invested in content production since 2019 and acquired broadcast rights for all important sport championships (eg. Premier League, Champions League, La Liga, UEFA, NBA, etc.) with distribution rights covering six Balkan countries. This has helped TS grow its market share in pay-TV and broadband in the last three years and will enhance its bundle product offer in its three core markets. TS has been generating wholesale revenues from licensing sports rights in neighbouring countries and offering its own content to other operators. Its growth strategy also includes sale of internally-produced content through its over-the-top (OTT) platform and offering telecom services as mobile virtual network operator (MVNO) to ex-Yugoslavian diaspora across the globe. It has been providing MVNO and OTT services in DACH-countries (Germany, Austria and Switzerland), with further expansion to the US and Canada expected in 4Q24-2025. Negative FCF, Improving Trend: TS's FCF has been negative for the last four years and Fitch expects it to remain negative through 2024-2028 as the company continues investing in content and builds scale in multimedia. However, Fitch expects the trajectory to considerably improve in 2027-2028, with FCF margins improving to negative 1% in 2028 from negative 36% in 2024, subject to scale expansion. Fitch estimates that by end-2024, TS's Fitch-defined EBITDA is likely to break even in multimedia. In the medium term Fitch sees uncertainties about the pace of adoption and building scale in multimedia. Well-Developed Network Infrastructure: TS's well-invested networks support its leadership in Serbia. Its long-term evolution networks covered 98% by population and 85% by territory of Serbia in 3Q24. TS has also invested significantly in fibre. It had fibre coverage of over 1.6 million premises in Serbia as of 3Q24. A major part of TS's mobile sites are connected with fibre in all its markets. TS launched 5G in Montenegro in 2022 and its mobile infrastructure in Serbia is 5G-ready. FX Mismatch Manageable: TS has considerable foreign-exchange (FX) mismatch as 69% of its EBITDA is in Serbian dinars, while a major part of its debt is euro-denominated. However, the dinar has been broadly stable since 2017. Bosnia Herzegovina's convertible marka has a fixed exchange rate against the euro, so Fitch assumes that the FX mismatch arises only from operations in Serbia. This contributes towards tighter leverage thresholds for the given rating than for European peers. Neutral Regulatory Environment: Fitch assesses the regulatory environment in Serbia as broadly neutral to TS's operating profile. Spectrum costs have historically not been significant and Fitch expects 5G auction costs planned for 2025 to be manageable. Fitch does not expect a fourth mobile operator entering the market in the near future. Government-Linked Entity: Fitch views TS as a government-related entity (GRE) of Serbia under its GRE Criteria. It rates TS using a bottom-up approach with a maximum one notch above the company's SCP of 'b', which results in its IDR of 'B+'. Its assessment of the overall links under the GRE Rating Criteria is 'Strong' with a support score of 20 out of a maximum 60. Fitch scores both of the responsibility-to-support factors and one of the two incentive-to-support factors (contagion risk) as 'Strong'. Derivation Summary TS's ratings reflect its position as the leading fixed-line and mobile operator in Serbia, its ownership of its network infrastructure, its fairly small scale, high leverage and negative FCF generation. Its peer group includes emerging market and European telecom operators. TS's business profile compares well with that of Kazakhtelecom (BBB-/Stable) by size, market position, infrastructure ownership, and competitive, regulatory and operating environment. However, Kazakhtelecom has stronger cash flow generation and lower leverage and has limited FX mismatch as its debt is local-currency denominated. Compared with European peers such as eircom Holdings (Ireland) Limited (B+/Stable), VMED O2 UK Limited (VMED; BB-/Negative) and VodafoneZiggo Group B.V. (B+/Stable), TS has a comparable strong operating profile supported by a rational competitive environment in its core markets. However, TS has lower scale, weaker profitability and EBITDA interest coverage, consistently negative FCF and an FX mismatch between its debt and cash flow. These factors result in tighter leverage thresholds for any given rating compared with its European peer group. However, the thresholds are looser than those of emerging-market peers with high FX mismatch and significant local-currency volatility, such as Turkcell Iletisim Hizmetleri A.S (BB-/Stable) and Turk Telekomunikasyon A.S. (BB-/Stable). Key Assumptions - Revenue to grow 19% in 2024, 14% in 2025 (on the back of price increases and increase in subscriber base including outside of TS's three core markets), before decelerating to mid-to-high single digits in 2026-2028 - Fitch-defined EBITDA margin of around 27% in 2024, before increasing to around 34% in 2028 - Fitch-defined capex at 42% of revenue in 2024 and 31% in 2025, then declining to 23%-24% in 2026-2027 and to 18% in 2028 - Dividend payments broadly in line with historical levels - Working capital outflow of around RSD930 million in 2024 before reversing to inflow of RSD2,770 million a year on average in 2025-2028 - Proceeds from tower sale of around RSD49.3 billion in 2024, around RSD3.6 billion in 2025 and RSD5.8 billion in 2028 - Ongoing refinancing as debt maturities come due Recovery Analysis KEY RECOVERY RATING ASSUMPTIONS - The recovery analysis assumes that TS would be considered as a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated - Fitch estimates a GC EBITDA of RSD40 billion, which reflects its view of a sustainable, post-reorganisation EBITDA level on which Fitch bases the valuation of the company - A 10% fee for administrative claims - Total debt at RSD361 billion, including an expected revolving credit facility (RCF) and unused credit facilities totaling RSD51 billion. Fitch treats the RCF and unused credit facilities as fully drawn for the recoveries calculation - An enterprise value multiple of 5.5x is used to calculate a post-reorganisation valuation and reflects a distressed multiple - The Recovery Rating for Serbian issuers is capped at 'RR4' and hence the rating of TS's senior unsecured instrument is equalised with the Long-Term IDR of 'B+', although the underlying recovery percentage is higher than the 50% implied by the 'RR4' rating. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade For its 'b' SCP - Fitch expectation for cash flow from operations (CFO) less capex/debt trending above 3% - EBITDA net leverage sustained below 5.2x - Fitch-defined EBITDA interest cover trending above 3.0x For GRE-related impact - Stronger linkage to the government under Fitch's GRE Criteria Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade For its 'b' SCP - EBITDA net leverage above 6.2x on a sustained basis - Persistently negative FCF and CFO less capex/debt - Fitch-defined EBITDA interest cover below 2.0x - Deterioration in competitive or regulatory environment leading to a material impact on EBITDA or FCF For GRE-related impact - Weaker linkage to the government under Fitch's GRE Criteria - If Serbia's rating is downgraded by two notches or more, this could result in the removal of the one-notch uplift for the IDR Liquidity and Debt Structure Adequate Liquidity Post-Refinancing: TS issued USD900 million bonds and already secured a EUR383 million amortising term loan facility, with the proceeds to be used to refinance it existing debt. TS's liquidity post-refinancing will be supported by its access to RCFs of around EUR100 million (RSD11.7 billion) from foreign banks until March 2027 and around EUR106 million (RSD12.4 billion) from local banks to 2025. Fitch understands from management that the banks have strong intentions to extend the RCFs' maturities. TS also has other unused credit facilities totaling EUR273 million (RSD30.7 billion) with EUR213 million expiring in 2027 and EUR60 million in 2024 and 2025. Overall liquidity should be sufficient to cover expected negative FCF in 4Q24-2025 and remaining post-refinancing debt maturing in 4Q24 and 2025. TS has also flexibility on part of its capex of around EUR217 million (RSD25.4 billion) in 2025 and EUR192 million (RSD22.5 billion) in 2026. Date of Relevant Committee 11 October 2024 MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Telekom Srbija a.d. Beograd LT IDR B+ New Rating B+(EXP) senior unsecured LT B+ New Rating RR4 B+(EXP) ========= S P A I N ========= KRONOSNET CX: EUR870MM Bank Debt Trades at 25% Discount ------------------------------------------------------- Participations in a syndicated loan under which Kronosnet CX Bidco 2022 SL is a borrower were trading in the secondary market around 74.9 cents-on-the-dollar during the week ended Friday, November 1, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR870 million Term loan facility is scheduled to mature on October 25, 2029. The amount is fully drawn and outstanding. Kronosnet CX Bidco 2022 SL operates as a special purpose entity. The Company was formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes. The Company's country of domicile is Spain. NEINOR HOMES: Fitch Assigns 'B+' LongTerm IDR, Outlook Stable ------------------------------------------------------------- Fitch Ratings has assigned Spanish homebuilder Neinor Homes, S.A. a 'B+' Long-Term Issuer Default Rating (IDR) with a Stable Outlook. Fitch has also assigned a senior secured rating of 'BB-' with a Recovery Rating of 'RR3' and an expected secured debt rating of 'BB-(EXP)/RR3 to Neinor's proposed EUR300 million senior secured notes. The assignment of final ratings is contingent on receipt of final documentation conforming to information already received. The ratings reflect Neinor's high leverage pro-forma for the notes issue, partially offset by its solid business profile. Neinor's renewed focus on its core build-to-sell (BTS) segment and capital-light approach to joint venture (JV) partnerships should improve its cash flow cycle, instead of capital-intensive, long-term build-to-rent (BTR) projects. Fitch expects Neinor's net debt/EBITDA leverage to decrease from around 4.0x at end of 2024 (pro forma for the notes issuance) to around 3.0x over the next two years. This improvement will be supported by good visibility in BTS sales and the growing portion of fees generated from development and management services provided to its JV partners. Key Rating Drivers Business Strategy Shift: In March 2023, Neinor's management outlined a new financial policy aimed at enhancing shareholder returns, targeting EUR600 million in distributions over the next five years. To support this plan, the company divested its BTR developments, shifting away from its initial strategy of becoming a long-term rental operator. Management's refocus on BTS and providing development services to institutional JV co-investors, while retaining a minority 10%-20% stake until project sale, should accelerate cash flow cycles and reduce capital commitment. Additionally, Neinor is entering the senior living segment by co-investing with specialised operators in this growing residential segment. Revised Debt Structure: In 1Q23, Neinor launched a voluntary cash tender offer on its previous secured notes (EUR300 million), redeeming them in April 2023. Subsequently, the company moved to a covenant-lite, fully bank-funded, debt structure, which enabled it to fulfil its updated shareholders policy. The EUR300 million new secured green issue will be partially used to repay the corporate bank debt (EUR175 million), with the remainder earmarked for potential new BTS co-investments or opportunistic land acquisitions. Leverage Increase: Fitch expects Neinor's net debt to rise to around EUR360 million by end-2024 (end-2023: EUR215 million), resulting in an increase in net debt/EBITDA to 4.0x (end-2023 Fitch's calculated net debt/EBITDA: 1.9x). Fitch expects this ratio to decline gradually to around 3.0x in the next 24 months as EBITDA is expected to grow, benefitting from increasing fees from JVs. Additionally, developer loans should decrease, given the company's revised delivery targets of around 2,000 units per year and the consequent reduction in funding needs. Good Revenue Visibility: The 1H24 orderbook was 1,761 units (value: EUR601 million), providing good visibility for the management's targeted sales for 2025. The company has a solid track record of achieving a year-end pre-sales ratio of around 65%-70% of the targeted sales for the next year and around 30%-35% pre-sales for the following year. The company monitors the rate at which the stock is sold, which has been on average a healthy 4.5%-6.0% per month in the past 3 years. The cancellation rate continues to be at a historical low level. The vast availability of owned land (equivalent to around 12,000 units, or six years of production, excluding recent land acquisitions after 1H24) is credit positive as it limits the investment needs. Profits to Improve: Neinor's revenue declined by 22% to EUR591 million in 2023 (2022: EUR763 million) due to weakened demand stemming from rising interest rates and worsening economic conditions. Fitch calculates that the company generated an EBITDA margin of 19.5% and EBITDA of EUR115 million in 2023 (2022: 16.4% and EUR125 million), partly supported by profits from the sale of BTR assets. From December 2022 to September 2024, Neinor disposed of six BTR assets, raising EUR275 million and achieving 75% of its BTR sales target. BTR's divestment is expected to generate proceeds of EUR100 million. Group revenue should remain broadly unchanged in 2024 and increase in 2025 benefitting from an increase in average selling prices and from JV fees. Fitch expects EBITDA at about EUR90 million-EUR100 million in each of the next two years. Favourable Housing Demand: Neinor's portfolio is located in Spain's attractive areas, where there is limited new housing supply and stable or growing demand. In 2023, the value of new home transactions dropped 7.6% yoy due to rising interest rates and worsening economic conditions, which briefly weakened buyer confidence. However, by 4Q23, the value of transactions rebounded with a 5% increase over the same quarter in 2022 and a 24% rise from 3Q23, as mortgage rates began to decrease. In 1H24 the total value transacted on newly built property has increased 6% yoy. Shareholders Friendly Policy: Out of Neinor's EUR600 million five-year shareholder distribution target, EUR200 million has been distributed as at 3Q24. Fitch expects total shareholders' distributions of EUR240 million and EUR125 million in 2024 and 2025 respectively, partly funded with proceeds from BTR divestments. Sustained large dividend outflows would mean Neinor taking longer to deleverage. Derivation Summary With an average selling price (ASP) of over EUR300,000 per unit, Neinor targets the medium-to-high-end segments of the housing demand for its modern apartments. The ASP is similar to Spanish peer AEDAS Homes, S.A. (BB-/Stable) at EUR358,000 and higher than Via Celere Desarrollos Inmobiliarios, S.A.U. (BB-/Stable) at EUR255,000. The UK-based peers Miller Homes Group (Finco) PLC (Miller Homes, B+/Stable) and Maison Bidco Limited (trading as Keepmoat; BB-/Stable) focus on single-family homes in selected regions of the UK away from London. The Berkeley Group Holdings plc (BBB-/Stable) developments command higher ASP at GBP644,000 (2023 UK average: GBP283,000) than its domestic peers, reflecting its London-centred development portfolio. Spanish homebuilders' funding profiles share similarities to the UK homebuilders. UK and Spanish homebuilders have to fund land acquisition before marketing and development costs up until completion. Customer deposits are small (5% to 10% in the UK and up to 20% in Spain). UK homebuilders can reduce the upfront cost of land acquisition by using option rights. In Spain, land vendors may offer deferred payment terms, reducing the initial cash outflow for homebuilders. Spanish homebuilders usually start new developments once the project's funding is procured, with financial institutions usually requiring 30%-50% pre-sales before granting developers bespoke financing for each new development. Kaufman & Broad, S.A. (BBB-/Stable) is one of France's largest homebuilders and has the best funding profile in comparison to its rated peers. Its customers pay in staged instalments through the construction phase. The French homebuilder can acquire land after marketing and use option land, further benefiting its working capital. The different BTR strategies implemented by Spanish homebuilders led to a differentiation in their financial profiles and their leverage metrics which may have temporarily exceeded Fitch's rating sensitivities. AEDAS Homes' BTR strategy entails seeking advance agreements with PRS operators to deliver turnkey BTR developments before committing capital, minimising the risk of the end-purchase of its projects. As a result, the company displayed steady leverage metrics over the past three years, with its net debt/EBITDA constantly below 2x. Via Celere entered into a joint venture (JV) with Greystar Real Estate Partners in March 2023 for the forward sale of 12 BTR projects. Under this agreement, Via Celere retained 45% ownership in this JV which acquires at completion the rental housing units that Greystar markets and operates. In 2023 Via Celere completed 2,031 housing units (2022: 1,781), with approximately half BTR apartments, thus adversely impacting the company's financials. Revenue and EBITDA declined of around EUR220 million and EUR70 million, respectively, from 2022. As a result, 2023 net debt/EBITDA increased to 4.8x (2022: 1.2x), despite the record high number of units delivered. Fitch expects Via Celere's net debt/EBITDA to be restored to within Fitch's sensitivities for the rating by end-2024 as the BTR projects are mostly completed. Fitch forecasts Neinor to take slightly longer to restore its net debt/EBITDA sustainably to below 3.0x, the threshold commensurate with a 'BB-' IDR, following the implementation of its revised business and financial strategy. Key Assumptions Fitch's Key Assumptions within its Rating Case for the Issuer:- - Around 2,000-2,200 BTS deliveries per year in 2024-2026 and gradual exit from the BTR segment; - JV fees for the provision of development services to gradually increase to above EUR20 million per year in the next three years; - Dividend distribution according to the management's plan of returning the remaining EUR365 million to shareholders in 2024-2025; - No M&A activity. Recovery Analysis Fitch uses a liquidation approach for homebuilders as potential buyers' primary focus would be valuable assets such as land and ongoing developments rather than keep the business as a going concern. Fitch's recovery analysis has assumed the following debt based on management's financing plans, instead of the latest reported debt: - A fully drawn EUR40 million super-senior revolving credit facility (RCF) as first-lien secured debt. This is a new RCF which management expects will remain undrawn. Fitch assumed it to be fully drawn under a recovery scenario. - Secured debt of EUR185 million: Neinor expects development and land financing debt of this amount by end-2024. These are typically secured against development and land assets and rank above the proposed EUR300 million senior secured bond. - Proposed EUR300 million senior secured bond: This has share pledges over three main operating subsidiaries (Neinor Peninsula, S.L.U., Neinor Sur, S.L.U and Neinor Norte, S.L.U. and intercompany receivables owed to the issuer of guarantors). EUR175 million of the proceeds will be used to repay an existing green loan and the remainder for land or JV investments. Neinor's key assets are its inventories amounting to EUR1.1 billion at end-June 2024, which include its sites and land, construction work-in-progress and completed buildings with almost no deferred land payment outstanding. Neinor's development assets were valued by Savills and CBRE and had a net realisation value of EUR1.3 billion at YE June 2024. Fitch used an 80% advance rate for Neinor's accounts receivable, which were minimal, and inventory which results in a 100% recovery rate for all of Neinor's secured debt. Fitch treated Neinor's EUR300 million senior secured bond as second-lien debt. Under Fitch's "Recovery Ratings Criteria," with IDRs of 'B+', the recovery rating is capped at 'RR3'/70%, giving it a one-notch uplift above the IDR. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA net leverage below 3.0x - Reduced FCF volatility Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA net leverage above 4.0x - Negative FCF over a sustained period Liquidity and Debt Structure Ample Liquidity: Neinor's liquidity, pro-forma for the expected EUR300 million notes issue, is ample. It comprises a new EUR40 million super-senior revolving credit facility (RCF) maturing in 2029 and around EUR125 million of surplus cash after the repayment of the existing term loan (EUR175 million). Following this transaction there is no corporate debt maturing until 2029 when the notes will be due. At 1H24 Neinor had EUR227 million of land and developer loans, typically drawn by the company and its subsidiaries to fund new projects and repaid upon their completions and sale. Issuer Profile Neinor Homes is a Spanish-based homebuilder operating in the country's largest communities. Date of Relevant Committee 30 October 2024 MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Neinor Homes, S.A. LT IDR B+ New Rating WD senior secured LT BB-(EXP)Expected Rating RR3 senior secured LT BB- New Rating RR3 [*] Fitch Affirms & Withdraws Ratings on TDA 25 & 28 Spanish RMBS ----------------------------------------------------------------- Fitch Ratings has affirmed TDA 25, FTA and TDA 28, FTA ratings and withdrawn their ratings. Entity/Debt Rating Prior ----------- ------ ----- TDA 25, FTA Class A ES0377929007 LT Csf Affirmed Csf Class A ES0377929007 LT WDsf Withdrawn Class B ES0377929015 LT Csf Affirmed Csf Class B ES0377929015 LT WDsf Withdrawn Class C ES0377929023 LT Csf Affirmed Csf Class C ES0377929023 LT WDsf Withdrawn Class D ES0377929031 LT Csf Affirmed Csf Class D ES0377929031 LT WDsf Withdrawn TDA 28, FTA Class A ES0377930005 LT Csf Affirmed Csf Class A ES0377930005 LT WDsf Withdrawn Class B ES0377930013 LT Csf Affirmed Csf Class B ES0377930013 LT WDsf Withdrawn Class C ES0377930021 LT Csf Affirmed Csf Class C ES0377930021 LT WDsf Withdrawn Class D ES0377930039 LT Csf Affirmed Csf Class D ES0377930039 LT WDsf Withdrawn Class E ES0377930047 LT Csf Affirmed Csf Class E ES0377930047 LT WDsf Withdrawn Class F ES0377930054 LT Csf Affirmed Csf Class F ES0377930054 LT WDsf Withdrawn Transaction Summary The RMBS are legacy Spanish residential mortgages transactions, originated in 2006 (TDA 25) and 2007 (TDA 28). Fitch has withdrawn the ratings as they are no longer considered relevant to the agency's coverage. Fitch will no longer provide ratings or analytical coverage of the transactions. KEY RATING DRIVERS Default Appears Inevitable: The notes' ratings are deeply distressed because Fitch views default on all the notes as inevitable. Fitch's analysis indicates that the notes are irrevocably impaired such that they are not expected to receive interest and/or principal in full in accordance with the transaction terms. Fitch's analysis has been performed in accordance with its Global Structured Finance Rating Criteria. The analysis has taken into consideration the recent complete asset portfolio sale implemented for TdA 25 and that the outstanding performing portfolio balance is much smaller than the notes balances on both transactions. It also factored in the large outstanding principal deficiencies of EUR72 million and EUR113.2 million for TdA 25 and TdA 28, respectively, as of the latest reporting dates. SPV Termination Ahead: Based on the latest TdA 25 transaction reporting from the management company, Fitch understands the SPV will be terminated in the coming months. The legal final maturity dates are March 2041 for TDA 25 and October 2050 for TDA 28. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Not relevant as the ratings have been withdrawn. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Not relevant as the ratings have been withdrawn. 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 pools and the transactions. 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. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. 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 TDA 25 and TDA 28, FTA each has an ESG Relevance Score of 4 for Transaction & Collateral Structure due to payment interruption risk, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. In addition, the transactions each has an ESG Relevance Score of 4 for Transaction Parties & Operational Risk due to the very volatile and weak underwriting and servicing standards of one of the lenders, Credifimo, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Following the rating withdrawal, Fitch will no longer provide ESG Relevance scores for the transactions. =========== T U R K E Y =========== TURKIYE: S&P Raises LongTerm Sovereign Credit Rating to 'BB-' ------------------------------------------------------------- S&P Global Ratings, on Nov. 1, 2024, raised its unsolicited long-term sovereign credit ratings on Turkiye to 'BB-' from 'B+'. The outlook is stable. At the same time, S&P affirmed its unsolicited 'B' short-term sovereign credit ratings. S&P also raised its unsolicited national scale ratings to 'trAA+/trA-1+' from 'trAA-/trA-1+'. Finally, S&P revised up its transfer and convertibility assessment to 'BB' from 'BB-', signifying that the risk of the sovereign preventing private-sector debtors from servicing foreign currency-denominated debt is diminished, in light of steps taken by authorities to re-build previously depleted external buffers, amid a gradual removal of financial sector regulations hampering foreign currency liquidity management. Outlook The stable outlook balances S&P's expectation that the current economic team will persevere with tight monetary policy against the implementation risks associated with the government's medium term program. Downside scenario S&P could lower the ratings if pressures on Turkiye's financial stability or wider public finances were to intensify, potentially in connection with unabated currency depreciation alongside a reversal of anti-inflationary policies. Upside scenario S&P could raise the ratings should there be further progress on bringing inflation down closer to single-digit levels and restoring long-term confidence in the Turkish lira, and, more broadly, domestic capital markets. Evidence of this would include further de-dollarization of the share of foreign currency deposits in the Turkish banking system, and increased liquidity and depth of domestic capital markets, particularly for foreign exchange operations. Rationale The upgrade reflects the rebalancing of Turkiye's external accounts, visible in the narrowing of the 12-month rolling current account deficit to about 1% of GDP in August, a reduction in foreign currency deposits, and a concomitant increase in the CBRT's stock of net foreign currency reserves. What has mattered most over the past 12 months is the success authorities have had in convincing domestic households and companies to shift their savings back into local currency. That shift has been the largest contributor to the growth of foreign currency reserves this year. At present, foreign currency and "protected" deposits make up 45% of the total versus 58% at the end of 2023, with protected deposits (which are insured by the CBRT against exchange losses beyond the rate at which they are remunerated) having declined from $89 billion (9.0% of GDP) to $44 billion (4.4% of GDP) over the same period. 45% of the total remains an elevated share for foreign currency savings in any economy, and household confidence in the disinflation plan is still evolving: the gap between household and market participants' expectations on a 12-months forward inflation remains around 40 percentage points. Assuming that monetary policy remains tight, and the domestic savings rate improves, the de-dollarization trend should--with time--continue to bring inflation expectations lower, in S&P's view, implying that, by the middle of 2025, foreign currency deposits could decline to below one-third of bank deposits, leading to further increases in the CBRT's foreign currency reserves. Improved external financing conditions have lead to an increase in external borrowing by companies and banks. At the same time, domestic credit growth is not keeping up with inflation, and private investment remains stagnant, although there has been a rise in foreign currency borrowing by Turkish companies from domestic banks, reflecting the large gap between local currency and foreign currency interest rates. Bringing down inflation further is likely to prove challenging. In December a tripartite commission that includes representatives from unions, employers, and the government is scheduled to negotiate an agreement on a national minimum wage increase to take effect in January 2025. One risk to the disinflation program is that the increase, which is a benchmark for wage-setting across the Turkish economy, is backward-indexed to the 2024 rate of inflation of about 44% rather than to the government's year-end 2025 inflation target of 17%. Given political realities and the still tight labor market, our operating assumption is that the agreement will settle on a figure somewhere between these two extremes. Anything higher than 30%, however, would, in S&P's view, almost certainly prolong an already protracted disinflation process and make single-digit inflation in 2027 a less attainable goal. Anything lower could turn already ambivalent popular support against the Stability Program. Institutional and economic profile: The risks of gradualism -- At present, no elections are scheduled through March 2028, reducing pressures on policymakers to agree to backward-indexed wage increases for 2025 and 2026. -- Nevertheless, the next two years of below-inflation wage increases amid stubbornly high services inflation will weigh on consumer confidence, and potentially raise questions about the sustainability of the Stability Program. -- Support within the governing AKP party to revise the 2017 constitution could eventually bring general elections forward, but not before 2026, in S&P's view. With no scheduled national elections until 2028, Turkish policymakers appear to have space to implement policies to compress demand and inflation, via gradual fiscal and incomes policy tightening. As part of this adjustment, the government appears firm in its decision to adjust the minimum wage only once in 2025 (subject to the tripartite negotiations in December). This would imply a decline in real wages next year, and downward pressure on household spending. Stubbornly high services inflation, particularly in Turkiye's three largest metropolitan areas, which make up close to 40% of Turkiye's population and around 46% of GDP, may, over the course of the next two years, increase pressure on Turkiye's parliament to introduce measures to shield households against the rising cost of living. Further ad hoc pension and wage increases would likely draw out the time it takes to return to single-digit inflation and prolong the adjustment period even beyond 2027, when we currently forecast that inflation will fall below 10%. One of the implicit pillars of the government's disinflation plan is a stable trade-weighted nominal exchange rate. Already this year, the appreciation of the real exchange rate, alongside still-high labor costs and tight domestic credit conditions, has lowered corporate profit margins -- particularly for exporters. Waning corporate profitability has, in turn, made companies hesitant to invest. It is this slowdown in investment (rather than consumption) that is behind the slowdown in GDP so far this year. S&P said, "Going forward, we project that a deceleration of private consumption, which currently makes up just under 60% of GDP, will play the central role in cooling down the Turkish economy. We project real GDP growth will ease to 2.3% in 2025 versus 3.1% this year as tighter credit conditions and lower labor demand pass through into softer demand, only partly offset by stronger exports of goods and services. We project a gradual recovery to take hold from 2026." Under the 2017 constitution, the executive branch has considerable powers, including the ability to appoint and sack cabinet ministers and the leadership of the CBRT, and to issue decrees. Since the approval of the 2017 constitution, the office of prime minister no longer exists. No elections are scheduled until 2028. Nevertheless, some deputies within the senior party of the current AKP-MHP governing coalition are calling for President Tayyip Erdogan to serve a fourth term. Under the 2017 constitution, the president, who is both the head of state and the head of government, cannot serve more than two consecutive five-year terms in full. By cutting short his current term, we understand that President Erdogan would be eligible to run for a third term. To do so, however, would require the support of 360 out of 600 members of parliament, which is 40 more than the number of governing coalition's members of parliament. Flexibility and performance profile: Fiscal policy tightening has yet to materialize -- The CBRT is likely to embark on cautious monetary easing early in 2025. -- For 2024, S&P projects an accruals-based general government deficit of 5.1% of GDP versus the government's 4.9% of GDP objective as growth decelerates. -- For 2025 S&P estimates the deficit narrows to 4% of GDP versus the government's target of 3.1% of GDP. Budgetary performance remains difficult to disentangle from still rapid nominal GDP growth (estimated at 77% in 2023 and 36% for 2024) and buoyant consumption growth up until the third quarter of this year. Overall, fiscal policy--partly reflecting earthquake spending--remains accommodative, albeit authorities are taking measures to ensure they approach their revenue targets in the event of a sharper slowdown in consumer spending. In August, the government reformed the tax regime in line with OECD guidelines so as to establish a minimum corporate tax rate of 10% (and 15% on global income for multinationals) regardless of tax exemptions. They also moved to narrow some exemptions on both the corporate income tax and value-added tax regimes. There are, moreover, mitigating factors that make the fiscal situation more manageable than the headline deficits suggest: much of the budgetary deficits projected for this year and next are owing to high earthquake spending of about 2.4% of GDP this year (on an accruals basis) and just under 1% of GDP in 2025. Indeed, the cash deficit for 2024 looks set to be below the accruals-based deficit, whereas the opposite is the case for 2025. There appears, moreover, to be a willingness and an ability to delay some of the earthquake spending. Given modest debt to GDP (forecast 27% of GDP in gross terms at end-2024) and a fairly low average cost of debt (reflecting last year's macro-prudential regulations that essentially forced banks to purchase government securities at negative real yields) S&P does not consider the somewhat relaxed fiscal stance as a risk to public finances. However, from a demand management point of view, fiscal policy does not seem to be supportive of the disinflation effort: since the end of June 2022, government consumption has increased by 7.5% in real terms, reinforcing rapid private consumption growth of close to 20% over the same period. The trend toward de-dollarization of household and corporate savings is also visible in the improving composition of central government debt, where foreign currency debt now makes up 59% of the total versus almost two-thirds in 2021. This a reflection both of the attractiveness of high rates on lira assets, but also of the relative strength of the lira versus the euro and U.S. dollar. Higher domestic rates have also started to attract capital inflows into Turkiye's domestic government bond market. As of Oct. 18, 2024, non-resident holdings of Turkiye's domestic government bonds made up 9.4% of the total, versus less than 2% at the end of 2023. That figure is still low, equivalent to less than 3% of Turkish GDP (and far below non-resident holdings of over 20% as recently as 2017). Since June 2023, the CBRT has raised the one-week repurchase policy rate by 41.5 percentage points to 50%, broadened the interest rate corridor, ended mandatory government bond holdings for banks making local currency cash loans, withdrawn liquidity by increasing required reserves on short-term foreign exchange-protected deposits, and eased other foreign currency controls. The CBRT requires that exporters sell 30% of their foreign currency revenue to the central bank. 12-month inflation declined to 49% as of end-September, though monthly results continue to surprise on the upside, with services inflation at around 73%, and high year-on-year figures for education (94%), housing (98%), and hospitality (65%) underlying services pressures, which is particularly relevant for households in larger urban areas, who might not own their own homes. Turkiye's external liquidity position has improved: reserves excluding foreign currency borrowed from domestic residents now exceed $110 billion, and the current account is set to finish 2024 in a deficit of just over 1% of GDP, due to flagging demand for hedging products, such as gold and automobiles, amid lower energy prices. Indeed, S&P Global Ratings projects that the current account will post a very modest surplus in 2025, before returning to fairly small deficits commencing in 2026. S&P said, "Financial stability risks are elevated but diminishing, in our view. These could, in turn, represent a contingent liability risk if the government had to rescue a bank, either because of a loss of confidence or because of material asset quality deterioration. The government has already contributed capital to public-sector banks several times. We think that in case of a loss in banking sector confidence, the government could be called upon to contribute equity and loans to banks in significantly higher amounts." Banks' asset quality could also face further pressure because about 37% of loans were denominated in foreign currency as of Oct. 17, 2024 (up 3 percentage points since the spring), making this debt more expensive to service as the lira depreciates. Most of these exposures are to corporates with large earnings in foreign currency; lending to households in foreign currency is virtually nonexistent. However, the recent preference for corporates to borrow in foreign currency is something to monitor. Loan book quality risks are particularly pertinent for public-sector banks, in our view. This is because they have been heavily involved in episodes of rapid credit expansion at low rates, as well as lending to state agencies and enterprises for quasi-fiscal purposes, raising questions about borrowers' ability to repay these lines. S&P considers the shift back to tighter monetary policy will likely weigh on asset quality in Turkiye's financial system, but after a short-term pain, it anticipates potential lower risk. In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List Upgraded To From Turkiye Sovereign Credit Rating |U^ BB-/Stable/B B+/Positive/B Turkey National Scale |U^ trAA+/--/trA-1+ trAA-/--/trA-1+ Transfer & Convertibility Assessment |U^ BB BB- |U^ Unsolicited ratings with issuer participation, access to internal documents and access to management. ============= U K R A I N E ============= DTEK ENERGY: Fitch Affirms 'CC' LongTerm IDRs --------------------------------------------- Fitch Ratings has affirmed DTEK Energy B.V.'s (DTEK Energy) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'CC'. The rating reflects the company's challenging operating environment and the impact of the war between Russia and Ukraine on its business, which has strained its liquidity and heightened the risk of further debt restructuring such as a Distressed Debt Exchange (DDE). DTEK Energy's results are supported by regulatory changes to increase energy price caps since May 2024 as well as by a reduction in trade receivables, but are weighed down by lower generation output following military shelling. Key Rating Drivers Weak Liquidity: DTEK Energy has sufficient cash, held partly in Ukraine and partly abroad, for interest and debt payments during the next six months. However, cash generation may be jeopardised on war escalation with continued shelling of its energy-generating assets. Limited Debt Maturities: DTEK Energy's upcoming debt maturities are limited after the DDEs implemented in the last three years, with about USD8 million notes repayment every June and December and about USD8 million debt repayment to Sense Bank over the next two years. Interest payments to external parties average USD20 million every quarter. Amended Moratorium on Foreign-Currency Payments: The National Bank of Ukraine (NBU) foreign-exchange (FX) transfer moratorium restricting funds transfer out of Ukraine to finance bond payments was relaxed on 10 July 2024. DTEK Energy and other Ukrainian companies will be able, under certain conditions, to send cash abroad by means of dividends to service coupon payments of bonds issued abroad, but not capital repayments. DTEK Energy has so far not been granted an exception to the FX transfer moratorium for any capital repayments. However, it has been able to service its debt so far. Protracted War: DTEK Energy's operational and financial performance remains conditional on the war's developments and its related impact on the energy market in Ukraine, including the financial and liquidity position of main energy-market participants. Partially Operating Installed Capacity: Fitch assumes DTEK Energy's electricity production to decline in 2024 as Kurahivska thermal power plant (TPP), located close to the war's front line, stopped generation and remained idle since 2Q24. Fitch assumes the remaining assets under the control of DTEK to remain operational. Damaged Assets Lower Output: Fitch expects DTEK Energy's energy volumes in 2024 to decline 13% and stabilise at 14 TWh in 2025-2026. DTEK Energy's damaged assets, with its recently disconnected Kurahivska TPP, constrain its ability to materially increase energy supply to match high demand in the autumn and winter seasons. Higher Price Caps: Increased price caps introduced by the regulator from May 2024, similarly as in 2023, should translate into higher average selling prices for DTEK Energy of about 10% annually, thereby supporting the company's EBITDA. However, in Fitch's view the increased prices will not fully compensate for the reduced output. Strained but Improved Cash Flow: Fitch forecasts DTEK Energy's EBITDA to weaken to roughly USD530 million in 2024 (equivalent to UAH22 billion), around which it should stabilise in 2025-2026. Fitch expects some stabilisation in working capital, after considerable outflows in 2022 reversed to inflows in 2023. This could result in positive free cash flow (FCF) of around USD140 million in 2024 and USD70 million in 2025-2026. However, longer-term cash flow forecasts are uncertain at this stage, due to the unclear duration and severity of Ukraine's war with Russia. Derivation Summary In Fitch's view, DTEK Energy's liquidity metrics are in line with the 'CC' category, which indicates a very high credit risk. Key Assumptions Fitch's Key Assumptions within Its Rating Case for the Issuer - Electricity generation volumes in 2024 about 13% lower than in 2023, before stabilising in 2025-2026 - Electricity prices up about 10% in 2024 following the increased energy cap price from May 2024 and rising in line with inflation in 2024-2025 - Capex of about USD235 million in 2024 and averaging USD250 million annually in 2025-2026 for restoration works Recovery Analysis - The recovery analysis assumes that DTEK Energy would be a going concern (GC) in bankruptcy and that the company would be reorganised rather than liquidated - A 10% administrative claim - Its GC EBITDA estimate reflects its view of a sustainable, post-reorganisation EBITDA level, on which Fitch has based the valuation of the company - The Fitch-calculated GC EBITDA of UAH7.5 billion (equivalent of USD185 million) is about 70% lower than 2023's EBITDA due to the effect of the sustained invasion of Ukraine - An enterprise value multiple of 3.0x - Eurobonds, bank loans and other debt rank equally among themselves - Its waterfall analysis generated a recovery computation for the notes at 'RR4', with a waterfall- generated recovery computation of 49%, indicating a 'CC' instrument rating RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Cessation of military operations, and resumption of normal business operations with cash flow stabilisation and an improved liquidity position Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The rating would be downgraded on signs that a renewed default-like process has begun - Non-payment of bond coupons or debt obligations or steps towards further debt restructuring - The IDR will be downgraded to 'D' if DTEK Energy enters into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures, or ceases business Liquidity and Debt Structure Insufficient Liquidity: At end-June 2024 DTEK Energy had USD1,070 million of debt outstanding, including USD1,059 million of outstanding bonds (nominal value of USD1,128 million) and about USD12 million of bank debt versus about USD20 million of cash and cash equivalents. It has total debt maturities of USD17 million within the next 12 months. Interest payments to external parties average USD20 million every quarter. Issuer Profile DTEK Energy is the largest private power-generating company in Ukraine, operating thermal power plants. 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 ----------- ------ -------- ----- DTEK Energy B.V. LT IDR CC Affirmed CC ST IDR C Affirmed C LC LT IDR CC Affirmed CC LC ST IDR C Affirmed C Natl LT CC(ukr) Revision CCC(ukr) Rating senior unsecured LT CC Affirmed RR4 CC =========================== U N I T E D K I N G D O M =========================== AFRICELL GLOBAL: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has assigned African mobile services provider Africell Global Holdings Ltd (Africell) a final Long-Term Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. Fitch has also assigned Africell Holding Limited's (AHL) USD300 million bond a final senior secured instrument rating of 'B-' with a Recovery Rating of 'RR4'. The final ratings are in line with the expected ratings assigned on 10 October 2024. Africell has completed the refinance of its capital structure with a USD300 million bond and has introduced a USD30 million revolving credit facility (RCF) to be borrowed by AHL. Proceeds from the bond have been used to repay outstanding debt at AHL, cover transaction expenses, and pre-fund capex. The rating is constrained by weak operating environments and foreign-exchange (FX) risks, including a mismatch between debt and cash flow generation and negative Fitch-defined free cash flow (FCF). Fitch-defined EBITDA net leverage is moderate for the rating, but Africell is making significant investments. The rating also reflects Africell's diversified revenue base across four markets, market share leadership in Gambia and Sierra Leone, and positive demand drivers in Africa. The Stable Outlook reflects its expectation of improved EBITDA margin and EBITDA interest cover by 2025 and positive cash flow from operations (CFO) less capex/total debt in 2026, although risks remain of an insufficient or volatile liquidity buffer to offset heightened operating risks. Consistent improvement in operating performance, despite FX risks, and sustained cash generation to build liquidity in hard currency are prerequisites for a positive rating action. Key Rating Drivers Refinancing Provides Financial Flexibility: The refinancing has provided funding of around USD85 million for general corporate purposes, including local debt repayments, and for capex in Angola (B-/Stable), Gambia, Sierra Leone, and the Democratic Republic of Congo (DRC). The extension of its debt maturity reduces refinancing risk. Improvement in EBITDA interest cover to 3.8x in 2026 from 2.2x in 2024 will allow for better flexibility, particularly against unforeseen volatility from FX. Fitch expects a lower cash buffer during the investment phase until it starts generating positive FCF in Angola and DRC. RCF access, prudent cash management and careful monitoring of liquidity will be critical to ensuring continued operational stability. EBITDA Margin Recovery: Africell's Fitch-defined EBITDA margin troughed at 6% in 2022 before recovering to 22% in 2023. The trough was driven by operating spending in Angola and macroeconomic challenges after the pandemic, affecting revenue and its cost base. Fitch projects EBITDA margin to further rise to 26% by 2025, on increased subscribers and average revenue per user (ARPU) and improvements in the cost base through lower interconnection costs, dealer commissions, and scale benefits. However, the uncertain nature of operating conditions of Africell's markets introduces some execution risks. Liquidity Dented by Negative FCF: The launch of a greenfield operation in Angola has had a negative impact on Fitch-defined FCF since 2021, with capex and EBITDA pressure eroding FCF and liquidity. Fitch expects capex to remain high as Africell continues to invest in network upgrade to 4G, extend coverage, and build digital and financial services. Investment is needed to capture sector growth and market share and future-proof the network for long-term cash generation. Fitch modelled negative FCF and CFO less capex/total debt in 2024 and 2025. Market Positions Support Business Profile: Africell is the leading operator in mobile services in Gambia and Sierra Leone, where it has over 60% and around 50% market shares, respectively. In Angola, where Africell is comfortably in second place, Fitch expects its share to grow towards 30% over the next three years. Market share can be a key differentiator in overall revenue visibility for telecom operators. Economies of scale provide a shield against competitive threats, greater pricing flexibility, and improved operating leverage. Diversified Asset Portfolio: Africell's geographically diversified portfolio of operating assets provides diversification benefits as each region benefits from exports of uncorrelated goods and services to drive its economy. Therefore, operating pressures in one country can often be mitigated by good performance in others. Market Growth Prospects: Africell operates in countries with market expansion driven by demographic changes and low telecoms penetration. Africell's organic prospects are supported by mobile services forming a critical communication channel. Voice and data penetration in Africell's markets is far lower than in western markets. Fitch expects subscriber numbers and data usage to grow by double digits annually to 2030, driven by economic growth and better access to content and services. Africell's strong understanding of its local markets supports brand building and customer acquisition and retention. Weak Operating Environment: Africell operates in countries with a fairly weak operating environment with sovereign ratings at or below 'B-'. Fitch believes the ratings of corporates operating in such markets are closely aligned with the sovereign ratings. Fitch believes fragile economic structures and uncertain regulation, among other risks, may negatively affect Africell's business profile. Its rating thresholds for Africell are therefore tighter than those for peers operating in more developed markets. Stable Leverage: Fitch expects Africell to have conservative leverage to reflect the mismatch between its local-currency operating cash flows and hard-currency debt and the impact of capex on its cash flows and credit metrics. Fitch estimates Fitch-defined EBITDA net leverage at 3.3x in 2024 after refinancing before falling to 2.3x by 2026, which is adequate for the rating. Fitch does not model dividends and M&A into its rating case but Africell may view acquisitions opportunistically if they enable entry to other geographies or expansion of market share. However, Fitch assumes the near-term focus is to reinvest cash internally and to upstream funds to service hard-currency debt. Applicable Country Ceiling of 'B-': To assess the risk from the currency mismatch between cash flow and debt, and transfer and convertibility risks, Fitch considers net cash flows generated and up-streamed to the holding company from Angola, Gambia, Sierra Leone, and the DRC. Fitch assessed the cash flows that originate from countries with Country Ceilings of 'B-'. Derivation Summary Africell's ratings are constrained by the operating environment the company operates in. Absent operating-environment considerations, Africell's business and financial characteristics would be consistent with a higher rating. Fitch benchmarks Africell's rating to a wide group of peers that include various emerging-market telecom infrastructure and integrated operators. Close peer Axian Telecom's (B+/Stable) higher rating reflects the benefits of deriving a large portion of its revenue and cash flows from countries with stronger operating environments such as Tanzania, its lower leverage and greater financial flexibility. It benefits from a more mature business model offering a greater range of critical services such as financial and digital products, supporting customer retention and spend. Ftch sets EBITDA net leverage thresholds 0.5x tighter at all rating levels due to the weaker mix of countries in which Africell operates. Other local pan-African peers include integrated operators such as the regional operations of Airtel Africa plc and Vodacom Group Limited - subsidiaries of multinational telecoms operators, Bharti Airtel Limited (BBB-/Stable) and Vodafone Group plc (BBB/Positive), respectively - and South African telecoms group MTN Group Limited. All benefit from greater scale, as well as service line and geographical diversification. VEON Ltd. (BB-/Negative) benefits from lower leverage and greater financial flexibility, reflecting its stronger operating profile with well-established or leading positions in all of its markets. Infrastructure peers include IHS Holding Limited (B+/Stable) and Helios Towers Plc (B+/Positive), which are emerging-market tower companies, and Liquid Telecommunications Holdings Limited (CCC+), a wholesale network and enterprise services provider. All have high exposure to emerging markets with fairly weak operating environments and material FX risks. However, they benefit from higher debt capacity at the 'B+' rating due to their mission-critical infrastructure and lower exposure to volatile direct consumer services, which support lower overall business risk. The ratings of Turkcell Iletisim Hizmetleri A.S (BB-/Stable) and Turk Telekomunikasyon A.S. (BB-/Stable) are constrained by Country Ceiling and sovereign rating considerations, respectively, also partly stemming from FX risks. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - Revenue growth for 2024 of 1%, 13% for 2025 and subsequently, high-to-mid teens driven by positive demand trends for connectivity and data. Growth in all geographies to result in CAGR of around 9% over 2023-2027 - Fitch-defined EBITDA margin (adjusted for the application of IFRS16) at 21% in 2024, 26% in 2025 and trending to around 32% by 2027 - Working-capital outflow of USD2 million in 2024 and average working capital outflow at 1% of revenue in 2025-2027 - Capex at 16% of revenue in 2024, increasing to 20% in 2025 before trending to 13% by 2027 - No common dividends during 2024-2027 Recovery Analysis The recovery analysis considers Africell as a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated given its valuable portfolio of assets including critical infrastructure and strong market positions in its regions. Fitch would expect a default to come from factors such as higher competitive intensity, increased technological risk, loss of key contracts, adverse regulatory or political actions or considerable currency depreciation in key geographies. After restructuring, Africell may be acquired by a larger company that will absorb its network, exit certain business lines or cut back its presence in certain less favourable geographies, reducing its scale. Fitch estimates that post-restructuring GC EBITDA for Africell would be around USD80 million. Fitch applied an enterprise value (EV) multiple of 3.0x to the GC EBITDA to calculate a post-reorganisation EV of USD216 million, after deducting 10% for administrative claims to account for bankruptcy and associated costs. The multiple is broadly in line with other emerging-market telecom operators' but lower than pure infrastructure operators. The recovery analysis includes a USD300 million senior secured bond and a USD30 million RCF assumed fully-drawn upon default. All aforementioned debt is assumed to be equally ranking. Fitch has conservatively assumed that the debt will be structurally subordinated to any local facilities held at operating companies. Its waterfall analysis generated a ranked recovery in the 'RR3' band, with expected recoveries of 55% based on current metrics and assumptions. According to its 'Country-Specific Treatment of Recovery Ratings Rating Criteria', the instrument rating is capped at 'B-'/'RR4', with 50% expected recoveries due to jurisdictional factors given the African exposure. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Deterioration in operating metrics with EBITDA net leverage consistently above 4.5x - FCF margin consistently negative, requiring permanent RCF drawdowns or inability to meet debt service over the next 12 months - EBITDA interest coverage consistently below 2.5x - Liquidity risks arising from challenges in moving cash out of operating companies to service offshore debt Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - CFO less capex/total debt consistently above 2.5% with positive FCF margin in low single digits on a through-the-cycle basis - EBITDA interest coverage above 3.5x on a sustained basis - Strong market positions and profitability in core markets with EBITDA net leverage below 3.5x on a sustained basis - Improvement in the operating environment of the countries in which Africell is present or favourable change in the geographical mix of cash flows - Fitch-defined hard-currency debt-service cover ratio remaining at least 1.5x for one year, which would be a pre-requisite for the Foreign-Currency IDR to be one notch above the applicable 'B-' Country Ceiling Liquidity and Debt Structure Limited Liquidity: Africell had USD23 million of cash on its balance sheet at end-June 2024, of which USD29 million was drawn from local overdraft facilities. Fitch believes USD18 million cash was held at the holding company. The refinancing will provide Africell with additional liquidity of around USD85 million after transaction costs available for general corporate purposes including local debt repayments. However, Fitch forecasts a cash balance of around USD70 million at end-2024 and around USD15 million at end-2026, before the use of additional overdrafts or the RCF. Africell will also have access to a USD30 million RCF to cover hard currency interest. While Fitch expects FCF to turn positive in 2026, consistently negative FCF will put adverse pressure on liquidity as it may require Africell to draw down on its RCF, in the absence of external liquidity support. Issuer Profile Africell is an African mobile services provider with around 16 million subscribers, mostly pre-paid, with well-established competitive positions in Gambia and Sierra Leone and a growing presence in Angola and the DRC. Criteria Variation Criteria Variation: Fitch applied a criteria variation to the 'Non-Financial Corporates Exceeding the Country Ceiling Criteria', which normally requires a Country Ceiling to be assigned by the sovereign team. Africell operates in certain countries that Fitch does not rate. Fitch has therefore carried out an internal assessment, rather than obtaining the credit opinion normally required in the 'B' rating category, to determine the appropriate Country Ceiling for Africell. Its internal assessment is predicated on an informal indication received from the sovereign team in terms of both the likely sovereign rating and Country Ceiling of the countries where Africell operates and has control - Gambia, Sierra Leone and the DRC. Africell also operates in Angola. As a result of the sovereign team's feedback, Fitch determined that the most appropriate Country Ceiling is 'B-', in accordance with its 'Non-Financial Corporates Exceeding the Country Ceiling Criteria'. However, it should be noted that the Country Ceiling is not a constraint on the Foreign-Currency IDR for Africell. Date of Relevant Committee 01 October 2024 MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in its credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Africell Holding Limited senior secured LT B- New Rating RR4 B-(EXP) Africell Global Holdings Ltd LT IDR B- New Rating B-(EXP) CLARA.NET HOLDINGS: EUR290MM Bank Debt Trades at 21% Discount ------------------------------------------------------------- Participations in a syndicated loan under which Clara.Net Holdings Ltd is a borrower were trading in the secondary market around 78.9 cents-on-the-dollar during the week ended Friday, November 1, 2024, according to Bloomberg's Evaluated Pricing service data. The EUR290 million Term loan facility is scheduled to mature on July 10, 2028. The amount is fully drawn and outstanding. Claranet is a medium-sized provider of managed IT services primarily focusing on cloud-related services for small and medium-sized companies and the sub-enterprise customer segment. It also offers cybersecurity, connectivity and workplace solutions. The Company's country of domicile is the United Kingdom. CLARA.NET HOLDINGS: GBP80MM Bank Debt Trades at 25% Discount ------------------------------------------------------------ Participations in a syndicated loan under which Clara.Net Holdings Ltd is a borrower were trading in the secondary market around 75.4 cents-on-the-dollar during the week ended Friday, November 1, 2024, according to Bloomberg's Evaluated Pricing service data. The GBP80 million Term loan facility is scheduled to mature on July 10, 2028. The amount is fully drawn and outstanding. Claranet is a medium-sized provider of managed IT services primarily focusing on cloud-related services for small and medium-sized companies and the sub-enterprise customer segment. It also offers cybersecurity, connectivity and workplace solutions. The Company's country of domicile is the United Kingdom. PAVILLION MORTGAGES 2024-1: Fitch Assigns 'Bsf' Rating on F Notes ----------------------------------------------------------------- Fitch Ratings has assigned Pavillion Mortgages 2024-1 PLC's notes final ratings. Entity/Debt Rating Prior ----------- ------ ----- Pavillion Mortgages 2024-1 PLC A XS2903327885 LT AAAsf New Rating AAA(EXP)sf B XS2903328263 LT AA-sf New Rating AA-(EXP)sf C XS2903337926 LT Asf New Rating A(EXP)sf D XS2903353709 LT BBBsf New Rating BBB(EXP)sf E XS2903375934 LT BBsf New Rating BB(EXP)sf F XS2903389307 LT Bsf New Rating B(EXP)sf G XS2903407133 LT NRsf New Rating NR(EXP)sf Z XS2903409428 LT NRsf New Rating NR(EXP)sf Transaction Summary Pavillion 2024-1 is a securitisation of UK prime owner-occupied (OO) mortgages originated by Barclays Bank UK Plc (BBUK) in the UK between 2013 and 2024. BBUK remains legal title holder and servicer of the assets. KEY RATING DRIVERS High Arrears Portfolio: The pool consists of OO mortgages originated by BBUK since 2013 with a weighted average (WA) seasoning of 3.4 years. Despite the prime nature of the loans, with some adverse components such as county court judgements and restructurings, the pool contains a high level of arrears. Loans with more than three payments in arrears represent 15.3%. Nevertheless, Fitch has modelled the pool on the prime matrix and applied an originator adjustment of 1.0x as borrower and loan attributes are captured by foreclosure frequency (FF) adjustments. High Concentration of FTBs: Of the borrowers in the pool, 58.9% are first-time buyers (FTB). Fitch considers that FTBs are more likely to suffer underperformance than other borrowers and considers their concentration in this pool analytically significant. In line with its criteria, Fitch has applied an upward FF adjustment of 1.4x to each loan where the borrower is an FTB. Fixed Interest Rate Hedging Schedule: At closing, 83.3% of the loans pay a fixed rate of interest (reverting to a floating rate), while the notes pay a SONIA-linked floating rate. The issuer entered into a swap at closing to mitigate the interest rate risk arising from the fixed-rate mortgages in the pool. The swap features a defined notional balance that could lead to over-hedging in the structure due to defaults or prepayments. This could reduce available revenue funds in decreasing interest rate scenarios. Residual Interest Rate Risk: Borrowers may request a further advance or product switch from BBUK. Product switches granted for loans less than two payments in arrears and further advances in all cases will be repurchased from the pool by the seller. BBUK can also offer short-term fixed-rate products for forbearance reasons to borrowers in arrears, which can remain in the pool. To mitigate the risk of a material portion of unhedged fixed-rate loans in the pool, the issuer will enter into additional hedging when the proportion of fixed-rate loans exceeds the existing swap notional by 5% of the outstanding current balance of all loans. Fitch incorporated in its analysis the exposure to unhedged product-switches up to the allowed limit. Non-Payers and Vulnerable Borrowers: Around 6.7% of the pool represents advances to borrowers that did not make any scheduled payments over three consecutive months prior to April 2024. Over the 12 months to April 2024, on average 15% of the borrowers made no payment in any given month. To address the risk of fluctuating cash flows and yield compression, Fitch modelled a percentage of the pool to be on a 0% fixed rate for the life of the transaction. The non-payers may include borrowers considered vulnerable, and for that reason litigation proceedings may take longer. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base-case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 15% increase in the WAFF, along with a 15% decrease in the WA recovery rate (RR), would lead to downgrades of up to three notches for the class A, B and D notes, four notches for the class C and E notes, and two notches for the class F notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement and potentially upgrades. Fitch found a decrease in the WAFF of 15% and an increase in the WARR of 15% would lead to upgrades of two notches for the class B and C notes, three notches for the class D and E notes and four notches for the class F notes. The class A notes are at the highest achievable rating on Fitch's scale and cannot be upgraded. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by PwC. The third-party due diligence described in Form 15E focused on the data provided in the loan level pool tape against the original loan files. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions. 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. Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations Pavillion Mortgages 2024-1 PLC has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to the concentration of FTBs, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. RETRAC GROUP: Alvarez & Marsal Named as Administrator ----------------------------------------------------- Retrac Group Limited was placed in administration proceedings in the High Court Of Justice Business And Property Courts In Leeds Insolvency And Companies List (Chd), Court Number: 2024LDS001053, and Michael Denny and Mark Firmin of Alvarez & Marsal Europe LLP was appointed as administrator on Oct. 24, 2024. The Retrac Group is a supplier to the large global manufacturers in Formula One(TM), Motorsport, Automotive, Aerospace, Defence, Marine and R&D / Innovation. Retrac provides its established blue-chip client base with Award-winning engineering solutions in advanced materials, tooling and component manufacture from its 50,000 sq ft facility in Swindon, UK. Its registered office is at Units 3-5 Techno Trading Estate, Swindon, Wiltshire, SN2 8HB. Its principal trading address is at Units 3-5 Techno Trading Estate, Swindon, Wiltshire, SN2 8HB. The joint administrators can be reached at: Michael Denny Alvarez & Marsal Europe LLP Suite 3 Regency House 91 Western Road Brighton, BN1 2NW Tel No: +44(0)20-7715-5223 -- and -- Mark Firmin Alvarez & Marsal Europe LLP Suite 3 Regency House 91 Western Road Brighton, BN1 2NW Tel No: +44(0)20-7715-5223 For further details, contact: Kieran Andrews Alvarez & Marsal Europe LLP Emai: INS_RETRGL@alvarezandmarsal.com Tel No: +44(0)20-7715-5223 SPA ENVIRONMENTAL: Leonard Curtis Named as Joint Administrators --------------------------------------------------------------- Spa Environmental Care Limited was placed in administration proceedings in the High Court of Justice Business and Property Courts of England and Wales, Insolvency and Companies List, Court Number: CR-2024-006293, and Conrad Beighton and Joph Young of Leonard Curtis were appointed as administrators on Oct. 22, 2024. Spa Environmental fka Spa Environmental Care Plc specializes in landscape services activities. Its registered office and principal trading address is at The Lairage Bearley Road, Bearley, Stratford-Upon-Avon, Warwickshire, CV37 0EX. The joint administrators can be reached at: Conrad Beighton Joph Young Leonard Curtis Cavendish House 39-41 Waterloo Street Birmingham, B2 5PP For further details, contact: The Joint Administrators Email: recovery@leonardcurtis.co.uk Tel: 0121 200 2111 Alternative contact: Arrun ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *