/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/241219.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, December 19, 2024, Vol. 25, No. 254 Headlines D E N M A R K SUSTAINABLE PROJECTS: Appoints Thomas Lund Hansen as New CFO F R A N C E IQERA GROUP: Moody's Lowers CFR to Ca & Alters Outlook to Stable G E O R G I A TBC INSURANCE: Fitch Affirms BB LongTerm IDR, Alters Outlook to Neg TBC LEASING: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg G E R M A N Y ALSTRIA OFFICE: S&P Affirms 'BB' Long-Term ICR, Outlook Negative I R E L A N D BAIN CAPITAL 2018-1: Fitch Lowers Rating on Class F Notes to 'B-sf' BAIN CAPITAL 2024-3: Fitch Assigns B-sf Final Rating to Cl. F Notes BARINGS EURO 2024-1: S&P Assigns B- (sf) Rating to Class F Notes CAIRN CLO VII: Fitch Lowers Class F Notes Rating to 'B-sf' CARLYLE EURO 2018-2: Moody's Affirms Ba2 Rating on Class D Notes CONTEGO CLO III: Moody's Ups Rating on EUR8.25MM Cl. F Notes to B1 INDIGO CREDIT II: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes ROCKFORD 2019-1: Fitch Puts 'B-sf' Final Rating to Cl. F-2-R Notes SEAPOINT PARK: S&P Affirms 'B- (sf)' rating on Class E Notes I T A L Y SAN MARINO: Fitch Hikes Foreign-Currency IDR to BB+, Outlook Stable P O R T U G A L CAIXA ECONOMICA: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable SILK FINANCE NO.5: Fitch Affirms 'BBsf' Rating on Class C Notes R U S S I A TBC BANK: Fitch Affirms 'BB-' LongTerm IDR, Alters Outlook to Neg. S P A I N DEOLEO SA: Moody's Lowers CFR to Caa1, Outlook Remains Negative S W I T Z E R L A N D BREITLING HOLDINGS: Moody's Affirms 'B2' CFR, Alters Outlook to Neg T U R K E Y TURKIYE SISE: Fitch Lowers LongTerm IDR to 'B', Outlook Negative U K R A I N E NAFTOGAZ: Fitch Affirms 'CC' Long-Term IDR U N I T E D K I N G D O M CANARY WHARF: Fitch Affirms 'B' LongTerm IDR, Outlook Negative CD&R GALAXY: Fitch Cuts Long-Term IDR to 'C', Removes Neg. Watch DIRTY LITTLE: FRP Advisory Named as Administrators FNZ GROUP: S&P Assigns 'B-' Issuer Credit Rating, Outlook Stable MAISON BIDCO: S&P Affirms 'B+' LT ICR, Outlook Remains Negative MARKET BIDCO: Fitch Puts 'BB' Final Rating to GBP1.2BB A&E Loan MARSH HOLDINGS: Westcotts Business Named as Administrators T&L HOLDCO: S&P Alters Outlook to Negative, Affirms 'B' ICR THAMES WATER: Fitch Affirms 'C' Rating on Senior Secured Debt - - - - - ============= D E N M A R K ============= SUSTAINABLE PROJECTS: Appoints Thomas Lund Hansen as New CFO ------------------------------------------------------------ Sustainable Projects Group Inc. disclosed in a Form 8-K Report filed with the U.S. Securities and Exchange Commission that on November 28, 2024, Stefan Muehlbauer resigned from his position as CFO, effective on the same day. There have been no disagreements between Mr. Muehlbauer and the Company relating to the Company's operations, policies, or practices. On the same day, the Company promoted Thomas Lund Hansen to CFO. Mr. Hansen has served as Head of Projects and Project Execution of the Company since February 2023. Prior to joining the Company, Mr. Hansen served as Strategy Director of Grundfos from October 2018 to January 2023. Mr. Hansen has vast experience in the mining industry and held several management positions within the industry through more than 25 years, including Commissioning and Site Manager of FL Smidth from June 1997 to August 2003, Consultant at McKinsey & Co from June 2005 to July 2007, Business Analysis Manager of Rio Tinto PLC from May 2008 to June 2011, Finance Director of BHP Billiton from July 2011 to February 2014, and Managing Director and CFO of Bryanston Resources UK from May 2014 to December 2017. Mr. Hansen holds a Master of Science degree in Chemical Engineering from Technical University of Denmark and a Master degree in Business and Administration from IESE Business School. Pursuant to the CFO Agreement, Mr. Hansen is entitled to an initial annual base salary of $150,000 and annual pension contributions that amount to 8% of Mr. Hansen's annual base salary. The CFO Agreement also indicates that Mr. Hansen shall be eligible to receive (i) an annual cash bonus of up to 100% of his base salary pursuant to meeting certain targets (ii) a stock-based bonus of up to 100% of his annual base salary pursuant to a separate stock grant agreement. The CFO Agreement may be terminated providing a 3-month advance notice by either Mr. Hansen or the Company and contains a perpetual confidentiality requirement. About Sustainable Projects Aalborg, Denmark-based Sustainable Projects Group Inc. is a pure-play lithium company focused on supplying high-performance lithium compounds to the fast-growing electric vehicle and broader battery markets. Going Concern The Company cautioned in its Form 10-Q Report the quarter ended March 31, 2024, that there is substantial doubt about its ability to continue as a going concern. According to the Company, it has limited revenue and has sustained operating losses, resulting in a deficit. The Company said the realization of a major portion of its assets is dependent on its continued operations, which in turn is dependent upon its ability to meet financing requirements and the successful completion of the Company's planned lithium production facility. As of September 30, 2024, Sustainable Projects Group had $2,557,550 in total assets, $3,514,450 in total liabilities, and $956,900 in total stockholders' deficit. =========== F R A N C E =========== IQERA GROUP: Moody's Lowers CFR to Ca & Alters Outlook to Stable ---------------------------------------------------------------- Moody's Ratings has downgraded iQera Group SAS' (iQera) corporate family rating and its backed senior secured debt rating to Ca from Caa3. The issuer outlook changed to stable from negative. RATINGS RATIONALE The downgrade of iQera's CFR to Ca follows the company's announcement on December 9, 2024 that it has agreed on key terms for a debt restructuring with its noteholders, its revolving credit facility (RCF) lenders and its shareholders and entered into a binding "lock-up" agreement with all respective stakeholders. The downgrade reflects Moody's view that debtholders may bear losses as a consequence of the restructuring between 35% to 65%, equivalent to Moody's Ca category. In the absence of the agreement of 90% of each of the notes issued, the company plans to implement the restructuring through the opening of "accelerated safeguards", a fast track pre-emptive insolvency process. The binding lock-up agreement will allow iQera to reduce its outstanding debt to EUR389 million from nearly EUR600 million through a partial debt-to-equity exchange of 35% of the outstanding notes. The remainder will be exchanged into new notes with a floating coupon and extended to April 2030, while the RCF will be extended to April 2029 respectively. The coupon on the new notes will be Euribor (E) + 4.5%, resulting in a rate cut for most of the bondholders (i.e. for the EUR500 million 2027 notes with a coupon of E+6.5%). Additionally, there will be an additional EUR30 million senior "fresh money" liquidity line to support iQera's day-to-day operations. Following the restructuring, Arrow Credit Opportunities II, a fund managed by AGG Capital Management Limited (a wholly owned subsidiary of Arrow Global Group PLC), will become the controlling majority shareholder of iQera, by securing approximately 51% of the pro-forma equity of iQera via irrevocable equity exchange commitments. The restructuring approach taken by iQera reflects its propensity to resolve its unsustainable capital structure at the expense of creditors, which is now reflected in one negative adjustment for corporate behavior, in addition to the negative adjustment for liquidity management, introduced earlier this year. Very high governance risks are captured by an unchanged governance issuer profile score (IPS) of G-5, in turn resulting in a Credit Impact Score of CIS-5 under Moody's General Principals for Assessing Environmental, Social and Governance (ESG) Risks methodology, indicating a pronounced negative impact of ESG considerations on the ratings. The Ca rating of iQera's backed senior secured notes reflects their position within the company's funding structure and their priorities of claims and asset coverage in the company's liability structure. OUTLOOK The outlook change to stable reflects that despite the uncertainties during the court-supported, pre-emptive insolvency process Moody's do not anticipate that potential losses for debtholders will exceed 65%, equivalent to Moody's Ca category. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's do not expect upward rating pressure for iQera's CFR or its backed senior secured notes during the court-supported, pre-emptive insolvency process. iQera's ratings could be downgraded further to C if the debtholders were to incur losses above 65% of the principal amount. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Finance Companies published in July 2024. ============= G E O R G I A ============= TBC INSURANCE: Fitch Affirms BB LongTerm IDR, Alters Outlook to Neg ------------------------------------------------------------------- Fitch Ratings has revised Georgian-based TBC Insurance JSC's (TBC Insurance) Outlook to Negative from Stable, while affirming its Insurer Financial Strength (IFS) and Long-Term Issuer Default Rating (IDR) at 'BB'. The revision of the Outlook follows that on Georgia's sovereign Long-Term Foreign-Currency IDR to Negative from Stable (see ' Fitch Revises Georgia's Outlook to Negative; Affirms at 'BB', dated 6 December 2024). The sovereign rating and Outlook affect its assessment of the operating environment where the insurer operates and the credit quality of its investment portfolio. TBC Insurance's ratings continue to reflect the company's leading position in the domestic insurance market, adequate capitalisation, solid financial performance and moderate reserving risks and reinsurance utilisation. Key Rating Drivers Increased Investment Risks: TBC Insurance's investment and asset risks are concentrated in the domestic market via its holdings of local bank deposits and bonds of local companies. Fitch believes that weaker sovereign credit quality could feed into the credit quality of local banks and issuers. TBC Insurance's investment portfolio primarily comprises domestic fixed-income instruments with a weighted average rating of 'BB'. The largest portion of investments consists of deposits in local banks. Bonds, mainly non-investment grade, accounted for 14.4% of total investments at end-2023. Additionally, 36% of all investments are placed in TBC Bank in the form of deposits and bonds, which Fitch deems fairly high-risk. Negative IPOE Outlook: Fitch has revised the outlook for Georgian insurers' industry profile and operating environment (IPOE) to negative from stable. This is driven by a negative adjustment for sovereign risk, following Georgia's Outlook revision. Fitch believes that weaker sovereign credit quality could feed into the local financial market and weaken business conditions for insurers. Capital Commensurate with Ratings: TBC Insurance's capital position, as measured by Fitch's Prism Global model, improved to 'Adequate' at end-2023 from 'Somewhat Weak' at end-2022. This was due to higher equity, driven by a GEL20.7 million profit in 2023, 47% of which was retained. Fitch expects the company to maintain a Prism score that is supportive of the ratings. TBC Insurance's regulatory solvency margin rose to 207% at end-3Q24 from 156% at end-2023 and 135% at end-2022, driven by a GEL27.1 million profit in 9M24. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A sustained deterioration in capital position, indicated by the Prism score falling below 'Somewhat Weak' - Deterioration of asset quality, as reflected by a downgrade of the sovereign rating Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Fitch could revise the Outlook to Stable following a similar rating action on the sovereign rating - Sustained improvement in asset quality, combined with maintenance of capital adequacy, as demonstrated by a Prism score of 'Adequate', and a regulatory solvency margin with substantial buffers above regulatory requirements 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 ----------- ------ ----- TBC Insurance JSC LT IDR BB Affirmed BB LT IFS BB Affirmed BB TBC LEASING: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg ------------------------------------------------------------------- Fitch Ratings has revised the Outlook on JSC TBC Leasing's (TBCL) Long-Term Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'BB' and Shareholder Support Rating (SSR) at 'bb'. The rating action follows the recent revision of the Outlook on TBCL's sole shareholder, TBC Bank JSC (BB/Negative/bb), to Negative from Stable (see ' Fitch Revises Outlooks on 7 Georgian Banks on Sovereign Outlook Change dated 12 December 2024). Key Rating Drivers Unless noted below, the key rating drivers for TBCL's IDR and senior debt are in line with those outlined in its rating action commentary published on 30 April 2024 (see "Fitch Affirms TBC Leasing at 'BB'; Outlook Stable"). Outlook Revised to Negative: The revision of the Outlook on TBCL's IDR mirrors that on TBC Bank, which in turn followed the revision of the Outlook on Georgia's sovereign rating to Negative from Stable (see 'Fitch Revises Georgia's Outlook to Negative; Affirms at 'BB'' dated 6 December 2024). The sovereign action reflected elevated political and governance risks increasing concerns over potential impacts on Georgian banks' liquidity and currency stability. Despite the banking sector's resilience, high loan dollarisation and reliance on external borrowings pose vulnerabilities in a stress scenario, which affects TBC Bank's credit profile and its ability to support TBCL. Support Drives Rating: TBCL's IDRs are driven by support from TBC Bank, which is reflected in its SSR of 'bb'. Fitch believes the propensity of TBC Bank to support TBCL is high, reflecting full ownership, common branding, integration, a record of capital and funding support and high reputational risks from a subsidiary default. Potential support should be manageable for TBC Bank, given the subsidiary's small relative size, with TBCL accounting for less than 2% of TBC Bank's equity and 2% of its net income. Weaker Standalone Credit Profile: TBCL's standalone credit profile does not drive the IDR as it is constrained by a monoline business model, fairly weak asset quality, high risk appetite, and tolerance for high leverage. Reputational Risk: Fitch believes a failure to support TBCL would significantly damage TBC Bank's reputation with its key lenders, undermining its business model and growth potential. TBCL's foreign lenders are largely the same international financial institutions and investors from which TBC Bank sources a material portion of its own wholesale funding. Leading Position, Niche Market: TBCL operates solely in Georgia, where it is the market leader with an 87% share at end-1H24. The company mainly provides financial leasing to corporate clients of TBC Bank as well as to SMEs, and to a lesser extent to micro-businesses and individuals. The company accounts for a modest 2% of TBC Bank's assets, but its significance to its product offering has been increasing in recent years. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A downgrade of TBC Bank's IDR would lead to a downgrade of TBCL's IDR. A material weakening of TBC Bank's propensity or ability to support TBCL could result in the subsidiary's rating being notched down from the parent's IDR. This could be driven, for example, by greater regulatory restrictions on support or a reduction in TBCL's strategic importance. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A revision of the Outlook on TBC Bank's IDR to Stable would lead to similar action on TBCL. Public Ratings with Credit Linkage to other ratings TBCL's ratings are linked to TBC Bank's. 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 ----------- ------ ----- JSC TBC Leasing LT IDR BB Affirmed BB ST IDR B Affirmed B LC LT IDR BB Affirmed BB LC ST IDR B Affirmed B Shareholder Support bb Affirmed bb senior secured LT BB Affirmed BB ============= G E R M A N Y ============= ALSTRIA OFFICE: S&P Affirms 'BB' Long-Term ICR, Outlook Negative ---------------------------------------------------------------- S&P Global Ratings affirmed its 'BB' long-term issuer credit rating on Alstria Office REIT-AG (Alstria) and its 'BB+' issue rating on the company's unsecured debt instruments. The recovery rating remains '2'. The negative outlook reflects the risk that Alstria's S&P Global Ratings-adjusted credit metrics will not become commensurate with our rating downside thresholds within the next 9-12 months and liquidity deteriorates if its near-term maturities are not addressed in a timely manner. S&P said, "We understand that Brookfield has signed an equity commitment letter and will inject common equity to Alstria of about EUR160 million ahead of Alstria's bond maturity in September 2025. As of Sept. 30,2024, Alstria's S&P Global Ratings-adjusted debt to debt plus equity jumped to about 68% from approximately 65% in previous quarters, driven by the booking of a noncash deferred tax liability of about EUR225 million following the announced exit from the REIT status at end-2024. The company's reported loan-to-value remained stable at about 57%. We understand that Brookfield has signed an equity commitment letter of approximately EUR160 million to be injected after the closing of its minority squeeze out process, and ahead of its bond maturity in September 2025. We have revised our forecast and now assume common equity to be injected within our rating outlook horizon by the end of the third quarter of 2025 latest, which will bring back its S&P Global Ratings-adjusted ratio of debt to debt plus equity to below 65%, and therefore supporting its 'BB' issuer credit rating. Although remaining very low, we view the company's increase in EBITDA interest coverage to 1.3x rolling 12 months as of Sept. 30, 2024 as positive, compared with 1.0x at end-2023. This is mainly due to the reduced debt at the holding company as of end-2023 and lower related funding costs, which we include in our calculation of Alstria's adjusted credit metrics. We forecast Alstria's EBITDA interest coverage to remain at about 1.4x over the next 12 months, and therefore commensurate with our current rating level. We think that higher refinancing rates for its upcoming debt maturities will be mitigated by positive rental growth and a reduction of gross debt following the anticipated equity injection. We note that Alstria's cash interest coverage remains comfortable at about 2.0x. We expect the company's debt to EBITDA to remain high but improve toward 18.0x by end-2025 compared with 20.0x as of Sept. 30, 2024. "Alstria's liquidity remains adequate, but sizable debt maturities are looming beyond our 12-month forecast horizon. As of Sept. 30, 2024, Alstria's short-term debt maturities amounted to about EUR442 million, including EUR107 million of secured debt maturing in August 2025 and EUR335 million of senior unsecured bonds maturing in September 2025. Alstria's liquidity situation is currently strongly supported by the committed equity letter from Brookfield of about EUR160 million and recently signed new secured loans of around EUR165 million. We also note that the company's undrawn committed revolving credit facility (RCF), maturing in more than 12 months, remains available with EUR200 million but will decrease to EUR150 million from April 2025 onward, given EUR50 million will mature in April 2026. We understand that the company is planning to tackle its debt maturities well in advance and has been successful in refinancing bank debt over the last 12-24 months. We note approximately EUR375 million of debt maturities in 2026, of which EUR334 million relates to a senior unsecured bond. We expect Alstria to take sufficient steps to address sizable upcoming debt maturities in a timely manner to avoid any liquidity shortage. As of Sept. 30, 2024, Alstria's average debt maturity (WAM) stood at 3.2 years, close to our requirement of at least three years for the current rating assessment. Including the recently signed secured loans and refinancing activities, once drawn and completed, we expect its WAM to remain above three years going forward. We understand that Alstria's headroom under some of its financial covenants, mainly related to loan-to-value (LTV), has decreased below 10%. Following the strong property devaluation in 2023, LTV levels for its covenants under mortgage financing have exceeded 60%, sometimes 70%, with covenants ranging between 65% and 75%. For its unsecured financing, comparable LTV covenant is set at 60.0% with reporting of 57.1% as of Sept. 30, 2024. That said, we do not anticipate a risk of a covenant breach. We understand that all of Alstria's financial covenants are soft covenants and do not lead to any default scenario under its debt documentations. A breach of covenants could however entail further cash restrictions and limitations on the usage of operating income for its properties, burdening the company´s liquidity position. "We expect the company's operating performance to remain broadly stable, despite slowing demand and rising vacancy rates in the German office market. As of Sept. 30, 2024, Alstria reported an increase in its average rent per square meter to EUR15.12 from EUR14.61 year-end 2023, mainly supported by extension of expiring leases and new lease contracts. Vacancy rate has remained broadly stable at 8.1% compared with 8.0% in December 2023 We anticipate the operating performance of Alstria to remain overall stable for the next 12 months, benefiting from the overall good location of its assets and long-term lease contracts with public tenants, which generate about 28% of the annual rental income of the company. We forecast that Alstria's rental income will benefit from its large average weighted lease term of more than five years and high rental indexation capacity, leading our forecast of positive like-for-like rental growth to about 2%-3% over the next year, on the back of a broadly stable occupancy rate of about 92%. We anticipate that the office segment in Germany may see some further pressure on occupancy rates because of slowing tenant demand, macroeconomic challenges in the German market, and downsizing of office space. We will closely monitor Alstria's operating performance and any potential effect on its credit metrics. "The recovery rating of Alstria's senior unsecured bonds remains capped at '2'. We maintained our recovery rating on the outstanding three senior unsecured bond issuances combined with a value of about EUR981 million capped at '2', indicating our expectation of 70%-90% recovery (rounded estimate: 85%) in the event of a payment default. Our issue rating remains at one notch above the 'BB' issuer credit rating. "The negative outlook reflects the risk that Alstria's S&P Global Ratings-adjusted credit metrics is not commensurate with our rating downside thresholds within the next 9-12 months and liquidity deteriorates if its near-term maturities are not addressed in a timely manner. This will likely happen if the shareholder's equity commitment will not materialize during the anticipated timeframe. We forecast debt to EBITDA will remain high at about 18.0x for the next 12 months and that S&P Global Ratings-adjusted ratio of debt to debt plus equity will reduce back to just below 65%. We expect its EBITDA interest coverage ratio to remain broadly stable at about 1.3x-1.4x over the same period." S&P could lower the ratings on Alstria, if over the upcoming 12 months: -- The company's adjusted debt-to-debt plus equity ratio remains above 65%; -- EBITDA interest coverage ratio falls below 1.3x; or -- Debt to annualized EBITDA materially exceeds our base-case projections. S&P could also consider taking a negative rating action if liquidity deteriorates, in particular, if Alstria does not address its 2026 debt maturities well in advance, or the anticipated equity injection is not completed by August 2025. S&P could revise its outlook to stable if: -- Debt to debt plus equity falls to 65% or below; -- EBITDA interest coverage ratio remains comfortably above 1.3x; and -- Debt to annualized EBITDA remains within S&P's base case projections. An outlook revision would also require an early refinancing of near-term debt maturities, supporting an adequate liquidity while maintaining an average debt maturity of comfortably above three years. ============= I R E L A N D ============= BAIN CAPITAL 2018-1: Fitch Lowers Rating on Class F Notes to 'B-sf' ------------------------------------------------------------------- Fitch Ratings has downgraded Bain Capital Euro CLO 2018-1 DAC class F notes. Entity/Debt Rating Prior ----------- ------ ----- Bain Capital Euro CLO 2018-1 DAC F XS1713466909 LT B-sf Downgrade B+sf Transaction Summary Bain Capital Euro CLO 2018-1 DAC is a cash flow collateralised loan obligation (CLO). The underlying portfolio of assets mainly consists of leveraged loans and is managed by Bain Capital Credit, Ltd. The deal exited its reinvestment period in April 2022. KEY RATING DRIVERS Negative Default Rate Cushion: The downgrade reflects the negative default rate cushion on the class F notes run using the current portfolio. Currently the transaction is also breaching its class F overcollateralisation (OC) test. The revision to Stable Outlook reflects a limited margin of safety for the class F notes. Par Erosion: Since Fitch's last rating action in July 2024, the trustee has reported EUR5.7 million in new defaults. As a result, the portfolio has experienced further par value erosion, to 4.5% below par as of November 2024, compared to 3.4% below par in June 2024 (as calculated by the trustee). Portfolio Deterioration: Compared to the last review in July 2024, the trustee-calculated Fitch 'CCC' assets have increased from 8.4% to 16%. The trustee-calculated Fitch weighted average rating factor (WARF) has deteriorated from 35.2 to 37.8, breaching the test limit. The Fitch weighted average recovery rate (WARR) has declined from 63% to 62.5%, also failing the test. Furthermore, the fixed rate limit increased from 8.10% to 10.10%, and the weighted average life (WAL) decreased by 0.10 years, both of which also fail their respective tests. The portfolio has been deleveraging by EUR60 million since the last review, leading to an increase in CE for the senior notes, however the class F has not benefited from this improvement. Concentrated Portfolio: The top 10 obligor concentration as calculated by the trustee is 19.1%, exceeding the limit of 18%. No single obligor represents more than 2.7% of the portfolio balance. Cash Flow Modelling: The transaction is currently failing Fitch's 'CCC' and another agency's 'CCC' test, and the class F OC test, which need to be satisfied for the manager to reinvest. The fixed rate limit test, the WAL test, the WARF test and the WARR test are also failing. The manager has not made any purchases since March 2024. Given the manager has not been reinvesting and is currently restricted from reinvestment, Fitch's analysis is based on the current portfolio to test for downgrades. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upgrades may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Bain Capital Euro CLO 2018-1 DAC Fitch has not conducted any checks on 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. ESG Considerations Fitch does not provide ESG relevance scores for Bain Capital Euro CLO 2018-1 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. BAIN CAPITAL 2024-3: Fitch Assigns B-sf Final Rating to Cl. F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Bain Capital Euro CLO 2024-3 DAC final ratings, as detailed below. Entity/Debt Rating ----------- ------ Bain Capital Euro CLO 2024-3 DAC Class X LT AAAsf New Rating Class A-1 LT AAAsf New Rating Class A-2 LT AAAsf New Rating Class B-1 LT AAsf New Rating Class B-2 LT AAsf New Rating Class C LT Asf New Rating Class D LT BBB-sf New Rating Class E LT BB-sf New Rating Class F LT B-sf New Rating Class M LT NRsf New Rating Subordinated Notes LT NRsf New Rating Transaction Summary Bain Capital Euro CLO 2024-3 DAC is a securitisation of mainly senior secured loans and secured senior bonds (at least 90%) with a component of senior unsecured, mezzanine, and second-lien loans. Note proceeds have been used to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Bain Capital Credit U.S. CLO Manager II, LP. The CLO has an approximately 4.6-year reinvestment period and an 8.5-year weighted average life (WAL). KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/'B-'. The Fitch weighted average rating factor of the identified portfolio is 24.3. 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 61.8%. Diversified Portfolio (Positive): The transaction includes various concentration limits for the portfolio, including a fixed-rate obligation limit at 10%, a top 10 obligor concentration limit of 20% and a maximum exposure to the three-largest Fitch-defined industries of 40%. These covenants ensure the asset portfolio will not be exposed to excessive concentration. The transaction includes two Fitch matrices. One is effective at closing, corresponding to a WAL covenant of 8.5 years with fixed-rate limits of 10% The remaining matrix is effective one year from closing and shares the same limits except the WAL test, which is 7.5 years. However, a switch to the forward matrices is subject to the aggregate collateral balance (defaulted obligations at Fitch-calculated collateral value) being at least equal to the target par amount. Portfolio Management (Neutral): The transaction will have an approximately 4.6-year reinvestment period and it 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 for the transaction's 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 conditions include passing the coverage tests and the Fitch 'CCC' bucket limitation test after reinvestment, as well as a WAL covenant that gradually steps down, 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 X to A-2 notes, and would lead to downgrades of one notch for the class B to 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 to F notes have a cushion of two notches. There is no cushion for the class X to A-2 notes, as they are at the highest achievable rating. 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 four notches for the class A-2 to C notes, three notches for the class A-1 and D notes, to below 'B-sf' for the class E to F notes, and would have no impact on the class X 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 stressed-case 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 on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread being 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 Bain Capital Euro CLO 2024-3 DAC 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 Bain Capital Euro CLO 2024-3 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. BARINGS EURO 2024-1: S&P Assigns B- (sf) Rating to Class F Notes ---------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Barings Euro Middle Market CLO 2024-1 DAC's class A-1 Loan and A-2 Loan, and class A, B, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes. The ratings assigned to the notes and loans reflect S&P's assessment of: -- The static collateral pool, which primarily comprises middle market senior secured leveraged loans and some broadly syndicated speculative-grade senior secured term loans. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- 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 3,577.30 Default rate dispersion 469.55 Weighted-average life (years) 4.65 Obligor diversity measure 53.51 Industry diversity measure 13.95 Regional diversity measure 1.02 Transaction key metrics Portfolio weighted-average rating derived from S&P's CDO evaluator B- Current 'CCC' category rated assets (%) 8.42 'CCC' category rated assets modelled (%)* 12.5 Actual 'AAA' weighted-average recovery (%) 48.57 Actual weighted-average spread (net of floors, %) 5.55 *The 'CCC' excess is equal to 20%. Accordingly, we have modelled 12.5% 'CCC' rated assets in the portfolio for purpose of modelling the scenario default rates (SDRs). Under the transaction documents, the rated notes and loans pay quarterly interest unless a frequency switch event occurs. Following this, the rated notes and loans will switch to semiannual payments. The portfolio primarily comprises middle market senior secured leveraged loans and some broadly syndicated speculative-grade senior secured term loans. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. The issuer purchased the middle market portfolio from Massachusetts Mutual Life Insurance Company (MassMutual, who is also the originator of these loans) via a sale agreement. In some instances, the sale will be in the form of a participation, which will result in the middle market loans settling with the issuer after the closing date. The transaction documents require that the issuer and MassMutual use commercially reasonable efforts to elevate the participations by transferring to the issuer the legal and beneficial interests in such assets as soon as reasonably practicable. Under the sale agreement, all title and interest of the middle market assets represent an absolute sale and transfer of ownership to the issuer. Furthermore, the middle market assets shall not be part of the MassMutual's bankruptcy estate in the event of its bankruptcy or insolvency. Portfolio Characteristics Target collateral obligations Target par balance (mil. EUR) 380.00 Par balance of middle market loans (mil. EUR) 330.66 Par balance of BSLs (mil. EUR) 49.34 No. of unique obligors 61 No. of middle market obligors 45 No. of BSL obligors 16 Average obligor holding (%) 1.64 Largest obligor holding (%) 2.14 Smallest obligor holding (%) 0.20 BSL--Broadly syndicated loan. Ratings distribution The table below shows the credit estimate and ratings distribution in the portfolio. Rating and credit estimate distribution S&P Global Ratings' rating/implied rating/credit estimates % of portfolio AAA 0.00 AA+ 0.00 AA 0.00 AA- 0.00 A+ 0.00 A 0.00 A- 0.00 BBB+ 0.00 BBB 0.00 BBB- 0.00 BB+ 0.00 BB 1.71 BB- 0.79 B+ 0.79 B 23.16 B- 61.04 CCC+ 0.00 CCC 12.52 CCC- 0.00 Obligor concentration The underlying portfolio comprises 61 distinct obligors. The table below shows the respective industries of the 10 top obligors. Top obligor holding Obligor Cumulative Obligor (notional (notional Reference Industry amount; %) amount; %) 1 Chemicals 2.14 2.14 2 Professional services 2.14 4.29 3 Insurance 2.14 6.43 4 IT services 2.14 8.58 5 Electronic equipment, instruments and components 2.14 10.72 6 Software 2.14 12.87 7 Insurance 2.14 15.01 8 Food products 2.14 17.16 9 Trading companies and distributors 2.14 19.30 10 Construction and engineering 2.14 21.45 Industry distribution The table below shows the top 10 industry distribution in the portfolio. The portfolio comprises 24 distinct industries as per the Capital IQ industry - level 3 classification. Industry distribution S&P Global Ratings' industry classification % of portfolio Software 17.00 Healthcare providers and services 9.61 IT services 8.38 Pharmaceuticals 7.03 Chemicals 6.90 Construction and engineering 6.08 Professional services 4.49 Insurance 4.29 Aerospace and defense 4.25 Diversified consumer services 3.47 Other 28.51 Country concentration The table below shows the country distribution in the portfolio. The portfolio comprises 10 countries. Country distribution S&P Global Ratings' country classification % of portfolio France 39.53 Netherlands 22.44 Germany 11.68 Belgium 6.39 U.K. 6.09 Luxembourg 4.61 Ireland 3.72 Italy 2.14 Austria 1.69 Spain 0.92 U.S. 0.79 Supplemental tests S&P said, "We also conduct a largest industry default test, a largest obligor default test, a largest sovereign default test, and a largest transfer and convertibility default test according to our "Global Methodology And Assumptions For CLOs And Corporate CDOs," published on June 21, 2019, and "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019." Under these assumptions, the notes can withstand the loss amounts indicated in the "Supplemental tests" table at the assigned ratings. Supplemental tests Largest Largest Largest Largest Industry obligor sovereign sovereign Default default default T&C test loss test loss test loss test loss Amount amount amount amount amount Class Rating (mil. EUR)(mil. EUR)(mil. EUR)(mil. EUR)(mil. EUR) A AAA (sf) 145.60 53.63 77.43 8.15 0.00 A-1 Loan AAA (sf) 40.00 53.63 77.43 8.15 0.00 A-2 Loan AAA (sf) 50.00 53.63 77.43 8.15 0.00 B AA+ (sf) 26.60 53.63 61.94 8.15 0.00 C A+ (sf) 30.40 0.00 46.46 0.00 0.00 D BBB (sf) 19.00 0.00 43.30 0.00 0.00 E BB- (sf) 28.50 0.00 30.40 0.00 0.00 F B- (sf) 9.50 0.00 22.80 0.00 0.00 S&P said, "In our cash flow analysis, we used the EUR380 million target par amount, the actual weighted-average spread (5.55%), and the actual weighted-average recovery rate 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. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "The transaction's legal structure and framework is bankruptcy remote, in line with our legal criteria." Approximately 60% of the portfolio comprises middle market borrowers whose loan terms include some variation of a payment-in-kind (PIK) or PIK-toggle feature. This ranges from some borrowers who have the ability to defer a portion of current cash margin that is due and payable, to some borrowers who have the ability to also defer on the floating-rate index that is due and payable. In all cases, these borrowers are required to pay a minimum cash margin of interest when due (this also includes scenarios where the loan includes a step-down feature). Failure to pay such minimum amount will result in a payment default. S&P said, "As part of our analysis (including sensitivity analysis), we considered a scenario where all PIK and PIK-toggle assets revert to paying the minimum interest rate at the same time. Under this scenario, all classes of notes continue to pass at the assigned rating levels, other than the class E notes, where our analysis indicates a minor negative cushion at the assigned rating level. "Following our analysis (including sensitivity analysis) of the credit, cash flow, counterparty, operational, and legal risks, we believe our assigned ratings are commensurate with the available credit enhancement for the class A-1 Loan and A-2 Loan, and class A, B, C, D, E, and F notes. "Our credit and cash flow analysis indicates that the available credit enhancement for the class D and E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO is static from the closing date, a faster deleveraging of notes may result in increased concentration risk at lower rating levels. As a result, we have capped our ratings assigned to the class D and E notes. "The class F notes' current break-even default rate (BDR) cushion is negative at the current rating level. Nevertheless, based on the portfolio's actual characteristics and additional overlaying factors, including our long-term corporate default rates and recent economic outlook, we believe this class is able to sustain a steady-state scenario, in accordance with our criteria." S&P's analysis further reflects several factors, including: -- The class F notes' available credit enhancement, which is in the same range as that of other CLOs S&P has rated and that has recently been issued in Europe. -- S&P's model-generated BDR, which is at the 'B-' rating level at 32.09% (for a portfolio with a weighted-average life of 4.65 years) versus 14.42% if we were to consider a long-term sustainable default rate of 3.1% for 4.65 years. -- Whether the tranche is vulnerable to nonpayment in the near future. -- If there is a one-in-two chance for this note to default. -- If S&P envisions this tranche to default in the next 12-18 months. -- Following this analysis, S&P considers that the available credit enhancement for the class F notes is commensurate with the assigned 'B- (sf)' rating. S&P said, "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 assessed the sensitivity of our ratings on the class A-1 Loan and A-2 Loan, and class A, B, C, D, 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 certain activities (non-ESG collateral obligations). "Accordingly, since the exclusion of assets from such industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings list Amount Credit Class Rating* (mil. EUR) Interest rate (%) enhancement (%) A AAA (sf) 145.60 3mE + 1.47 38.00 A-1 Loan AAA (sf) 40.00 3mE + 1.47 38.00 A-2 Loan AAA (sf) 50.00 3mE + 1.47 38.00 B AA+ (sf) 26.60 3mE + 2.20 31.00 C A+ (sf) 30.40 3mE + 2.70 23.00 D BBB (sf) 19.00 3mE + 4.50 18.00 E BB- (sf) 28.50 3mE + 7.87 10.50 F B- (sf) 9.50 3mE + 9.27 8.00 Subordinated NR 31.00 N/A N/A *The ratings assigned to the class A-1 Loan and A-2 Loan and class 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. NR--Not rated. N/A--Not applicable. 3mE--Three-month Euro Interbank Offered Rate. CAIRN CLO VII: Fitch Lowers Class F Notes Rating to 'B-sf' ---------------------------------------------------------- Fitch Ratings has downgraded Cairn CLO VII DAC's F notes and revised the Outlook to Negative from Stable for the class E notes. Entity/Debt Rating Prior ----------- ------ ----- Cairn CLO VII DAC E XS1538267227 LT BB+sf Affirmed BB+sf F XS1538268381 LT B-sf Downgrade B+sf Transaction Summary Cairn CLO VII DAC is a cash flow collateralised loan obligation (CLO). The underlying portfolio of assets mainly consists of leveraged loans and is managed by Cairn Loan Investments, LLP. The deal exited its reinvestment period in January 2021. The transaction has a flat weighted average life test of 4.82 years since the reinvestment period ended and it can still reinvest in new assets under a maintained or improved basis. KEY RATING DRIVERS Portfolio Deterioration; High Refinancing Risk: The negative rating actions on classes E and F reflect an increase in exposure to assets with a maturity beyond the legal final maturity of the transaction (long-dated assets), as well as additional defaults which have eroded the par compared to Fitch's last rating action in August 2024, which was based on the latest report in June 2024. The latest portfolio report at November 2024 showed long-dated assets at 7.6% of the total, compared to 1.6% in the investor report at June 2024. The transaction was 2.5% below par in the November 2024 investor report compared to 1.2% at June 2024. The Negative Outlook on class E reflects the limited default rate cushion and the rating being at the 'BB+' level. In Fitch's view, the positive impact of further amortisation would be relatively modest for the junior notes, while the exposure to near-term and medium-term refinancing risk (with about 24% of assets maturing by 2026) may lead to further deterioration in the portfolio with an increase in defaults. As a result, the Negative Outlook on the class E notes reflects the risk of downgrade for the notes though within their respective current category. Margin of Safety: The credit enhancement of the class F notes shows a margin of safety, in line with the 'B-' definition, and so the Outlook is stable. The class F notes rating is now in line with the initial rating assigned in 2017. 'B' Portfolio: Fitch assesses the average credit quality of the obligors at 'B'. The weighted average rating factor of the current portfolio, as calculated by Fitch under its latest criteria, is 23.9. High Recovery Expectations: Senior secured obligations comprise 100% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The weighted average recovery rate (WARR) of the current portfolio, as reported by the trustee, is 60.8%. Diversified Portfolio: The portfolio remains diversified across obligors, countries and industries. No single obligor represents more than 3.3% of the portfolio balance, and the exposure to the three-largest Fitch-defined industries is 25.5% as calculated by the trustee. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Based on the current portfolio, downgrades may occur if the loss expectation is larger than assumed owing to unexpectedly high levels of defaults and portfolio deterioration. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Upgrades may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread being 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 Cairn CLO VII DAC Fitch has not conducted any checks on 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. CARLYLE EURO 2018-2: Moody's Affirms Ba2 Rating on Class D Notes ---------------------------------------------------------------- Moody's Ratings has upgraded the ratings on the following notes issued by Carlyle Euro CLO 2018-2 Designated Activity Company: EUR7,802,000 Class B-1 Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aaa (sf); previously on Jun 7, 2024 Upgraded to Aa3 (sf) EUR18,948,000 Class B-2 Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aaa (sf); previously on Jun 7, 2024 Upgraded to Aa3 (sf) EUR20,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to A1 (sf); previously on Jun 7, 2024 Upgraded to Baa1 (sf) Moody's have also affirmed the ratings on the following notes: EUR232,000,000 (Current outstanding amount EUR34,485,753) Class A-1-A Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 7, 2024 Affirmed Aaa (sf) EUR16,000,000 Class A-1-B Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 7, 2024 Affirmed Aaa (sf) EUR7,868,000 Class A-2-A Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 7, 2024 Upgraded to Aaa (sf) EUR20,000,000 Class A-2-B Senior Secured Fixed Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 7, 2024 Upgraded to Aaa (sf) EUR12,632,000 Class A-2-C Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 7, 2024 Upgraded to Aaa (sf) EUR25,750,000 Class D Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Ba2 (sf); previously on Jun 7, 2024 Affirmed Ba2 (sf) EUR12,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Caa2 (sf); previously on Jun 7, 2024 Downgraded to Caa2 (sf) Carlyle Euro CLO 2018-2 Designated Activity Company, issued in August 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by CELF Advisors LLP. The transaction's reinvestment period ended in November 2022. RATINGS RATIONALE The rating upgrades on the Class B-1, Class B-2 and Class C notes are primarily a result of the significant deleveraging of the senior notes following amortisation of the underlying portfolio since the last rating action in June 2024. The affirmations on the ratings on the Class A-1-A, Class A-1-B, Class A-2-A, Class A-2-B, Class A-2-C, Class D and Class E notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio and its actual over-collateralisation ratios. The Class A-1-A notes have paid down by approximately EUR80.6 million (34.7%) since the last rating action in June 2024 and EUR197.5 million (85.1%) since closing. As a result of the deleveraging, over-collateralisation (OC) has increased. According to the trustee report dated November 2024 [1] the Class A, Class B and Class C OC ratios are reported at 173.08%, 142.75%, and 126.21% compared to May 2024 [2] levels of 141.74%, 126.88% and 117.65%, respectively. Moody's note that the May 2024 and November 2024 principal payments are not reflected in the reported OC ratios. Key model inputs: The key model inputs Moody's use in Moody's analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on Moody's published methodology and could differ from the trustee's reported numbers. In Moody's base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR182,984,846 Defaulted Securities: EUR0 Diversity Score: 33 Weighted Average Rating Factor (WARF): 3196 Weighted Average Life (WAL): 3.3 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.68% Weighted Average Coupon (WAC): 3.82% Weighted Average Recovery Rate (WARR): 44.0% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporate these default and recovery characteristics of the collateral pool into Moody's cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2024. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in October 2024. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: -- Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from Moody's other analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. CONTEGO CLO III: Moody's Ups Rating on EUR8.25MM Cl. F Notes to B1 ------------------------------------------------------------------ Moody's Ratings has upgraded the ratings on the following notes issued by Contego CLO III DAC: EUR18,240,000 Class C-R Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to Aa1 (sf); previously on Jul 3, 2024 Upgraded to Aa2 (sf) EUR15,900,000 Class D-R Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to A1 (sf); previously on Jul 3, 2024 Upgraded to A3 (sf) EUR19,950,000 Class E-R Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to Ba1 (sf); previously on Jul 3, 2024 Affirmed Ba2 (sf) EUR8,250,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to B1 (sf); previously on Jul 3, 2024 Affirmed B2 (sf) Moody's have also affirmed the ratings on the following notes: EUR181,500,000 (current outstanding amount EUR102,152,503) Class A-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Jul 3, 2024 Affirmed Aaa (sf) EUR7,000,000 Class B-1-R Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf); previously on Jul 3, 2024 Upgraded to Aaa (sf) EUR28,160,000 Class B-2-R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Jul 3, 2024 Upgraded to Aaa (sf) Contego CLO III DAC, issued in April 2016 and refinanced in April 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Five Arrows Managers LLP. The transaction's reinvestment period ended in July 2022. RATINGS RATIONALE The rating upgrades on the Class C-R, the Class D-R, the Class E-R and the Class F notes are primarily a result of the improvement in over-collateralisation ratios since the last rating action in July 2024. The affirmations on the ratings on the Class A-R, Class B-1-R and Class B-2-R notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The over-collateralisation ratios of the rated notes have improved since the rating action in July 2024. According to the trustee report dated October 2024 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 157.05%, 138.64%, 125.78%, 112.67% and 108.02% compared to May 2024 [2] levels of 141.56%%, 129.11%, 119.91%, 110.07% and 106.46%, respectively. The key model inputs Moody's use in Moody's analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on Moody's published methodology and could differ from the trustee's reported numbers. In its base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR215,505,826 Defaulted Securities: EUR1,000,000 Diversity Score: 34 Weighted Average Rating Factor (WARF): 2989 Weighted Average Life (WAL): 2.55 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.59% Weighted Average Coupon (WAC): 3.99% Weighted Average Recovery Rate (WARR): 43.96% The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Moody's note that the November 2024 collateral administrator report was published at the time Moody's were completing Moody's analysis of the October 2024 data. Key portfolio metrics such as WARF, diversity score, weighted average spread and life, and OC ratios exhibit little or no change between these dates. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2024. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap provider, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in October 2024. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: -- Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. INDIGO CREDIT II: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes ------------------------------------------------------------------ Fitch Ratings has assigned Indigo Credit Management II DAC final ratings, as detailed below. Entity/Debt Rating ----------- ------ Indigo Credit Management II DAC A XS2916992865 LT AAAsf New Rating B XS2916992949 LT AAsf New Rating C XS2916993327 LT Asf New Rating D XS2916993160 LT BBB-sf New Rating E XS2916993244 LT BB-sf New Rating F XS2916993590 LT B-sf New Rating Subordinated XS2916993756 LT NRsf New Rating X XS2916993087 LT AAAsf New Rating Transaction Summary Indigo Credit Management II DAC is a securitisation of mainly senior secured obligations (at least 92.5%) with a component of senior unsecured, mezzanine, second-lien loans, first-lien, last-out loans and high-yield bonds. The portfolio is actively managed by Pemberton Capital Advisors LLP. The transaction has a 2.1-year reinvestment period and a 6.5-year weighted average life (WAL) test at closing. The note proceeds will be used to fund a portfolio with a target par amount of EUR400 million. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at 'B'/'B+'. The Fitch weighted average rating factor (WARF) of the target portfolio is 22.1. High Recovery Expectations (Positive): At least 92.5% 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 (WARR) of the target portfolio is 63.4%. Diversified Portfolio (Positive): The transaction has one matrix effective at closing corresponding to the 10 largest obligors at 25% of the portfolio balance and a fixed-rate asset limit at 5%. The transaction also includes various concentration limits, including the exposure to the three-largest Fitch-defined industries in the portfolio at 42.5% and largest industry at 20.0%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Positive): The transaction has a 2.1-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Modelling (Positive): The WAL used for the transaction's stressed portfolio and matrices analysis is 12 months less than the WAL covenant, to account for structural and reinvestment conditions after the reinvestment period, including passing the overcollateralisation and Fitch's 'CCC' limitation, among other things. This reduces 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 through class D notes and would lead to downgrades of one notch for the class E 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 assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio, the class B, D and E notes display a rating cushion of two notches and the class C and F notes three notches. 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 rated notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR across all ratings and a 25% increase in the RRR across all ratings of Fitch's Stress Portfolio would lead to an upgrade of up to four 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. (see below) During the reinvestment period, based on Fitch's Stress Portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining weighted average life 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 Indigo Credit Management II DAC 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. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action 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 Indigo Credit Management II 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. ROCKFORD 2019-1: Fitch Puts 'B-sf' Final Rating to Cl. F-2-R Notes ------------------------------------------------------------------ Fitch Ratings has assigned Rockford Tower Europe CLO 2019-1 DAC reset final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Rockford Tower Europe CLO 2019-1 DAC A XS2064431542 LT PIFsf Paid In Full AAAsf A-R XS2947875857 LT AAAsf New Rating B-1 XS2064432359 LT PIFsf Paid In Full AA+sf B-1-R XS2947876236 LT AAsf New Rating B-2 XS2064432862 LT PIFsf Paid In Full AA+sf B-2-R XS2947876400 LT AAsf New Rating C XS2064433837 LT PIFsf Paid In Full A+sf C-R XS2947876665 LT Asf New Rating D XS2064434488 LT PIFsf Paid In Full BBB+sf D-R XS2947876822 LT BBB-sf New Rating E XS2064435022 LT PIFsf Paid In Full BB+sf E-R XS2947877127 LT BB-sf New Rating F XS2064435295 LT PIFsf Paid In Full B+sf F-1-R XS2947877473 LT B+sf New Rating F-2-R XS2947877630 LT B-sf New Rating Transaction Summary Rockford Tower Europe CLO 2019-1 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 redeem the existing notes (except the subordinated notes) and to fund the existing portfolio and top-up the portfolio using excess cash to reach a target par of EUR400 million. The portfolio is actively managed by Rockford Tower Capital Management L.L.C. The CLO has a 4.6-year reinvestment period and a 8.5 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'. The Fitch weighted average rating factor (WARF) of the identified portfolio is 23.8. High Recovery Expectations (Positive): At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 63.7%. Diversified Portfolio (Positive): The transaction includes various concentration limits, including the 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 are effective from closing with fixed-rate limits of 7.5% and 15%, and two are effective one year after closing with fixed-rate limits of 7.5% and 15%. This is provided that the portfolio balance (with defaults carried at Fitch-calculated collateral value) is greater than, or equal to, target par. All four matrices are based on a top-10 obligor concentration limit of 22.5%. The closing matrices correspond to an 8.5-year WAL test while the forward matrices correspond to a 7.5-year WAL test. The transaction has an approximately 4.6-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 for the transaction's 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, which include passing the coverage tests, the Fitch WARF test and the Fitch 'CCC' bucket limitation test after reinvestment as well as a WAL covenant that gradually steps down, 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 in the mean default rate (RDR) across all the ratings and a 25% decrease in the recovery rate (RRR) across all the ratings of the identified portfolio would have no impact on the class A, B, C and D notes and would lead to a downgrade of one notch for the class E, two notches for the class F1, and to below 'B-sf' for the class F-2. Downgrades, which are based on the identified portfolio, may occur if the loss expectation is larger than initially assumed owing to unexpectedly high levels of default and portfolio deterioration. Given the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B, C, D, E, F-1 and F-2 notes display a rating cushion of two, four, three, two, three and two notches, respectively. 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 in the mean RDR across all ratings and a 25% decrease in the RRR across all ratings of the Fitch-stressed portfolio, would lead to a downgrade of up to four notches for class B, up to three notches for classes A and C, and up to two notches for class D. Classes E, F-1 and F-2 would be downgraded to below 'B-sf'. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction in the mean RDR across all the ratings and a 25% increase in the RRR across all the ratings of the Fitch-stressed portfolio would lead to an upgrade of up to two notches for classes B, E and F-2, and up to three notches for classes C, D and F-1. The class A notes are already rated 'AAAsf' and cannot be upgraded further. During the reinvestment period, based on Fitch's stress portfolio upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, meaning the notes are able to withstand larger than expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur if there is stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread being available to cover losses on the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its 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 Rockford Tower Europe CLO 2019-1 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. SEAPOINT PARK: S&P Affirms 'B- (sf)' rating on Class E Notes ------------------------------------------------------------ S&P Global Ratings raised its credit ratings on Seapoint Park CLO DAC's class A-2A and A-2B notes to 'AA+ (sf)' from 'AA (sf)', and class B notes to 'A+ (sf)' from 'A (sf)'. At the same time, S&P affirmed its 'AAA (sf)' rating on the class A-1 notes, 'BBB (sf)' rating on the class C notes, 'BB (sf)' rating on the class D notes, and 'B- (sf)' rating on the class E notes. The rating actions follow the application of its global corporate CLO criteria and our credit and cash flow analysis of the transaction based on the November 2024 trustee report. Since the closing date in November 2019: -- The portfolio's weighted-average rating remains at 'B'. -- The portfolio has become slightly more diversified, as the number of performing obligors has increased to 183 from 145. -- The portfolio's weighted-average life has decreased to 3.74 years from 5.40 years. -- The percentage of 'CCC' rated assets has increased to 4.47% from 0.75%. Following the deleveraging of the senior notes, all rated tranches benefit from higher levels of credit enhancement compared with our previous review. Credit enhancement Current amount Class (mil. EUR) Current (%) At closing in 2017 (%) A-1 226.93 40.40 38.00 A-2A 29.00 29.89 28.00 A-2B 11.00 29.89 28.00 B 30.00 22.01 20.50 C 23.50 15.84 14.63 D 20.50 10.46 9.50 E 10.80 7.62 6.80 Sub 30.55 N/A N/A N/A--Not applicable. The scenario default rates (SDRs) have decreased for all rating scenarios primarily due to the lower weighted-average life since closing. Portfolio benchmarks SPWARF 2,875.60 Default rate dispersion 559.22 Weighted-average life (years) 3.74 Obligor diversity measure 134.58 Industry diversity measure 18.08 Regional diversity measure 1.24 SPWARF--S&P Global Ratings' weighted-average rating factor. All figures presented in the table do not include defaulted assets. On the cash flow side: -- The transaction's reinvestment period ended in May 2024. -- The class A-1 notes have deleveraged by EUR21.07 million since closing. -- No class of notes is currently deferring interest. -- All coverage tests are passing as of the November 2024 payment report. Transaction key metrics Total collateral amount (mil. EUR)* 380.74 Defaulted assets (mil. EUR) 1.00 Number of performing obligors 183 Portfolio weighted-average rating B 'AAA' SDR (%) 59.73 'AAA' WARR (%) 36.06 *Performing assets plus cash and expected recoveries on defaulted assets. SDR--Scenario default rate. WARR--Weighted-average recovery rate. In S&P's view, the portfolio is diversified across obligors, industries, and asset characteristics. S&P said, "In our credit and cash flow analysis, we considered the transaction's available current cash balance of approximately EUR2.72 million, per the November 2024 trustee report. We also considered the level of available principal proceeds in the last two payment date reports and the amount of principal proceeds used to deleverage the notes on the last two payment dates. "Additionally, we also considered the transaction's weighted-average life test, which is currently failing. To reinvest principal proceeds, the collateral manager has to either satisfy or maintain/improve this test, based on the weighted-average life test at the end of reinvestment period, as per the transaction documentation. Based on the above, we anticipate minimal future reinvestments being made and expect the transaction will most likely use principal proceeds to further pay down the notes. "Given the above factors, we considered a base case cash flow scenario where the full amount of principal cash will be used to pay down the notes. We also considered the possibility that the collateral manager may still reinvest unscheduled redemption proceeds and sale proceeds from credit-risk and credit-improved assets. Such reinvestments, as opposed to repayment of the liabilities, may prolong the note repayment profile for the most senior class. "Our credit and cash flow analysis indicates that the available credit enhancement for the class A-1 notes remains commensurate with a 'AAA' rating. We therefore affirmed our rating. "The available credit enhancement for the class C notes remains commensurate with a 'BBB' rating. We therefore affirmed our rating. "Our base case cash flow analysis indicates that the available credit enhancement for the class A-2A, A-2B, and B notes is commensurate with higher ratings than those assigned. For these classes, we considered that the collateral manager may still reinvest all or a part of unscheduled redemption proceeds and sale proceeds from credit-risk and credit-improved assets. Our analysis also reflected the level of cushion between our break-even default rates and SDRs for these notes at their passing rating levels, current macroeconomic conditions, and these tranches' relative seniority. After considering these factors, we raised our ratings on these tranches. "For the class D notes, our base case cash flow analysis indicates that available credit enhancement is not sufficient at the current rating level. However, given that the tranche's available credit enhancement has improved since our last review due to the deleveraging of the class A-1 notes, the class D notes' cash flow results have improved. We expect further improvement as the senior notes continue to deleverage. Ongoing deleveraging of the senior notes is highly likely, considering the transaction's weighted-average life test failure and the language in the reinvestment criteria, which will limit the collateral manager's ability to reinvest principal proceeds and instead divert most of the principal proceeds towards paying down the notes. Given that our rating is based on a forward-looking approach, we believe the class D notes' credit enhancement and cash flow results will continue to improve. We have also considered the transaction performance--defaults are minimal, 'CCC' assets are at a low level, and the transaction's tenor is reducing. Considering all these factors, we affirmed our rating on the class D notes. "Our base case cash flow analysis indicates that the available credit enhancement for the class E notes is not commensurate with the 'B-' rating level." S&P therefore applied its 'CCC' rating criteria, and considered the following key factors: -- The tranche's available credit enhancement, which is in the same range as that of other CLOs S&P has rated and that has recently been issued in Europe. -- The portfolio's average credit quality, which is similar to other recent CLOs. -- S&P's model generated break-even default rate at the 'B-' rating level of 19.38% (for a portfolio with a weighted-average life of 3.74 years), versus if it was to consider a long-term sustainable default rate of 3.1% for 3.74 years, which would result in a target default rate of 11.60%. -- S&P does not believe that there is a one-in-two chance of this tranche defaulting. -- S&P does not envision this tranche defaulting in the next 12-18 months. Having considered the above, S&P affirmed its 'B- (sf)' rating on the class E notes. S&P considers 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 structured finance sovereign risk criteria. Counterparty, operational, and legal risks are adequately mitigated in line with S&P's criteria. Seapoint Park CLO is a European cash flow CLO transaction that securitizes loans granted to primarily speculative-grade corporate firms. The transaction is managed by Blackstone/GSO Debt Funds Management Europe Ltd. ========= I T A L Y ========= SAN MARINO: Fitch Hikes Foreign-Currency IDR to BB+, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has upgraded San Marino's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook is Stable. Key Rating Drivers The upgrade of San Marino's IDR reflects the following key rating drivers and their relative weights: High Demonstrated Market Access: Fitch has increased confidence that San Marino will maintain access to international bond markets. Notwithstanding its limited record, the strength of San Marino's market access was successfully tested during the 2022/23 period of high interest rates and inflation. A notable development was San Marino's successful pre-financing of its 2024 Eurobond in 2023 through the issuance of EUR350 million notes due in 2027 with a 6.5% coupon rate, which was partly achieved via a tender offer. Falling Yields: Sovereign bond yields have fallen considerably to 4.5% in December after peaking at above 7% in September 2023, mainly reflecting narrower spreads over similarly long-dated German bunds of approximately 260bp versus 440bp at the time of the reissuance in May 2023, indicating improved market sentiment towards San Marino. Fitch has significantly revised its European Central Bank (ECB) policy rate forecasts, now anticipating rates to be lowered to 1.75% during 2025. This has translated into lower longer-duration yields, which should further alleviate refinancing pressures for San Marino as its Eurobond needs to be pre-financed in 2026. Interest expenses are forecast to be 5.6% of revenues in 2025, remaining well below the 'BB' peer median of 10.0%. Funding Needs Covered: Fitch expects the government to successfully refinance its 2027 Eurobond, which has a bullet maturity equivalent to 17% of projected GDP. In the meantime, the government will cover its moderate 2024 and 2025 gross financing needs by relying on the domestic debt market. It is also exploring options for a private placement in the Italian local government debt market to improve the liquidity of its government debt instruments. Stronger Liquidity Supports Euroisation: As a euroised economy that lacks a lender of last resort, access to international bond markets has been crucial to improve liquidity within San Marino's fragile banking system. The 2021 Eurobond allowed the sovereign to pay off domestic bonds, and support domestic banks' liquidity. FX Reserves Stablise: The Central Bank of San Marino's foreign-exchange reserves have stabilised and are expected to cover 2.5 month of current external payments by end-2024, below the projected peer median of 4.7 months. However, the banking sector retains strong external liquidity of its own in the context of full euroisation, while non-resident deposits have fallen substantially since the global financial crisis, supporting a projected external liquidity ratio of close to 480% for 2024. As an additional backstop, San Marino also has a temporary EUR100 million (5.3% of GDP) liquidity line with the European Central Bank, which Fitch expects to be extended once more in January 2025. San Marino's 'BB+' IDR also reflects the following key rating drivers: Structural Strengths, Financial Vulnerabilities: San Marino's 'BB+' rating is supported by high income levels, a resilient export sector and large net external creditor position, and a stable political system. The rating is weighed down by a high debt burden and weak asset quality in the large banking sector, the very small size of the economy, limited administrative capacity reflected in data quality issues, and low growth potential. Banking Sector: The authorities have made progress in reducing banks' exceptionally high legacy non-performing loan (NPL) ratios. The write-down and securitisation of NPLs led to a reduction in the banking sector's gross NPL ratio to 23.2% of total loans by end-2023 from 56.2% at end-2022, while NPLs net of provisions declined to 17.0% from 27.8%. However, NPLs net of provisions slightly increased again to 17.5% of net provisions as of September. Asset Quality Risks Remain: Asset quality risks remain high amid weak growth and legacy NPL issues. In its view, writing down all unprovisioned NPLs or loss materialisation affecting retained tranches of the NPL securitisation could significantly erode banks' solvency ratios, which have strengthened to 16.5% as of June 2024, from a low of 9.5% at end-2019. Weaker Economic Outlook: Provisional national accounts estimates for 2023 suggest that real GDP grew 0.4%, hindered by weaker external demand and a drop in manufacturing orders. Growth in tourist arrivals has levelled off, following a strong post-pandemic recovery, reaching 2.3% yoy as of end-September (6.1% above their pre-pandemic levels). Fitch expects real GDP growth to slowly recover to 0.7% in 2024, negatively affected by weak growth of only 0.5% in neighbouring Italy. San Marino's small and open economy remains highly exposed to its main trading partner and export orders to Italy have fallen, partly due to a slowdown in construction amid the phase-out of Italy's 'Superbonus' tax credit scheme. EU Association Agreement: Demographic pressures and low productivity growth in the non-manufacturing sector weigh on medium-term growth. However, at 1.3%, estimates of potential growth are still higher than for Italy, reflecting continued strong access to foreign workers. Growth could further benefit from broader and deeper integration within the EU's Single Market. Together with Andorra, San Marino has concluded negotiations for the Association Agreement with the European Commission. This presents upside risk to its forecast and could support greater labour market flexibility and improved competitiveness while also ensuring greater alignment with the EU's regulatory framework for banks. Slower Debt Reduction: San Marino's debt trajectory has weakened since its previous review, primarily reflecting a weaker growth outlook. Fitch estimates public debt will fall to 64.4% of GDP by end-2024, from a 76.6% peak at end-2021. The government targets reducing debt below 60% of GDP over the medium term, which Fitch expects by end-2028. Two perpetual bonds currently make up close to 40% of total government debt, with favourable interest rates and no additional refinancing risks. However, these were issued as part of past recapitalisation of the state-owned bank, and the government will gradually repay these to meet stricter bank capital requirements under the EU Association Agreement, starting with a EUR55 million repayment next year. ESG - Governance: San Marino has an ESG Relevance Score (RS) of '5[+]' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in its proprietary Sovereign Rating Model. San Marino has a high WBGI ranking at 88.1, reflecting its long track record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption. In Fitch's view, San Marino's governance is strong overall but overstated by the WGIs. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Public Finances/External: Re-emergence of sovereign refinancing risks, for example, due to reduced access to external bond markets. - Structural: Increased contingent liability risks for the sovereign due to a failure to effectively reduce banking sector vulnerabilities. - Macro: A large adverse macroeconomic shock, for example, triggered by a sharp economic contraction among neighbouring countries. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Public Finances: Increased confidence that public debt will maintain a downward trajectory. - Structural Features: Greater evidence that banking sector vulnerabilities have improved and reduced contingent liability risks for the government. Sovereign Rating Model (SRM) and Qualitative Overlay (QO) Fitch's proprietary SRM assigns San Marino a score equivalent to a rating of 'BBB' on the Long-Term Foreign-Currency (LT FC) IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to SRM data and output, as follows: - Structural: -1 notch, to offset exceptionally strong World Bank Governance Indicators (WBGIs), the quality of which is limited by the restricted number of data sources (1-2 sources per indicator) and substantial margins of error. The WBGIs place San Marino's governance broadly in line with some of the highest-rated sovereigns by Fitch and does not accurately capture San Marino's institutional constraints, in Fitch's view. - Structural: -1 notch, to reflect that banking sector risks remain high due to very weak asset quality from legacy NPLs (23.5% of total gross loans as of August) and the absence of an effective 'lender of last resort'. Risks remain that further state recapitalisations of the sector will be required given large NPLs adjusted for provisions at 9.1% of GDP and junior and mezzanine tranches from the NPL securitisation that remain in the banks' bonds portfolios. The removal of the -1 notch in External Finances, previously applied in the Qualitative Overlay (QO), reflects increased evidence that San Marino can maintain its access to international bond markets. This is demonstrated by the successful refinancing of its Eurobond during a challenging market environment with higher policy rates and narrowing spreads over German and Italian bonds. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within its criteria that are not fully quantifiable and/or not fully reflected in the SRM. Country Ceiling The Country Ceiling for San Marino has been upgraded to 'A+', 6 notches above the LT FC IDR. This reflects very strong constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments. Fitch's Country Ceiling Model produced a starting point uplift of +3 notches above the IDR. Fitch's rating committee applied a further +3 notch qualitative adjustment under the Long-Term Institutional Characteristics, reflecting San Marino's fully euroised economy. ESG Considerations San Marino has an ESG Relevance Score of '5[+]' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As San Marino has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. San Marino has an ESG Relevance Score of '5[+]' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As San Marino has a percentile rank above 50 for the respective Governance Indicators, this has a positive impact on the credit profile. San Marino has an ESG Relevance Score of '4[+]' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As San Marino has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. San Marino has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for San Marino, as for all sovereigns. As San Marino has track record of 20+ years without a restructuring of public debt and captured in its SRM variable, this has a positive impact on the credit profile. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- San Marino LT IDR BB+ Upgrade BB ST IDR B Affirmed B Country Ceiling A+ Upgrade A senior unsecured LT BB+ Upgrade BB =============== P O R T U G A L =============== CAIXA ECONOMICA: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable ------------------------------------------------------------------ Fitch Ratings has upgraded Caixa Economica Montepio Geral, Caixa economica bancaria, S.A.'s (Banco Montepio) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB' and Viability Rating (VR) to 'bb+' from 'bb'. The Outlook on the Long-Term IDR is Stable. The upgrade primarily reflects Banco Montepio's strengthened business profile, which has benefited from a material reduction in problem assets (impaired loans and net foreclosed assets) coupled with structurally improved profitability and capital metrics. Key Rating Drivers Weak Franchise, Improved Financial Profile: Banco Montepio's ratings reflect its small market footprint and below-average profitability, which translates into only moderate business model resilience to economic shocks. The ratings also reflect reduced balance-sheet risks leading to an overall improvement in the bank's financial profile. More Resilient Operating Environment: The Portuguese banking sector has significantly increased its resilience to shocks due to loan book deleveraging and structurally improved asset quality, profitability and capitalisation. Fitch expects lower indebtedness, together with falling interest rates and healthy GDP growth (above eurozone average) to supports business volume growth for Portuguese banks. Small Market Footprint in Portugal: Banco Montepio is a small Portuguese bank with undiversified business model centred on traditional retail and commercial banking. The recent reduction of legacy problem assets, finalised restructuring and higher interest rate environment will support the long-term stability of the bank's business profile. Improved Risk Profile: Banco Montepio has sustainably reduced its appetite for higher-risk exposures, as it is now strategically focused on secured lending to individuals and small businesses in Portugal. The bank's tightened underwriting standards and risk controls in recent years have led to better oversight and a centralisation of risk framework and policies, and translated into better quality of newly-disbursed loans. Improving Asset Quality: The impaired loans ratio of 2.6% at end-September 2024 is closer to peers but the bank still maintains a large portion of foreclosed assets. Including these, the problem-asset ratio stood at 4%, which is still relatively high. Fitch expects improvements to continue, albeit at a slower pace, helped by lower interest rates, economic growth and supportive real estate prices. Structurally Higher Profitability: Banco Montepio's small size and undiversified operations, translate into high sensitivity to interest rates, economic cycles and asset-quality shocks. The recent structural improvement reflects a more benign interest rate environment, completed restructuring process and reduced loan impairment charges on legacy problem assets. The operating profit/risk-weighted asset (RWA) ratio peaked in 9M24 at 2.5%. Fitch expects it to decrease in 2025-26, but remain above 1.5%, which is above historical averages. Adequate Capital Buffers, Moderate Encumbrance: Banco Montepio's capital metrics have significantly improved in the last four years. At end-September 2024, the fully loaded common equity Tier 1 ratio of 15.8% provided an adequate buffer on regulatory requirements. Fitch expects the ratio to continue improving slightly, as the improved organic capital generation is partially offset by loan growth. Granular Deposit Base, MREL Compliant: Banco Montepio is mainly deposit-funded and its liquid asset buffer is adequate in light of low upcoming wholesale debt maturities. The bank's funding profile has improved recently, as demonstrated by the issuance of senior bonds and subordinated debt earlier this year due to higher investor confidence on the back of improved financial metrics. However, it remains sensitive to changes in creditor sentiment and the Portuguese operating environment. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The bank has significant headroom at the current rating. Potential rating pressure could arise if the bank's operating profit durably and materially falls below 1.5% of RWAs and its problem asset ratio rises structurally above 6%, putting pressure on its regulatory capital buffers without prospects of a recovery in the short term. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade of Banco Montepio's ratings would require a strengthening of the bank's franchise and business model stability, allowing the bank to reach an overall stronger risk profile. Additionally, an operating profit consistently above 1.5% of RWAs would be positive for the bank's internal capital generation. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Banco Montepio's long-term deposit rating has been upgraded to 'BBB-' from 'BB+'. The long-term deposit rating is one notch above its Long-Term IDR, reflecting full depositor preference in Portugal and the structure of the bank's resolution buffer, which includes senior preferred debt. Banco Montepio's long-term senior preferred debt rating has been upgraded to 'BB+' from 'BB'. The rating is in line with its Long-Term IDR because Fitch expects that it will meet its MREL with a combination of senior preferred and junior instruments. Fitch does not expect the buffer of senior non-preferred and more junior debt to exceed 10% of RWAs. The short-term deposit rating has been upgraded to 'F3' from 'B', which is the only option that maps to the long-term deposit rating of 'BBB-'. The short-term senior preferred debt rating is aligned with the bank's Short-Term IDR. Government Support Rating (GSR) Banco Montepio's 'no support' GSR reflects its view that although external extraordinary sovereign support is possible it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the government in the event that the bank becomes non-viable. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Banco Montepio's deposit, senior preferred and senior non-preferred ratings are primarily sensitive to the IDRs. In addition, the senior preferred long-term debt rating could be upgraded if Fitch expects that Banco Montepio will either meet its MREL without recourse to senior preferred debt or if the buffer of senior non-preferred and more junior debt exceeds 10% of the resolution group's RWAs on a sustained basis An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible. VR ADJUSTMENTS The operating environment score of 'bbb+' is below the 'a' implied category score, due to the following adjustment reason: level and growth of credit (negative). The asset quality score of 'bbb-' is above the 'bb' implied category score, due to the following adjustment reason: historical and future metrics (positive). The capitalisation & leverage score of 'bb+' is below the 'bbb' implied category score due to the following adjustment reason: risk profile and business model (negative). ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Caixa Economica Montepio Geral, Caixa economica bancaria, S.A. LT IDR BB+ Upgrade BB ST IDR B Affirmed B Viability bb+ Upgrade bb Government Support ns Affirmed ns long-term deposits LT BBB- Upgrade BB+ Senior preferred LT BB+ Upgrade BB Senior non-preferred LT BB Upgrade BB- Senior preferred ST B Affirmed B short-term deposits ST F3 Upgrade B SILK FINANCE NO.5: Fitch Affirms 'BBsf' Rating on Class C Notes --------------------------------------------------------------- Fitch Ratings has affirmed Tagus, STC S.A. / Silk Finance No. 5's notes, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Tagus, STC S.A. / Silk Finance No. 5 Class A PTTGULOM0028 LT A+sf Affirmed A+sf Class B PTTGUMOM0027 LT BBB+sf Affirmed BBB+sf Class C PTTGUNOM0026 LT BBsf Affirmed BBsf Transaction Summary The transaction is a securitisation of a portfolio of auto loans originated in Portugal (A-/Positive/F1) by Banco Santander Consumer Portugal (BSCP; not rated). BSCP is owned by Santander Consumer Finance, S.A. (A-/Stable/F2), the consumer credit arm of Banco Santander, S.A. (A-/Stable/F2). Obligors are individuals (including professionals and self-employed) and companies. The revolving period lasted for two years and ended in August 2022. KEY RATING DRIVERS Asset Performance Expectations: Fitch has recalibrated the base case recovery rate on the portfolio to 30% from 20% considering the observed and projected pool performance, and Fitch's neutral asset outlook for the EMEA auto sector. All other asset assumptions remain unchanged, including a blended base case default rate of 5.7%, and a default multiple of 3.0x and a recovery haircut of 33.4% at the 'A+sf' rating case. Gross cumulative defaults (GCD), defined as loans in arrears over 90 days, stood at 3.2% relative to the initial portfolio balance plus revolving period purchases, as of July 2024, and the balance of loans in arrears up to 90 days stood at 1.2% of the current pool balance. Recoveries on GCD stood at around 40%. Stable Credit Enhancement: The affirmations reflect Fitch's view that credit enhancement (CE) ratios are able to compensate the credit and cash flow stresses commensurate with the current ratings. Fitch expects CE ratios to remain broadly stable as the class A to E notes continue to amortise pro rata. None of the switch to sequential amortisation triggers is expected to be breached in the short to medium term, such as the GCD trigger of 5.5% relative to the initial portfolio balance plus revolving period purchases. The tail risk posed by the pro-rata pay-down is mitigated by the mandatory switch to sequential amortisation when the outstanding collateral balance falls below 10% of its initial balance (43% as of July 2024). Senior Notes' Rating Capped: The transaction's maximum achievable rating is 'A+sf' as per Fitch's Counterparty Criteria, due to the minimum eligibility rating thresholds defined for the interest rate cap provider at 'BBB' or 'F2', which are insufficient to support ratings in the 'AAsf' and 'AAAsf' categories. Interest-Rate Risk Mitigated: The transaction benefits from an interest-rate cap agreement that hedges the interest-rate mismatch arising from close to 95.4% of the receivables portfolio balance paying a fixed interest rate, while the class A to C notes are linked to floating-rates. The interest-rate cap notional amount is based on class A to C expected repayment profile assuming no defaults, no prepayments and the exercise of the clean-up call. The cap upfront premium was funded by the proceeds of class X notes. Under the cap, the issuer will receive three-month Euribor in excess of the strike rate, set at 1%. Considering this arrangement and the current interest rate environment, net swap payments are favourable to the issuer. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Long-term asset performance deterioration such as increased delinquencies or reduced portfolio yield, which could be driven by changes in asset performance, macroeconomic conditions, business practices or the legislative landscape may put pressure on the ratings. A simultaneous increase in defaults and decrease in recoveries of 25% could have an impact of up to three notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade For the class A notes, modified counterparty minimum eligibility ratings compatible with the 'AA' category and above ratings. For the class B and C notes, CE increases as the transaction deleverages that are able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios. 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 Tagus, STC S.A. / Silk Finance No. 5 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. =========== R U S S I A =========== TBC BANK: Fitch Affirms 'BB-' LongTerm IDR, Alters Outlook to Neg. ------------------------------------------------------------------ Fitch Ratings has revised the Outlooks on Uzbekistan-based Joint Stock Commercial Bank TBC BANK's (TBCU) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'BB-'. The rating actions follow the revision of the Outlook on the Long-Term IDR of Georgia-based TBC BANK JSC (TBC; BB/Negative; see 'Fitch Revises Outlooks on 7 Georgian Banks on Sovereign Outlook Change' dated 12 December 2024). TBCU's 'b' Viability Rating is unaffected by this rating action. Key Rating Drivers TBCU's Long-Term IDRs reflect potential support from TBC, as captured by the Shareholder Support Rating (SSR) of 'bb-'. TBC is the core bank within TBCU's controlling shareholder, TBC BANK Group PLC Fitch notches TBCU's SSR down once from TBC's Long-Term IDR due to TBCU's moderate role for the broader group as it contributed only 10% of the group's operating revenue and 3% of its net profit in 1H24, although Fitch expects these contributions to continue growing. Fitch also considers the cross-border nature of potential support, as the group and TBCU operate in different jurisdictions. Its assessment of shareholder support also captures the significant reputational risks for TBC should TBCU default, and the low cost of potential support given the small size of the Uzbek bank compared with TBC and the group (just 4% of total group assets at end-1H24). Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade TBCU's SSR and Long-Term IDRs would be downgraded following a downgrade of TBC's IDRs. A downgrade could also take place if Fitch views that TBCU's role for the group has weakened, leading to wider notching between the two banks' ratings. A lower Country Ceiling of Uzbekistan (currently 'BB-') would also result in a downgrade. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade The Outlook on TBCU's Long-Term IDRs would be revised back to Stable following similar rating action on TBC. Fitch could upgrade TBCU's IDRs and equalise them with those of TBC in case Fitch assesses that the former's role for the group has strengthened, leading to higher support propensity. However, this is currently not expected by Fitch and would also require a higher Country Ceiling. Public Ratings with Credit Linkage to other ratings TBCU's Long-Term IDRs reflect potential ultimate support from TBC. 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 ----------- ------ ----- Joint Stock Commercial Bank TBC BANK LT IDR BB- Affirmed BB- ST IDR B Affirmed B LC LT IDR BB- Affirmed BB- LC ST IDR B Affirmed B Shareholder Support bb- Affirmed bb- ========= S P A I N ========= DEOLEO SA: Moody's Lowers CFR to Caa1, Outlook Remains Negative --------------------------------------------------------------- Moody's Ratings has downgraded to Caa1 from B3 the long term corporate family rating and to Caa1-PD from B3-PD the probability of default rating of Deoleo S.A. (Deoleo or the company), a leading producer of olive oil globally. Concurrently, Moody's have downgraded to B3 from B2 the rating on the EUR160 million senior secured term loan due June 2025 (EUR58 million outstanding as of September 2024) and to Caa3 from Caa2 the rating on the EUR82 million senior secured junior lien term loan due June 2026, both borrowed by Deoleo's indirect subsidiary Deoleo Financial Ltd. The outlook of both entities remains negative. "The action reflects the risks related to the unfavorable ruling in respect of a tax dispute received from the Italian second instance court on Deoleo's Italian unit Carapelli Firenze S.p.A., amounting to approximately EUR89 million. Should this decision stand, it has the potential to weaken Deoleo's financial profile, despite the uncertainty of the timing and the terms of such payment" says Valentino Balletta, a Moody's Ratings Analyst and lead analyst for Deoleo. "The ratings action, and the negative outlook also highlights the increased refinancing risk and Moody's concerns over the company's ability to address its debt maturities, including senior secured term loan and working capital facility in June 2025, and the junior lien term loan in June 2026" adds Mr. Balletta. RATINGS RATIONALE The downgrade of the CFR to Caa1 reflects Moody's concerns that the uncertainty around the adverse ruling related to the tax claim, and growing risks related to the company's ability to refinance its upcoming debt maturities in 2025 and 2026 could have a material impact on the company's financial profile and liquidity. On November 21, 2024, Deoleo announced that its Italian unit, Carapelli Firenze S.p.A. (Carapelli Firenze), has received from the Italian second instance court, the notification of an unfavourable ruling in relation to the tax claim linked to its dispute with Italian customs, which dates back to 2014. The total claim stands at approximately EUR89 million, which includes an estimated EUR26 million attributed to interest. Deoleo announced that it will seek the suspension of the obligation to pay this fine, and intends to appeal the adverse ruling to Italian Supreme Court. Despite the uncertainty regarding the potential final outcome, timing and terms of the payment of this fine, Moody's note that EUR89 million are sizeable relative to the company's EBITDA and cash flow generation capacity. The uncertainty around the entire process poses a material event risk. Although the company is currently evaluating different refinancing options, including the potential financial support by its two main shareholders, Moody's also reflect in the rating action a degree of uncertainty and execution risk associated with these ongoing actions. In the first nine months of 2024, still high raw material prices impacted overall olive oil consumption. However, the company's ability to maintain sales volumes and pass-through costs has protected margins. This resulted in a 22% year-on-year revenue growth, with an adjusted EBITDA holding steady at approximately EUR25 million. Going forward, Moody's anticipate a positive perspective for the olive oil market as prices at the origin are expected to halve in the coming months due to a good harvest. Lower raw material costs should increase consumption, easing volume pressure and improving profitability. As a result, Moody's project the company's financial leverage to remain high at around 7.0x in FY 2024 but decrease to about 4.6x by FY 2025, mainly due to earnings growth to EUR39 million EBITDA. However, when including the current tax claim in Moody's adjusted debt calculations, Moody's adjusted leverage would increase by 2.3x. In addition, Moody's believe the volatile nature of the business and the limited free cash flow generation capacity, with intra year fluctuations due to working capital needs, do not give enough flexibility to accommodate the possible impact from the tax claim. LIQUIDITY Moody's consider Deoleo to have weak liquidity over the next 12 months, underpinned by the heightened refinancing risk of its EUR58 million outstanding senior secured term loan and EUR20 million fully drawn working capital facility, which expire in June 2025, pressuring the liquidity profile. At the end of September 2024, the company had cash on balance sheet of EUR39.5 million. Given the current uncertainties around the outcome of the ruling and its material impact on the financial profile of the company, Moody's believe there is a heightened liquidity risk should the company have to pay the fine of EUR89 million. The company's debt facilities contain two maintenance covenants, requiring it to maintain minimum cash balances of EUR15 million and a net leverage ratio, tested quarterly, that cannot exceed 5.0x (3.97x as of September 2024). RATIONALE FOR NEGATIVE OUTLOOK The negative outlook highlights the risk and uncertainty surrounding the ruling, which could materially impair the company's credit metrics and weaken its liquidity, as well as the increased refinancing risk of its debt maturities. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressure is unlikely in the near term, in light of the negative outlook. Upward pressure on the rating could develop in case of favourable developments related to the tax claim with no impact on the company's credit metrics or liquidity, while the company proves able to refinance its debt. Quantitatively, positive pressure could materialise if the company (1) continue to improve its operating performance and generates sustained EBITDA growth and positive free cash flow; and (2) maintains a leverage profile such that its Moody's-adjusted debt/EBITDA ratio stays below 6.5x on a sustained basis. Further ratings downgrade could occur should the company's liquidity position worsens, as a result of heightened refinancing risk or negative consequences resulting from the unfavourable ruling, translating into Moody's expectation of a higher probability of a default. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Consumer Packaged Goods published in June 2022. COMPANY PROFILE Deoleo is the largest branded olive oil producer globally, with its proprietary brands including Carapelli, Bertolli, Carbonell and Hojiblanca. The company engages in the refining, blending, bottling, distribution and sale of olive oil, as well as the production of seed oil, vinegars and sauces. As of June 30, 2024, Deoleo was controlled by funds advised by the private equity firm CVC Capital Partners, which held a 56.96% stake in the company. ===================== S W I T Z E R L A N D ===================== BREITLING HOLDINGS: Moody's Affirms 'B2' CFR, Alters Outlook to Neg ------------------------------------------------------------------- Moody's Ratings has changed the outlook to negative from stable on Breitling Holdings S.a r.l. (Breitling or the company), a Swiss manufacturer of luxury watches. Concurrently, Moody's affirmed the company's B2 corporate family rating and B2-PD probability of default rating. Moody's have also affirmed the B2 instrument ratings on the EUR1,095 million backed senior secured term loan B (TLB) and the CHF115 million backed senior secured revolving credit facility (RCF) borrowed by Breitling Financing S.a r.l. The outlook has changed to negative from stable for both entities. "The change of outlook to negative reflects Breitling's weaker trading performance in the last few quarters and its limited growth prospects for the next 12-18 months in the context of soft demand for luxury goods and sluggish macroeconomic backdrop in Europe", said Guillaume Leglise, a Moody's Ratings Vice President - Senior Analyst and lead analyst for the company. "At the same time, Breitling's credit profile continues to be supported by its strong global brand, its stronger performance than sector peers in recent years and good liquidity", concludes Mr Leglise. RATINGS RATIONALE The rating action reflects Breitling's decrease in sales and earnings in the last 12 months, mostly volume driven due to the softening in consumer spending on luxury goods that Moody's see across the sector. In the first 7 months of its fiscal year 2024 (year ending March-2025), the company's sales were down only 8%, reflecting a volume decline partly mitigated by higher average selling prices, reflecting the company's increasing product mix towards the super-luxury segment. However, the earnings were more than proportionately impacted by the company's increasing fixed costs stemming from the rapid expansion of its direct-retail operations and time required to ramp-up sales, resulting into a 30% decline in EBITDA (as reported, excluding the company's normalisations) in the first 7 months to October 31, 2024. This translates into weak credit metrics for the rating category, with Breitling's leverage (Moody's-adjusted gross debt to EBITDA) estimated at 7.3x and its Moody's-adjusted EBITDA-capex to interest expense ratio at around 1.2x as at end-September 2024. Moody's expect the company's sales and earnings recovery to be limited in 2025, constrained by sluggish macroeconomic growth prospects, notably in Europe, mitigated by positive US economic prospects, the company's largest market in terms of sales. The luxury watch industry is also suffering from weak consumer sentiment in China, but contrary to peers, Breitling has a limited exposure to China, which represents around 5% of its sales. Moody's expect the company's leverage to remain above 7.0x in the next 12-18 months. Moody's negative outlook reflects the uncertainty over the company's earnings recovery and the risk that its leverage remains well above 6.0x in the near term. More positively, the affirmation of the B2 CFR considers the company's good liquidity profile, supported by an ample cash balance of CHF126 million at end-October 2024 and full availability under its CHF115 million RCF. The company has no immediate debt maturities, with its TLB due in October 2028, which gives the company time to recover its earnings and achieve deleveraging. The affirmation also reflects the company's ability to sustain fairly healthy margins and Moody's expectation of a normalisation of capital expenditures going forward. The company's Moody's-adjusted EBIT margin stood at around 15% in the 12 months to September 2024, albeit declining from the 21% peak reached in fiscal 2022. Moody's expect the company's cash burn to remain contained in fiscal 2024, with breakeven FCFs, aided by limited working capital requirements and a reduction of capital spending, expected at around CHF50 million in fiscal 2024, compared to CHF70 million in fiscal 2023 (excluding acquisition of Universal Genève). Moody's expect the company's FCF generation to become slightly positive, at around CHF16 million in fiscal 2025 in Moody's base case scenario, mostly driven by a normalisation in earnings and lower capital expenditures due to the gradual completion of the store roll-out initiative implemented over the past three years. The B2 rating continues to reflect (i) the company's well-known brand, (ii) its solid historical performance since the first leveraged buyout transaction in 2017, (iii) the company's positive long-term growth prospects because of the strategic initiatives taken in recent years to develop retail and e-commerce operations, as well as expansion in China, in ladies watches and in the super luxury watch segment, on which Breitling is unrepresented, (iv) its track record of outperforming the Swiss luxury watch industry in the last few years, and (v) its good liquidity. On the other hand, Breitling's rating is constrained (i) by the company's high sales concentration in a single brand and small scale compared to larger and more diversified jewelry and watch luxury groups, (ii) its narrow product portfolio comprising only luxury watches, (iii) its highly leveraged financial structure, with an history of dividend recapitalisations, which can hinder deleveraging, and (iv) the current difficult trading conditions, which are likely to constrain the improvement in its earnings and margins over the next 12-18 months, and (v) its limited FCF, currently affected by a decline in earnings, high interest charges despite hedging of the TLB, and growth capital spending, although the latter is expected to normalise over the next 12-18 months. LIQUIDITY Moody's view Breitling 's liquidity as good, supported a cash balance of around CHF126 million as of 31 October 2024, access to an undrawn CHF115 million multicurrency RCF maturing in April 2028 and breakeven FCFs expected in fiscal 2024. There are no significant debt maturities until the term loan will mature in October 2028. The RCF is subject to a springing net senior secured leverage covenant of 9.0x if drawings exceed 40%, which provides ample headroom (3.81x adjusted net senior secured leverage ratio as at end-September 2024). Moody's do not expect the RCF to be drawn over the next 18 months. STRUCTURAL CONSIDERATIONS The holding company Breitling Financing S.a r.l. is the issuer of the CHF115 million RCF and the EUR1,095 million backed senior secured TLB. These debt instruments are guaranteed by the parent holding company Breitling Holdings S.a r.l. along with domestic and foreign subsidiaries, which together represent more than 70% of Breitling's reported EBITDA. The RCF and the backed senior secured TLB are secured by share pledges and material intercompany receivables. The company's capital structure also comprises other financial debts, such as a mortgage for CHF20 million, a precious metal loan for CHF47.8 million, some asset based lending for CHF30 million and deferred considerations for around CHF42 million as of end-September 2024, which Moody's all include into Moody's debt calculation and loss given default model. The B2 rating on the RCF and the backed senior secured TLB is in line with the CFR, reflecting their pari passu ranking and the absence of any significant liabilities ranking ahead or behind. The B2-PD PDR is in line with the B2 CFR assuming a 50% recovery rate typical for a capital structure comprising bank debt with loose covenants. RATIONALE FOR THE NEGATIVE OUTLOOK The negative outlook reflects Breitling's currently weak operating performance in a difficult macroeconomic backdrop and Moody's expectations that its credit metrics will remain outside of the guidance for the rating category over the next 12-18 months. A stabilisation of the outlook will require Breitling's operating performance to recover in the next 18 months, to support the return of its credit metrics to levels commensurate with the B2 rating, including Moody's-adjusted gross debt/EBITDA reducing to 6.0x and Moody's-adjusted FCF to gross debt approaching mid-single digit percentage points. A stabilisation of outlook would also require the maintenance of at least an adequate liquidity and no releveraging actions or shareholder distributions. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressure is unlikely in the short term given the negative outlook. Positive pressure could arise over time if the company's Moody's-adjusted gross debt/EBITDA falls below 4.5x on a sustainable basis and its FCF generation (as adjusted by Moody's) becomes significantly stronger with a FCF to debt ratio trending towards high-single digits. An upgrade also requires the company to demonstrate a more balanced and predictable financial policy. Conversely, ratings could be downgraded if the company's operating performance does not improve, such that its Moody's-adjusted debt/EBITDA remains sustainably above 6.0x, or if the company fails to improve Moody's-adjusted FCF towards mid-single digit percentage, its (EBITDA-Capex)/interest remains below 1.5x or if liquidity deteriorates. Debt-funded acquisitions or shareholder distributions could also exert downward pressure. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail and Apparel published in November 2023. COMPANY PROFILE Breitling is a Switzerland-based manufacturer of luxury watches. It is majority owned by Partners Group and the rest by CVC Capital Partners and management. The company generated CHF794 million of net sales and Moody's-adjusted EBITDA of CHF194 million for the last twelve months ended September 30, 2024. =========== T U R K E Y =========== TURKIYE SISE: Fitch Lowers LongTerm IDR to 'B', Outlook Negative ---------------------------------------------------------------- Fitch Ratings has downgraded Turkiye Sise ve Cam Fabrikalari AS's (Sisecam) Long-Term Foreign-Currency (LTFC) and Long-Term Local-Currency (LTLC) Issuer Default Ratings (IDRs) to 'B' from 'BB-'. The Outlook on the IDRs is Negative. The downgrade reflects a significant turn in Sisecam's product price and market environment with a dramatic fall in profit margins, which Fitch expects to be protracted and possibly partially structural. Sisecam's leverage and coverage ratios have weakened considerably due to EBITDA fall and sizeable capital expenditure (capex). The Negative Outlooks reflect the uncertain market environment and risks related to Sisecam's profitability trend, hinging on the company's ability to improve its product pricing and optimise capex and operating expenditure (opex). Key Rating Drivers Loss of Pricing Power: Sisecam's market environment has turned sharply worse during 2024, leading to a significant revision of its rating case for the company. Fitch expects economic challenges, declining demand in key markets, increased competition and inflationary pressure in Turkiye to affect revenue and profitability metrics compared with its prior expectation. The primary challenge has been managing product pricing on broadly stable volumes, while the company is no longer able to fully pass through increased costs (especially in its domestic base) and protect its margins. Fitch anticipates market conditions to bottom out in 2025, driven by easing inflationary pressures, the stabilisation of energy prices and a gradual improvement in demand across key sectors, but Fitch does not expect Sisecam's EBITDA margin to reach historical levels. Structurally Lower EBITDA Margin: Sisecam sacrificed its EBITDA margins in the short term in order to preserve market shares. However, the company is focusing on cost optimisation, including streamlining operations. Fitch does not expect these measures to fully offset the adverse impacts of the market downturn and some of the changes on both demand and supply side (low-cost competition) may prove to be structural. Fitch estimates EBITDA margin to reach about 8% for 2024 and 11% for 2025, based on Inflation Accounting Standards (IAS). Sisecam's reported EBITDA margin for 9M24 (not adjusted for IAS) was 14% compared with above 20% during 2020-2022. Growth Capex, Negative FCF: The company is continuing its ambitious growth plans mainly in Hungary and in Turkiye with its greenfield glass packaging investment in the former and a greenfield flat glass investment in the latter. Those two business lines' growth and maintenance capex are 36% and 29%, respectively, of Sisecam's consolidated capex for 9M24. The balance of capex is allocated to other business lines as maintenance. This strategy may have long-term benefits, but it contributes to negative free cash flow (FCF), which Fitch expects to persist until 2027 and to higher leverage (expected in its previous rating case). Fitch estimates total capex to be USD750 million in 2024 and about USD900 million annually for 2025-2026. Weaker Credit Ratios: Sisecam's leverage has increased not only on weaker EBITDA, but also higher debt, exceeding its negative sensitivity for the prior rating. Fitch expects leverage and coverage to remain outside its updated negative rating sensitivities until 2026. The company has a mix of short-term and long-term debt, with a significant portion denominated in FC and an annual refinancing need weakening its view of Sisecam's financial flexibility and contributing to the Negative Outlook. Liquidity Could Strain: The company maintains a reasonable cash balance and has access to uncommitted credit lines, providing some buffer for short-term liquidity needs. However, ongoing negative FCF on high capex requirements may strain liquidity. Fitch expects that Sisecam will repay the remaining USD372 million of the USD700 million bond due in 2026. The company's ability to refinance upcoming debt maturities and secure new funding will be crucial in maintaining its liquidity position. Derivation Summary Sisecam's business profile and profitability margins are comparable to those of Hestiafloor 2 (B/Positive) and Tarkett Participation (B+/Stable). In Fitch's view, Sisecam benefits from healthy geographical diversification and exposure to several industries, including construction, automotive and energy, and it has leading market shares in its core markets. However, Sisecam's rating is constrained by its high leverage, which Fitch estimates at 10.4x (gross leverage) and 6.2x (net leverage) at end-2024 and 6.0x (gross) and 4.8x (net) at end-2025, weakened pricing power and exposure to hyperinflationary domestic market and foreign-exchange risks. Sisecam's ratings are not constrained by Turkiye's Country Ceiling (BB-). Key Assumptions - Revenue in Turkish lira to increase on average 20% for 2024-2027, also reflecting a gradual improvement in market conditions; - EBITDA margin to bottom out at about 8% for 2024, and to gradually increase towards 20% by 2027, reflecting cost control and improved pricing ability; - Capex of about USD750 million equivalent for 2024, peaking during 2025 and 2026 at about USD900 million; - Fitch has assumed no dividends distribution beyond 2024; - Negative FCF, turning modestly positive for 2027, following margin improvement and capex reduction. Recovery Analysis - The recovery analysis assumes that Sisecam would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. - An administrative claim of 10% is used in line with the industry median and peer group. - The recovery analysis is translated into US dollars from liras since the majority of the capital structure is in dollars. The translation used a Fitch-calculated exchange rate for 31 September 2024. - Its GC EBITDA estimate of USD600 million reflects significantly lower EBITDA forecast on structural market shift with reduced cost passthrough. - An enterprise value (EV) multiple of 5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation EV, given Sisecam's leading market positions in both Turkiye and the international markets, and the relatively strong barriers to entry. - The waterfall analysis is based on the updated capital structure and consists of senior unsecured USD1,872 million notes and lira-denominated bonds and loans, and other bank credit facilities (all equal ranking). - The company has no factoring facilities. These assumptions, constrained by Turkiye's group D country classification for the recovery rating, result in a recovery rate for the senior unsecured instrument within the 'RR4' category. The principal and interest waterfall analysis output percentage on current metrics and assumptions is 50%. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA gross leverage above 5.5x - EBITDA interest coverage below 2.0x - Substantial deterioration in liquidity, coupled with negative FCF - Inability to regain cost pass-through and recover pricing power, leaving single-digit EBITDA margin Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA gross leverage below 4.5x on a sustained basis - EBITDA interest coverage above 3.0x - Positive FCF margin on a sustained basis Liquidity and Debt Structure During 9M24, total reported debt rose to TRY136 billion equivalent from TRY113 billion at end-2023 (restated under IAS), while total reported unrestricted cash was TRY62.3 billion. The debt increase was primarily driven by the issuance of USD1,500 million bonds during 1H24 and additional short-term local loans and bonds issued during the period. Fitch expects that Sisecam will sustain a high gross leverage level over the next two years to finance capex plans, but will repay the remaining portion of the USD700 million notes due in 2026. Short-term debt constitutes about 20% of Sisecam's total debt, with about 79% of the debt denominated in hard currencies (dollars and euros). Fitch expects a continuous rollout of short-term bank funding, especially in lira. Fitch believes that uncommitted bank lines of about USD500 million with Turkish banks will remain accessible for the company in a stress scenario, particularly given Sisecam's status as a multinational conglomerate with strong banking relationships. Issuer Profile Sisecam is a Turkish-based multinational industrial corporation with manufacturing operations in 14 countries. It is the world's top producer in glassware, and among the top five global producers in glass packaging and flat glass. Sisecam is also the second-largest soda ash producer and a world leader in chromium chemicals. 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 ----------- ------ -------- ----- Turkiye Sise ve Cam Fabrikalari AS LT IDR B Downgrade BB- LC LT IDR B Downgrade BB- senior unsecured LT B Downgrade RR4 BB- Sisecam UK plc senior unsecured LT B Downgrade RR4 BB- ============= U K R A I N E ============= NAFTOGAZ: Fitch Affirms 'CC' Long-Term IDR ------------------------------------------ Fitch Ratings has affirmed National Joint Stock Company Naftogaz of Ukraine's (Naftogaz) Long-Term Issuer Default Rating (IDR) at 'CC'. The company's senior unsecured notes issued by Kondor Finance plc have been affirmed at 'C'. The Recovery Rating is 'RR6'. Naftogaz's Standalone Credit Profile (SCP) remains at 'cc'. Naftogaz's 'CC' IDR reflects the company's projected weak liquidity, due to very high operational risks in Ukraine amid the ongoing war with Russia, slow payments for gas, and limited external funding options. Fitch rates Naftogaz on a standalone basis given its SCP and its assessment of moderate linkage with its sole shareholder - the state in line with Fitch's Government-Related Entities (GRE) Rating Criteria. Ukraine is rated 'RD' (Restricted Default). Key Rating Drivers Lack of Transit Revenue: Naftogaz's gas transit agreement with Gazprom will end by end-2024, with expectations that it will not be renewed. This could result in a significant revenue loss for Naftogaz. To offset this, potential measures include raising gas prices or securing state support. However, it is uncertain whether the Ukrainian authorities will approve price hikes, and the government may face challenges in providing direct support due to a weak national budget. Nevertheless, Fitch expects Naftogaz to maintain positive operating cash flow even without the transit fees. Restructured Eurobond Serviced: Naftogaz continues to make payments for the Eurobond restructured in 2023. Fitch assumes the company will maintain this debt servicing in 2025. However, it faces a large principal payment of EUR694.6 million in 2026, which may place further strain on the company's financial position. This substantial upcoming payment underscores the ongoing financial challenges facing Naftogaz. Operational Infrastructure: Naftogaz's infrastructure remains operational, but remains at risk of damage from Russian attacks on Ukraine's critical infrastructure. Domestic production covered 87% of Naftogaz customers' consumption in 2023, and Naftogaz expects this to be higher at 91% in 2024 with a 5% increase in output. However, this is subject to domestic production remaining stable, and any severe operational disruptions, especially in winter, could necessitate buying expensive gas from Europe. Improved Results: Naftogaz reported cash flow from operating activities of UAH56 billion in 6M24, compared with UAH19 billion a year ago. This is attributed to the sales of gas for electricity generation, at a tariff more favorable to Naftogaz than to residential customers and for heating. The improved cash flows are positive for the rating. No State Compensation in 2024: Since the war started, Naftogaz has been operating under the public-service obligations (PSO) regime, which implies that the company is obliged to provide gas to certain customers at subsidised prices in return for state compensation to offset the negative impact on its financial results. No compensation has been provided in 2023 and 2024. Fitch treats any cash inflows related to the compensation as an upside to its forecasts. Moderate Ties Under GRE Criteria: Naftogaz is wholly state-owned. Fitch views the decision-making and oversight from the state as 'Strong' over Naftogaz's operations, financial performance, and investments. Fitch also views preservation of government policy role as 'Strong' since Naftogaz's default would have a considerable impact on the provision of a key public service eg, energy supply. Fitch assesses precedents of support and contagion risk factors as not strong enough. Overall, Naftogaz has a support score of 15 under its GRE Rating Criteria, which along with Naftogaz's 'cc' SCP leads to it being rated on a standalone basis. Derivation Summary Naftogaz's closest international peer is Kazakhstan's JSC National Company QazaqGaz (BB+/Stable), which has a more diversified business, with exposure to more profitable midstream operations and exports. Other rated Ukrainian peers include Ferrexpo plc (CCC+) whose rating reflects a lack of material financial debt but a high risk of operational disruptions. Metinvest B.V.'s (CCC) rating reflects the group's cash flow generation from an international asset base, which along with offshore cash position should support its ability to service its financial obligations in 2024 and 2025, and high operational risks. DTEK Energy B.V. and DTEK OIL & GAS PRODUCTION B.V. (both rated CC) have tight liquidity and high operational risks. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - European natural gas prices at USD11/mcf in 2024, USD11/mcf in 2025, USD8/mcf in 2026 - US dollar at 40 Ukrainian hryvnia in 2024, 45 in 2025 and 48 in 2026 - Broadly stable domestic natural gas production Recovery Analysis The recovery analysis assumes that Naftogaz would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated. Naftogaz's recovery analysis assumes post-reorganisation EBITDA at UAH10 billion. Fitch used a distressed enterprise value (EV)/EBITDA multiple of 3.0x to calculate post-reorganisation valuation. It captures higher-than-average business risks in Ukraine and reflects Naftogaz's weaker business profile than peers'. Fitch treats all bank debt as senior-ranking. The notes are issued by Kondor Finance on a limited recourse basis for the sole purpose of funding a loan to Naftogaz. They constitute direct, unconditional senior unsecured obligations of Naftogaz and rank equally with all other present and future unsecured and unsubordinated obligations. After the deduction of 10% for administrative claims, its waterfall analysis generated a waterfall-generated recovery computation (WGRC) in the 'RR6' band, indicating a 'C' rating for the notes issued by Kondor Finance plc. The WGRC output percentage on current metrics and assumptions is 0%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The IDR would be downgraded to 'C' if a default or default-like event begins. This includes Naftogaz entering into a grace or cure period following non-payment of a material financial obligation or the formal announcement of a DDE. Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Improved liquidity position - A de-escalation of Russia's military operations in Ukraine, reducing operating risks Liquidity and Debt Structure At end-June 2024, Naftogaz's cash position was UAH86 billion (around USD2.1 billion) versus UAH50 billion short-term debt. The cash balance at end-October was lower at UAH50 billion, but sufficient to cover debt service until end-2025. High operational risks, weak payments, negative free cash flow, irregularity of state support and the possibility that Naftogaz may need to buy higher amounts of gas abroad to meet domestic demand result in uncertainty over an already weak liquidity profile. Following the completed restructuring, Naftogaz made a repayment of Eurobond principal in July 2024 and coupon in November 2024 for a total of UAH10 billion. Issuer Profile Naftogaz is wholly state-owned and is strategically important to Ukraine as the country's largest natural gas production, distribution and trading company. 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 ----------- ------ -------- ----- Kondor Finance plc senior unsecured LT C Affirmed RR6 C National Joint Stock Company Naftogaz of Ukraine LT IDR CC Affirmed CC LC LT IDR CC Affirmed CC =========================== U N I T E D K I N G D O M =========================== CANARY WHARF: Fitch Affirms 'B' LongTerm IDR, Outlook Negative -------------------------------------------------------------- Fitch Ratings has affirmed Canary Wharf Group Investment Holdings plc's (CWGIH) Long-Term Issuer Default Rating (IDR) at 'B' and its senior secured rating at 'BB-' with a Recovery Rating of 'RR2'. The IDR's Outlook is Negative. All ratings have been removed from Rating Watch Negative (RWN). The rating action follows CWGIH agreeing with Apollo to raise secured debt (Retail Facility) of GBP610 million to refinance its pooled portfolio 2025 and 2026 bonds. The Negative Outlook reflects CWGIH's high net debt/EBITDA (above 30x) and low forecast EBITDA net interest cover. Fitch-calculated EBITDA consists of direct rental income from the remaining pooled portfolio assets and subordinated post-debt service cash flows from other financings that are greatly reduced due to 2024 secured debt refinancings and trapping of some CMBS financing's cash flows. Key Rating Drivers 2025 and 2026 Refinance Risk Resolved: The Retail Facility resolves CWGIH's 2025 and 2026 debt maturity walls. The new facility, which matures in 2030, encumbers its GBP900 million retail assets that are pledged to the pooled portfolio financing. Fitch expects the issuer to drawdown the facility in tranches nearer to bond maturities, and so continue to benefit from the bonds' lower coupons. 2028 Bond Maturities: After the 2025 and 2026 refinancings, the remaining GBP300 million 2028 bonds will have recourse to about GBP268 million of unencumbered residual assets consisting mainly of 7 & 15 Westferry Circus offices and smaller income-producing assets. Some key Westferry Circus leases mature in 2025-2026, which makes their income and values uncertain. Fitch does not assign any value to the mostly vacant 10 Cabot Square. Shareholders' ECL: Following bondholder consent to the Retail Facility, as CWGIH's shareholders, Brookfield has provided (with an option for the Qatar Investment Authority (QIA) to accede later) an equity commitment letter (ECL), which commits to inject equity to repay the pooled portfolio bonds, in the case of insufficient liquidity at CWGIH. After QIA has acceded to the ECL, there is also a mechanism whereby the security trustee of the pooled portfolio creditors can step in to request the ECL be fulfilled. ECL - Statement of Support: The ECL is a statement of support for CWGIH's pooled portfolio creditors, although it does not provide any recourse for the bondholders to the shareholders nor explicitly provide for timely interest payments. Its approach to the ECL is similar to its evaluation of private equity sponsors' capacity to support their investments, whereby the ECL providers' intentions may be reassessed at, and include, the circumstances of the time, particularly regarding the 2028 bonds. The ECL indicates support from existing CWGIH shareholders but is not a guarantee. Fitch's Rating Approach: CWGIH's GBP900 million of secured bonds have recourse to the campus' retail and car park assets, certain smaller offices and other assets (the pooled portfolio; 70% of current cash flows before central costs). These assets are further supported by CWGIH's post-debt service secured financings' cash flows, including those from the CMBS financing (30% of cash flows). At end-1H24, the pooled portfolio totalled GBP1.155 billion in value. Fitch does not include the void 10 Cabot Square or equity stakes in Canary Wharf's property vehicles under CWGIH within these value and related metrics. Reduced Debt Service Capacity: The Negative Outlook reflects CWGIH's subordinated post-debt service income, which has reduced considerably following: (i) 2024 refinancings that re-sized debt to banks' loan-to-value appetites and higher interest costs relative to rents; and (ii) cashflows within the CMBS's financing tranches being trapped (some related to the 2026 Citi office lease expiry). This leads to lower Fitch-calculated EBITDA for CWGIH, worsening the pooled portfolio's leverage and interest cover. Fitch expects to resolve the Negative Outlook once post-debt service cash flows from the CMBS are restored to levels supportive of above 1.0x pooled portfolio interest cover. Further deterioration in these excess cash flows adversely affecting portfolio leverage and interest cover may result in a downgrade. Deteriorating Interest Cover: Interest cover is about 2x, reflecting the existing average cost of debt at 2.5%. Once the 2025 and 2026 bonds are refinanced with the Retail Facility, which is priced at about 6%, CWGIH's interest cover reduces below 1.0x from end-2024. The corresponding net debt/EBITDA is 30x. Evolving Canary Wharf Campus: The evolution of the campus from primarily offices to mixed-use is continuing, with more than 3,500 people now living on the wharf. This shift has driven growth in its retail and leisure offering to meet the needs of residents, visitors and office commuters. Some existing space and towers require capex to accommodate hybrid working, enhance green credentials and meet evolving tenant expectations for modern offices. While this capex burdens the group's leverage, it supports the transition of these buildings to mixed-use. Diversifying Office Tenant Mix: For its office tenants, occupancy costs remain cheaper than in central London. The office portfolio is attracting more prospective life science tenants, diversifying the tenant mix away from financial services, with the latter at 49% of office tenants at end-1H24. Derivation Summary The wider Canary Wharf group's GBP6.7 billion (end-1H24) property portfolio is comparable in size and quality to that of rated peers, including The British Land Company PLC's (IDR: A-/Stable) GBP8.7billion (at share), Land Securities PLC's (Short-Term IDR: F1) GBP10.2 billion and Derwent London plc's (IDR: BBB+/Stable) GBP4.6 billion. All these entities' office portfolios are central London-focused, whereas CWGIH's portfolio is concentrated in the established east London campus. CWGIH's IDR reflects a subsector of the group - the pooled portfolio and its associated financing. With the UK market split between prime and less-attractive secondary offices, all four entities have good quality properties in good locations with essential ESG credentials to ensure re-letting and newbuilds. British Land's four London campus clusters and Land Securities' Victoria portfolio, like the Canary Wharf campus, benefit from a central landlord who coordinates and invests in amenities, including green credentials. This strategy enhances the attractiveness of the location by creating complimentary adjacent rental evidence and allows for development or refurbishment in a phased approach. In contrast, investors like Derwent operate in districts with multiple competing landlords, each with different agendas and investment time-horizons. In these locations, reinvestments are less coordinated. Its analytical approach to CWGIH's pooled portfolio is similar to peers', assessing debt/recurring rental-derived EBITDA and interest cover. The analysis incudes subordinated rental income streams from debt-free or -funded joint ventures or equivalent CMBS-type financings. Its pooled portfolio's EBITDA-equivalent has a higher proportion of subordinated income - subject to potential lock-ups - than peers'. CWGIH faces the wider group's debt refinance needs or prospective property development, such as residential and life sciences projects at North Quay, which could place demands on its central liquidity. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - Pooled portfolio retail net rents to remain at about GBP52 million, as leases are renewed, optimising the occupancy rate. Subordinated post-debt service income has reduced considerably after additional cash being trapped in CMBS structures and recent secured debt refinancings. - Central administrative costs - at GBP62 million at end-2023 - are deducted to arrive at the EBITDA for the pooled portfolio. - The Retail Facility replacing the 2025 and 2026 bonds have an all-in 6% cost. The pooled portfolio 2028 bonds remain in place. Recovery Analysis Its recovery analysis assumes that the CWGIH pooled portfolio would be liquidated rather than restructured as a going concern in a default. This recovery analysis is before the Retail Facility is drawn. Recoveries are based on the end-1H24 GBP1.155 billion pooled portfolio, excluding the void 10 Cabot Square ex-Barclays office, which needs additional investment to be re-let. Fitch applies a standard 20% discount to these values. Fitch assumes no cash is available for recoveries and that CWGIH's GBP100 million super senior revolving credit facility (RCF) is fully drawn in a default. After deducting a standard 10% for administrative claims, the value available to unsecured creditors is GBP832 million. After the RCF, this compares with the GBP900 million of secured bonds. This recovery estimate ascribes no value to the equity stakes in Canary Wharf's property vehicles under CWGIH, as the timings for realising value from these assets is uncertain. Fitch's principal waterfall analysis generates a ranked recovery for CWGIH's senior secured debt of 'RR2', with a waterfall-generated recovery computation output percentage of 81% based on current assumptions. The 'RR2' indicates a 'BB-' secured debt instrument rating. Fitch will recalculate the recovery rating for the remaining bonds on each drawdown of the Retail Facility, which will encumber the retail assets and, at the same time, re-allocate collateral away from the pooled portfolio bonds, as new debt drawn down repays specific pooled portfolio bonds. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Continued deterioration in post-debt service cash flows from CMBS and other secured financings of the group. - Events causing CWGIH's liquidity resources and cash flows to be diverted to support non-recourse secured financings, including debt refinancings. - CWGIH's interest cover below 1.1x, indicating over-reliance on non-recurring, non-rental-derived cash flows to cover CWGIH's debt service. - Failure to execute, or provide visibility, of a plan to address the 2028 debt maturity at least 12 months in advance. - Eighteen-month liquidity score below 1x. Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Expectations of CWGIH returning to debt/EBITDA below 15x, and interest coverage above 1.1x, supported by restored post-debt service CMBS cash flows and the group's other secured financings. - Twelve-month liquidity score above 1x. Liquidity and Debt Structure After the secured Retail Facility resolving 2025 and 2026 bond maturities, CWGIH's next large bond maturity is the 3.375% GBP300 million bond, which is due in April 2028. As at end-1H24, CWGIH benefitted from unrestricted cash of about GBP150 million alongside its undrawn shareholder-provided RCF of GBP100 million, plus CWGIH's GBP100 million super senior RCF maturing in 2027. The pooled portfolio's assets and cash flows from the CMBS office financing adequately service the pooled portfolio's total bonds of GBP900 million. However, Fitch expects considerably lower subordinated post-debt service income, which has worsened leverage and interest cover for the 2028 bonds, even if those due in 2025 and 2026 are repaid on their scheduled maturity dates. 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 ----------- ------ -------- ----- Canary Wharf Group Investment Holdings plc LT IDR B Affirmed B senior secured LT BB- Affirmed RR2 BB- CD&R GALAXY: Fitch Cuts Long-Term IDR to 'C', Removes Neg. Watch ---------------------------------------------------------------- Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDR) of Galaxy US Opco Inc., CD&R Galaxy Luxembourg Finance S.a.r.l. and CD&R Galaxy UK Intermediate 3 Limited (collectively Vialto Partners) to 'C' from ' CCC-'. Additionally, Fitch has downgraded Vialto's first-lien term loan to ' CC' with a Recovery Ratings of 'RR3' from 'CCC+'/'RR2'. Fitch has also removed the Rating Watch Negative. The downgrade follows Vialto Partners' securing sufficient lender support to restructure its debt. This restructuring meets the conditions for a distressed debt exchange (DDE) according to Fitch's "Corporate Rating Criteria". Fitch expects to downgrade Vialto Partners to 'Restricted Default' (RD) upon the execution of the recapitalization, anticipated to close in 1Q25. Afterwards, Fitch will reassess the IDR based on the new capital structure, business prospects, and liquidity position. Key Rating Drivers DDE Agreement Reached: Fitch views the transaction as a DDE because it significantly reduces original terms and helps Vialto Partners avoid any probable default. Upon execution, Fitch will downgrade the IDR to 'RD' before reassessing it based on the restructured profile. The recapitalization will reduce outstanding debt by approximately $700 million and deliver a $225 million equity investment. The agreement, reached with Clayton, Dubilier & Rice (CD&R) and HPS Investment Partners (HPS), makes HPS an equity owner while CD&R remains a majority shareholder. The transaction is subject to customary closing conditions, including regulatory review in some jurisdictions. Material Reduction in Terms: The transaction imposes materially reduced terms through a reduction in principal, maturity extension and a pay-in-kind (PIK) interest option. It includes equitizing all second-lien debt, owned by HPS, and $150 million of the first-lien term loan owned by an affiliate of CD&R and HPS. The remaining $800 million of the first-lien term loan will be exchanged for new first-lien debt maturing in 2030, featuring a partial PIK interest option until October 2026 and modified debt covenants. Interim Funding to Avoid Liquidity Shortfall: The company's sponsors provided a $225 million bridge facility, including a $70 million term loan and a $155 million delayed draw term loan. Without these facilities and other measures taken with the transaction, the company would have faced a liquidity crisis due to insufficient EBITDA to cover existing debt service. Separation from PwC: Vialto Partners became a new-branded entity in April 2022 after CD&R acquired it from PwC in 1H22. The complex and costly separation led to weaker financial performance and profitability than expected. Derivation Summary Vialto Partners is a leading provider of tax-related global mobility solutions for corporate employees working across borders and immigration services. Vialto's ratings reflect Fitch's view that the announced debt exchange will result in a DDE as defined by Fitch. Key Assumptions - Revenue grows by 3% to 4% over the ratings horizon. - EBITDA margins benefit from incremental flow-through from higher revenue and savings realized from - various planned cost saving initiatives. - Capex around 2% of revenue per year. - Benchmark interest rates of around 4.5% in fiscal 2025 and 4.0% in fiscal 2026. Recovery Analysis For entities rated 'B+' and below, where default is closer and recovery prospects are more meaningful to investors, Fitch undertakes a tailored, or bespoke, analysis of recovery upon default for each issuance. The resulting debt instrument rating includes a Recovery Rating or published 'RR' (graded from RR1 to RR6) and is notched from the IDR accordingly. In this analysis, there are three steps: (i) estimating the distressed enterprise value (EV); (ii) estimating creditor claims; and (iii) distribution of value. Fitch assumes Vialto would emerge from a default scenario under the going concern (GC) approach versus liquidation. Fitch's GC EBITDA is in the range of $100 million. This forecast EBITDA assumes mis-execution and/or revenue loss from some of Vialto's largest customers. An EV multiple of 6.5x EBITDA is applied to the GC EBITDA to calculate a post-reorganization enterprise value. This is in-line with recovery assumptions used for certain other business services companies rated by Fitch. The accounts receivable facility is maintained. Fitch assumes a fully drawn revolver and a 10% administrative claim. The recovery analysis results in a 'CC'/'RR3' issue and Recovery Ratings for the first-lien credit facilities. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Completion of the proposed debt restructuring would lead to a downgrade to 'RD' followed by a reassessment of the issuer's credit profile under the revised capital structure; - Failure to pay interest on any material financial debt on expiration of the grace period, cure period or default forbearance period would result in a downgrade to 'RD'; - Inability to execute the debt restructuring leading to bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure would lead to a downgrade to 'D'. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action is unlikely until after the exchange transaction closes in first-quarter 2025; - Meaningful liquidity improvement; - (CFO-capex)/debt sustained above 0%. Liquidity and Debt Structure The company had $27 million of cash on the balance sheet as of June 30, 2024, and $55 million available to be drawn under its $200 million senior secured revolving credit facility. The $225 million of interim funding obtained by the company is critical to its liquidity given projected negative FCF. The revolving credit facility will be amended to extend its maturity to 2029 as part of the recapitalization transaction. Vialto's debt structure, as of June 2024, included a $954 million first lien term loan B maturing in 2029, a $400 million second lien term loan maturing in 2030, and $144 million drawn on its first lien secured revolver maturing in 2027. The company executed a revolving accounts receivable financing arrangement of $40 million with an affiliate of the company's ultimate parent of which it had $37 million drawn. Fitch treats drawn amounts as debt for ratio calculations. Issuer Profile CD&R Galaxy UK Intermediate 3 Limited (dba Vialto Partners) provides tax-related global mobility solutions, immigration services, and ancillary HR services. These include immigration compliance for work permits and visas, cross-border payroll reporting & tracking solutions and various other HR-related services for employees working across borders. 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 CD&R Galaxy UK Intermediate 3 Limited has an ESG Relevance Score of '4' for Governance Structure due to its concentrated ownership, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. CD&R Galaxy UK Intermediate 3 Limited has an ESG Relevance Score of '4' for Financial Transparency due to the limited disclosure regarding its financial position and business strategy at times, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Galaxy US Opco Inc. LT IDR C Downgrade CCC- senior secured LT CC Downgrade RR3 CCC+ CD&R Galaxy Luxembourg Finance S.a.r.l. LT IDR C Downgrade CCC- senior secured LT CC Downgrade RR3 CCC+ CD&R Galaxy UK Intermediate 3 Limited LT IDR C Downgrade CCC- DIRTY LITTLE: FRP Advisory Named as Administrators -------------------------------------------------- Dirty Little Style B Limited was placed into administration proceedings in the High Court of Justice Business and Property Courts in Newcastle-upon-Tyne, Court Number: CR-2024-000160, and Allan Kelly and Steven Philip Ross of FRP Advisory Trading Limited, were appointed as administrators on Dec. 3, 2024. Dirty Little Style is an online clothes retailer. Its registered office is at 20-22 Brough Park Industrial Estate, Brough Park Way, Newcastle Upon Tyne, NE6 2YF in the process of being changed to F17 Evolve Business Centre, Cygnet Way, Houghton-le-Spring, DH4 5QY. Its principal trading address is at 20-22 Brough Park Industrial Estate, Brough Park Way, Newcastle Upon Tyne, NE6 2YF. The administrators can be reached at: Allan Kelly Steven Philip Ross FRP Advisory Trading Limited Suite 5, 2nd Floor, Bulman House Regent Centre, Newcastle Upon Tyne NE3 3LS Further Details Contact: Georgia Foster Email: cp.newcastle@frpadvisory.com FNZ GROUP: S&P Assigns 'B-' Issuer Credit Rating, Outlook Stable ---------------------------------------------------------------- S&P Global Ratings assigned its 'B-' long-term issuer credit rating to FNZ Group Ltd. (FNZ), a platform-as-a-service provider for the wealth and asset management industry, and its 'B-' issue rating and '3' recovery rating to the group's senior secured term loans, indicating its expectation of 60% recovery (rounded estimate) in the event of a payment default. The stable outlook reflects S&P's view that FNZ will continue to show strong organic revenue growth and materially lower exceptional costs, leading to improved S&P Global Ratings-adjusted EBITDA margins of around 20% and breakeven FOCF in FY2025. Rating Action Rationale S&P said, "The ratings are in line with the preliminary ratings we assigned on Oct. 14, 2024. There were no material changes to the financial documentation compared with our original review, and the company's operating performance has been in line with our forecast." Outlook The stable outlook indicates S&P's view that, over the next 12 months, FNZ's continued strong organic revenue growth and materially lower exceptional costs should lead S&P Global Ratings-adjusted EBITDA margins to improve to about 20% and FOCF to break even. Downside scenario S&P could lower the rating if FNZ were to experience a material slowdown in revenue growth or if EBITDA falls short of its base case, for example, if exceptional and restructuring costs remain elevated. This could lead FOCF to remain persistently negative and deplete liquidity, making the capital structure unsustainable. Upside scenario S&P could raise the rating if FNZ successfully executes on its growth plan while expanding EBITDA and margins ahead of its expectations, leading to positive FOCF to debt on a sustained basis and FFO cash interest coverage of above 2x. Company Description FNZ is a U.K.-headquartered market-leading provider of end-to-end technology and highly scaled back-office investment services (front-to-back platform-as-a-service) for the financial services and wealth management sectors. FNZ has just under $2 trillion contracted AuA serviced on its platform and about 6,000 employees in 30 locations. FNZ is owned by CDPQ (43.5%), Temasek (13%), GIM (4.7%), Canada Pension Plan Investments (5.7%), Motive Partners (2.8%), and FNZ management and employees (30%), of which founder Adrian Durham owns around half. The recovery and issue ratings on the approximately $2.1 billion term loan B due in 2031 are '3' and 'B-' respectively. The debt is in three tranches: $1.1 billion, EUR479 million, and GBP404 million. The '3' recovery rating indicates S&P's expectation of meaningful recovery (50%-70%, rounded estimate: 60%) in a default scenario. The recovery prospects are supported by our expectation of robust business growth and no prior-ranking liabilities. S&P values the company as a going concern, given its significant amount of recurring revenue and long-term customer relationships. S&P's hypothetical default scenario envisages intensified competition from larger rivals, as well as customer losses and a sharp decline in profitability. Simulated default assumptions -- Year of default: 2026 -- Jurisdiction: U.K. -- Emergence EBITDA: $253 million (minimum capital expenditure assumption of 4%; 5% cyclicality adjustment) -- Implied enterprise value multiple: 6.5x -- Gross enterprise value at default: $1,645 million -- Net enterprise value after administrative expenses (5%): $1,563 million -- Senior secured debt claims: $2,447 million -- Recovery rating: '3' (50%-70%, rounded estimate: 60%) All debt amounts include six months of prepetition interest. S&P assumes that 85% of the RCF is drawn at default. MAISON BIDCO: S&P Affirms 'B+' LT ICR, Outlook Remains Negative --------------------------------------------------------------- S&P Global Ratings affirmed its 'B+' long-term issuer credit rating on U.K. housebuilder Maison Bidco Ltd. and its 'B+' issue rating, with a recovery rating of '3', on the developer's GBP275 million senior secured bond. The outlook remains negative, reflecting a one-in-three chance that S&P could lower its rating on Maison within the next six months if its adjusted debt to EBITDA exceeds 4.0x without near-term recovery potential, its interest coverage weakens to below 3.0x, or its liquidity deteriorates. S&P said, "The affirmation and ongoing negative rating outlook reflect our view that Maison's operating recovery will be delayed, resulting in prolonged tighter headroom under our downside triggers in the next 12 months, but gradual recovery toward 2026. In our previous base case, we assumed that the U.K. homebuilding market would recover in 2025, bringing the credit metrics of Maison (operating under the brand Keepmoat) more comfortably within the ranges commensurate with a 'B+' rating (adjusted debt to EBITDA below 4.0x and EBITDA interest coverage above 3.0x). We currently believe that the recovery might only be pronounced from end-2025 or the beginning of 2026, due to persisting, although moderating, macroeconomic pressures and the only gradual improvement in mortgage demand. As a result, our updated base case for Maison factors in lower completions of around 3,500 in 2024 and about 3,400 homes in 2025, only recovering to the historical level of close to 4,000 units or above in 2026. That said, we believe that U.K. house prices will remain resilient, especially in the affordable segment where Maison operates. "In the first nine months of FY2024 (ending July 2024), Maison's completions declined by around 17.3% year-on-year (yoy) to 2,182 units, but its average selling price increased by 2.4% yoy to GBP212,000. We forecast that in FY2024 and in 2025, Maison's average selling price will remain at close to GBP215,000-GBP220,000 before moderately increasing in 2025. We now forecast that Maison's revenue will decrease by about 10%-12% in FY2024 from GBP865 million in 2023, and will decline further by around 1%-3% in 2025 on the back of lower completions, mildly offset by resilient prices. That said, we forecast that revenue will rebound strongly by about 20%-25% in 2026, reflecting improving demand for housing and Maison's land investment. "We forecast that a reduction in scale and Maison's required investment to expand the business will weaken its EBITDA margin to 9%-10% compared with 11.5% in 2023. In the 12 months ending July 2024, Maison's S&P Global Ratings-adjusted EBITDA margin was 9.8%. According to our updated base case, Maison's adjusted debt to EBITDA will be just below 4.0x in 2024-2025--versus about 4.0x-4.5x in our previous assumptions (up from 2.8x in 2023)--close to our downside trigger of 4.0x but not exceeding it. We expect Maison's interest coverage to be within 3.3x-3.5x in 2024-2025 (4.0x at the end of July 2024), supported by the fixed interest rate on GBP275 million senior secured notes due in 2027. We therefore expect the company to remain within our requirements for the current rating level and will monitor its development over the next few quarters. We intend to review our ratings within the next six months, once we have increased visibility on the company's operating performance for FY2025. "We believe that Maison's multi-tenure business model combining open-market sales and sales to registered providers moderates market volatility. We observe that Maison's performance in 2023 and the first nine months of 2024 has been less volatile than many other U.K. homebuilders'. We believe that cyclicality is moderated by part of Maison's sales coming from partnerships with local authorities and registered providers, which include public- and private-sector entities that are registered with the Regulator of Social Housing to provide affordable housing and are funded by the U.K. government. "Maison has about 200 partners, with some of its relationships having lasted for 20 years. We note that in the nine months ending July 31, 2024, Maison's sales to registered providers (in terms of completions) totaled 50.5% of its total volume (43.9% a year before), which is higher than its historic average of about 25%. We understand that sales to councils and registered providers are skewed toward more affordable homes and that part of its sales contracts are at fixed prices. That said, we believe that margin pressure is mitigated by lower land acquisition costs for the contracts with registered providers and by Maison's back-to-back contracts with suppliers and subcontractors, which are reviewed at different construction stages. We also acknowledge that the company offers a relatively standard product range focused on single-family homes, which should also benefit operating efficiency." The long-term maturity profile and absence of shareholder distributions support our rating on Maison. Maison benefits from a good debt maturity profile of close to three years, with most of its debt (GBP285 million as of July 2024) comprising senior secured notes due in 2027. S&P said, "Our debt calculation does not include land payables, which is in line with our criteria and our assessment of the company's peers. Maison also has access to a GBP70 million revolving credit facility (currently undrawn). As of July 31, 2024, the company had about GBP69 million of cash, a decrease from GBP164 million at the start of the year as Maison is investing in land and work-in-progress. At the end of July 2024, the land pipeline was up by 4% yoy, at 23,700 plots covering six years of operations. Land was fully secured for 2024-2026 deliveries. We factor in that Maison does not plan to distribute any dividends, which should help preserve cash and support its liquidity position." S&P said, "Our rating factors in Aermont's controlling stake in Maison, which could lead to a more aggressive financial policy. Funds managed by Aermont Capital constitute Maison's main shareholder. The company's board of directors mostly comprises Aermont directors alongside the executive directors, with no independent members. In our view, having a financial sponsor as the company's main shareholder could eventually push it toward a more aggressive financial strategy, weakening its credit metrics, however this is not our base case. We note that earlier in 2024, asset management company Keppel Ltd. acquired 50% of Aermont, with the remaining 50% to be acquired in 2028. We understand that Keppel's part-ownership has not changed Aermont's financial strategy, and we therefore have not revised our assessment of Maison's financial policy. "The negative outlook reflects one-in-three probability that we may downgrade Maison in the next six months if negative macroeconomic conditions and weaker mortgage affordability weaken Maison's metrics by more than we currently anticipate without a potential for short-term recovery, or if its liquidity deteriorates, which is not our base case. "We could downgrade Maison if its adjusted debt to EBITDA exceeds 4.0x and its interest coverage deteriorates to below 3x without short-term recovery potential. "We may revise our outlook on our rating on Maison to stable if its adjusted debt to EBITDA remains comfortably below 4.0x and its interest coverage consistently exceeds 3x. Maison should be able to demonstrate adequate liquidity, including sufficient headroom under its covenants and access to its revolving credit facility RCF to fund its working capital needs and support its growth." MARKET BIDCO: Fitch Puts 'BB' Final Rating to GBP1.2BB A&E Loan --------------------------------------------------------------- Fitch Ratings has assigned Market Bidco Limited's GBP1.2 billion-equivalent amended & extended (A&E) term loans a final long-term senior secured rating of 'BB' with a Recovery Rating of 'RR1'. The rating is aligned with the company's other existing senior secured instrument ratings. Following the A&E, its GBP1.2 billion-equivalent senior secured term loans have their maturities extended to 2030 from 2027. The amount of senior secured debt has also been reduced, following partial repayment with GBP200 million cash on its balance sheet. The Outlook on Market Holdco 3 Limited's (Morrisons) 'B' IDR is Positive, reflecting Fitch's expectations of deleveraging to levels that are consistent with a higher rating. However, this remains subject to profit growth and its associated execution risk. The IDR continues to balance high leverage with a robust business profile. Key Rating Drivers Proactive Approach to Refinancing: Fitch views positively Morrisons' proactive approach to addressing half of its 2027 debt maturities via the A&E of its secured term loans and GBP200 million repayment with cash. As a result, the maturities of the term loans have been extended beyond its GBP1.2 billion unsecured notes maturing in 2028. However, the term loans have a springing maturity clause, which may bring forward their maturity under certain conditions. Deleveraging on Track: Fitch continues to forecast EBITDAR leverage of near 6.0x in the financial year ending October 2025 (FY25), with expectations of it decreasing thereafter, as reflected in the Positive Outlook. Its calculations indicate that Fitch-adjusted debt has remained broadly unchanged as the reduction in term debt is replaced with liabilities arising from a recent ground rent transaction. Earlier this year, Morrisons repaid nearly GBP1.7 billion of debt (GBP5.7 billion at FYE23) from its petrol forecourts (PFS) disposal proceeds. Ground Rent Transaction: Morrisons raised GBP331 million net proceeds via a 45-year ground rent transaction at an initial interest of around 4% in September 2024. This reduced its share of freehold properties within the restricted group, as 76 properties were transferred to Morrisons' parent outside the restricted group to secure the funding. Fitch understands from management that the properties are back-to-back leased for an initial cash payment of near GBP20 million a year to the restricted group. The proceeds were used to reduce debt and were re-invested. Performance on Track: Fitch's forecast captures continued execution risk on profit growth, projecting an approximate GBP90 million uplift in FY25 from the reported underlying EBITDA of GBP819 million over the last 12 months (LTM) to 3QFY24. Morrisons reported a GBP68 million gain in LTM to 3QFY24 against FY23, which together with positive like-for-like sales, supported by volume growth over the last two quarters, and better margins underline its good performance. Fitch has adjusted its EBITDA forecast (post rents) to around GBP680 million for FY25 to reflect additional lease costs. Limited Free Cash Flow (FCF): Fitch forecasts average annual positive FCF of slightly over GBP50 million in FY25-FY27. This is reduced from GBP150 million-GBP200 million, following the PFS disposal, as lower EBITDA was not fully offset by lower interest costs and due to its expectation that capex will remain broadly flat despite the disposal. Market Share Stabilised: Morrisons is one of the leading food retailers in the competitive UK market, with good brand and scale. Its market share has stabilised since early 2023. Recent volume increases have been driven by improved product availability on its shelves, which helps boost profits while allowing Morrisons to remain competitive in the low-margin grocery segment. Morrisons is more food-focused than some close peers and its vertical integration into own food manufacturing, which accounts for 50% if the fresh food it sells, helps the group manage its profitability. Derivation Summary Fitch rates Morrisons using its global Food Retail Navigator. Morrisons is rated one notch below Bellis Finco plc (ASDA; B+/Stable), which benefits from larger scale and greater diversification following the acquisition of EG Group's UK operations. Both Morrisons and ASDA are smaller than UK market leader Tesco PLC (BBB-/Stable), with operations focused in the UK. Morrisons is larger and more diversified than WD FF Limited (Iceland; B/Stable). Morrisons has a smaller market share than ASDA, but it has performed better recently. Both Morrisons and ASDA have established direct access to the convenience segment, with Morrisons benefiting from its larger number of stores, which Fitch estimates to be slightly smaller on average. Both are exposed to execution risk in growth in sales and profits from conversions to their brand and product mix changes. Morrisons also has indirect access to convenience via its wholesale channel. Fitch forecasts EBITDAR margin to trend towards 6% and the funds from operations (FFO) margin to trend towards 3% for both Morrisons and ASDA, with Morrisons' margin slightly below ASDA's. Food retail is cash-generative, enabling deleveraging, which also depends on capital-allocation decisions by financial sponsors. Despite the recent reduction in debt from the PFS disposal and ground rent transaction proceeds, Morrison's leverage remains higher than ASDA's. Fitch forecasts Morrisons to deleverage to near 6.0x by FY25, which is around 0.5x above ASDA's, albeit subject to execution risk on earnings growth for both. This is meaningfully higher than Tesco's 3.5x, (excluding Tesco Bank), while more comparable with its projection for the smaller-scale Iceland at around 6.0x. Key Assumptions - Low single-digit revenue growth during FY24-FY27, following the PFS disposal and the loss of associated revenue (GBP3.6 billion in FY23) - EBITDA (after leases) margin increasing from 4.0% in FY24, following the sale of the PFS business, to 4.5% by FY27. This will be driven by sales growth across retail and wholesale, increased profitability from annualisation of store conversions for McColls, operational and cost-saving measures - Working-capital inflow (excluding changes in provisions) of around GBP150 million in FY24, driven by improvements from the working-capital programme and GBP30 million in FY25, before turning neutral through FY27 - Capex of GBP340 million in FY24 and GBP390 million per year for FY25-FY27 - Rental cost at around GBP230 million per year in FY25, GBP20 million of which is not capitalised - No dividend payments and no M&A to FY27, except for the bolt-on acquisition of 38 convenience stores in Channel Islands, completed in November 2024 Recovery Analysis According to its bespoke recovery analysis, higher recoveries would be realised by liquidation in bankruptcy rather than reorganised as a going-concern (GC). This reflects Morrisons' high proportion of freehold assets ownership, even after the ground rent transaction which has removed a portion (GBP894 million) of the restricted group's assets. Morrisons' reported depreciation of its property, plant and equipment (PP&E) in 3QFY24 exceeded its capex on PP&E. A continuation of this trend may lead to a further reduction in asset values and lower-ranked recovery for the senior secured instruments. The liquidation estimate reflects Fitch's view of the value of balance-sheet assets that can be realised in sale or liquidation and distributed to creditors. Fitch assumes Morrisons' GBP1 billion revolving credit facility (RCF) to be fully drawn and deducts 10% from the enterprise value (EV) for administrative claims. Following completion of the A&E, some debt reduction and adjustment for lower asset values due to the ground rent transaction, ranked recovery for the senior secured debt remains in the 'RR1' band with a percentage of 92%, indicating a 'BB' instrument rating, three notches above the IDR. The recovery percentage is lower than the 98% level before these transactions took place, reflecting the greater impact from PP&E reduction than the benefit of the amount of debt repaid as part of the A&E. Senior secured debt includes the two tranches of GBP385 million and EUR1 billion A&E term loans B, a GBP1 billion RCF incurred by Market Bidco Limited, as well as GBP823 million and EUR596 million senior secured notes issued by Market Bidco Finco Plc, all which rank equally among one another. These rank ahead of the GBP1.2 billion senior notes issued by Market Parent Finco Plc. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Weaker-than-expected performance with EBITDAR leverage no longer expected to trend below 7.0x in FY24 and near 6.0x by FY25 would lead to a revision of the Outlook to Stable - Lfl decline in sales exceeding other big competitors', especially if combined with lower profitability leading to neutral FCF and reduced deleveraging capacity - Evidence of a more aggressive financial policy, for example, due to material under-performance relative to Fitch's forecasts, material investments or shareholder remuneration leading to cash outflows, and lack of debt repayments - EBITDAR leverage trending above 7.0x in FY24 and beyond - EBITDAR fixed charge cover below 1.5x on a sustained basis Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Lfl sales growth leading to increasing cash profits and accumulated cash for debt prepayment, with no adverse changes to its financial policy - EBITDAR leverage below 6.0x on a sustained basis - EBITDAR fixed-charge coverage above 1.6x Liquidity and Debt Structure Morrisons expects to have a healthy pro-forma cash balance of GBP610 million post A&E, in addition to its GBP1 billion committed undrawn RCF. This is aided by ground rent proceeds, which have been allocated towards debt reduction and to fund an expected GBP60 million payment for a recent bolt-on acquisition. As part of this transaction, Morrisons also extended the maturity for GBP936 million of its RCF to August 2030, while the maturity for the remaining GBP64 million remains at August 2027. The RCF benefits from springing maturity three months ahead of the GBP1.3 billion equivalent senior secured notes, accelerating maturity to August 2027 if more than GBP413 million remain outstanding by then. Issuer Profile Morrisons is the fifth-largest UK supermarket chain, operating around 500 mid-sized supermarkets and nearly 1,000 convenience stores (McColls and Morrisons Daily). Date of Relevant Committee 14 June 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 ----------- ------ -------- ----- Market Bidco Limited senior secured LT BB New Rating RR1 BB(EXP) MARSH HOLDINGS: Westcotts Business Named as Administrators ---------------------------------------------------------- Marsh Holdings Limited was placed into administration proceedings in the High Court of Justice, Business and Property Courts of England and Wales, Insolvency and Companies List (ChD), Court Number: CR-2024-007045, and Jon Mitchell of Westcotts Business Recovery LLP, was appointed as administrator on Dec. 2, 2024. Marsh Holdings' line of business includes holding or owning securities of companies other than banks. Its registered office and principal trading address is at Unit 5 Merriott House, Hennock Road, Marsh Barton, Exeter, Devon, EX2 8NJ. The administrator can be reached at: Jon Mitchell Westcotts Business Recovery LLP 26-28 Southernhay East, Exeter Devon, EX1 1NS Further Details Contact: Jon Austin Email: insolvency@westcotts.uk Alternative contact: Kerry Austin T&L HOLDCO: S&P Alters Outlook to Negative, Affirms 'B' ICR ----------------------------------------------------------- S&P Global Ratings revised its outlook on T&L Holdco Ltd. (Travelodge), to negative from stable and affirmed the 'B' ratings on the group and the senior secured notes issued by TVL Finance PLC. S&P said, "The negative outlook reflects our view that we could lower the ratings if we were to observe ongoing deterioration in consumer demand and higher-than-expected cost pressures, leading to adjusted leverage remaining above 6.5x for a prolonged period, or if we were to observe weaker FOCF after leases that could dent the company's liquidity profile." Soft consumer demand in London budget hotels, coupled with cost pressures, will lead to a leverage hike to around 6.8x over 2024-2025. Budget hotel demand in the U.K. has been weak. Travelodge's average daily rates (ADRs) have been softer than the market average offsetting occupancy rate resilience and leading to slower top-line growth than in our previous forecast. Additional labor cost headwinds from the U.K. Autumn Budget will exert further pressure on the group's cost structure, reducing cash flow generation amid ongoing efforts in brand investments and the accelerated estate refit program. S&P said, "Under our base case, we expect the company to post S&P Global Ratings-adjusted leverage of around 6.8x in 2024. We believe that if the unfavorable demand patterns for the budget hotel sector were to continue or the group's cost saving initiatives yielded lower return than expected, its leverage could become structurally higher than 6.5x, at a level not commensurate with our current 'B' rating. We currently assume leverage could remain elevated at a similar level in 2025, before improving to about 6.4x in 2026, predicated on recovering ADRs and still resilient occupancy rate. Our adjusted debt calculation in 2024 includes GBP415 million senior secured notes, EUR250 million senior secured floating-rate notes, our assumption of about GBP2.4 billion lease liabilities at the T&L Holdco level, and the shareholder loan issued in 2024 to finance the acquisition of 66 hotels under TL Prop Holdco Ltd. (Propco). Our leverage calculation does not include any cash due to the group’s financial sponsor ownership and excludes two shareholder loans with principal amounts of GBP95 million issued before the pandemic and GBP40 million issued during the pandemic, because they meet our requirements for equity treatment." S&P said, "We expect top-line growth in 2024 to decelerate to only 2% owing to a fall in room rates. The group reported flattish year-to-date revenue as of Sept. 30, 2024, at GBP786 million, driven by 2.6% decline in ADRs that was only partially offset by higher occupancy rate at 84.8% (up 80 bps compared with Sept. 30, 2023). Therefore, revenue per available room (RevPar) declined by 1.8% over the same period, compared to a decline of 0.7% in the wider market, based on data analytics company STR's MS&E "midscale and economy" measure. We believe this is partly due to Travelodge's lower-than-usual room capacity because a sizable number of rooms were not available due to refurbishment activities under its accelerated refit cycle, under which it will have accomplished refit of 50% of the room estate by the end of 2024. We see favorably the group's resilient and slightly improving occupancy rate, in a context of unfavorable weather conditions, strikes, and fewer tourism garnering events reducing the traffic around London hotels, while the wider budget hotel market shows about 300bps decline to 80% as of August this year, according to audit firm RSM UK. This supports our revenue forecast of above GBP1.05 billion in 2024, an about 2% increase versus 2023. "We forecast Travelodge will experience top-line growth of about 2% in 2025; however, the U.K. Autumn Budget adds uncertainties to the underlying demand. Consumer demand remains uncertain for 2025, partly due to the sector's inherently short lead time booking patterns. Yet we expect the occupancy rate in 2025 will be supported by improving long-lead event booking pattern, high level of brand awareness, and improved estate quality given the recent refitting. We believe that with minimum wage growth exceeding inflation and still tight labor market, it remains to be seen how the government budget will impact consumer sentiment in traveling to London for business and leisure--assuming continuing inflationary pressure, and whether and by how much the extra money in the pocket would support higher room rates for the budget hotel sector. Meanwhile we note that the ongoing limited supply in budget hotels in the U.K. could be favorable to Travelodge's revenue fundamentals. As such, we expect total revenue to grow by about 2% in 2025 on the back of hotel openings, mildly improving occupancy rate, and flattish room rate. We note that the group's ambition to expand internationally is still at an early stage of development and its Spanish and Irish operations account for less than 3% total revenue." Travelodge is facing elevated cost pressures due to wage inflation and investments on the brand, leading its S&P Global Ratings-adjusted EBITDA margin to decline to less than 46% in 2024-2025 from 47.5% in 2023. S&P believes that the group will continue to execute tight cost control and benefit from some leeway in improving labor productivity with its in-sourcing capabilities and some level of automation in key activities, such as cleaning and room checks. The costs containment measures are particularly relevant to mitigate the impact from the Autumn Budget triggering higher minimum wage and employer's national insurance contribution in effect from April 2025. Furthermore, in 2024 the group undertook a series of initiatives to support the Travelodge brand through advertising campaigns and upgrade in property management systems contributing at least GBP15 million incremental costs. S&P said, "While not at a similar scale, we expect the group would continue to invest in its brand to support Travelodge's long-term growth. The group also has good relationships with its landlords and has lease structures that include a rent review usually every five years, with 40% of leases now containing cap and collars, reducing the exposure to increasing rents in an inflationary environment. That said, we believe material margin recovery will be dependent on the structural sector demand and consumer sentiment. The group operates a leasehold estate strategy with approximately GBP235 million lease payments in 2024 at the T&L Holdco level, which is half of the GBP480 million EBITDA (after IFRS 16) in our forecast." Cost headwinds, coupled with elevated capital expenditure (capex), will drive FOCF after leases to decline to about GBP40 million in 2024. S&P said, "We anticipate the management will continue to focus on its investments in the brand, real estate, and size. Amid other initiatives, the refit program is an important means to strengthen Travelodge's market position and underpin demand metrics. We assume annual capex will remain elevated over 2024-2026 at around GBP125 million, including investments for refitting activities. The number does not include GBP250 million related to the 2024 freehold acquisitions of 66 hotels from LXi REIT and six Spanish hotels. That said, we see part of the capex being discretionary, whereby the group typically has a three-month window to decelerate or halt projects to preserve cash in a weak trading environment. We also anticipate the management will become even more prudent in planning its portfolio expansion by picking the right hotel size with the right return profile. We estimate FOCF after leases will moderate to about GBP40 million in 2024 and GBP70 million in 2025 under our capex assumption and lower operating margins." S&P said, "We will continue to monitor how the group's real estate strategy would impact its leverage profile. The group acquired 66 Travelodge branded hotels for a total consideration of GBP210 million under TL Prop Holdco Ltd. (Propco). The new debt required for this acquisition is consolidated under the rated entity T&L Holdco Ltd. We understand that the holders of the real estate-related debt (TL Prop Holdco Ltd.) have no recourse over the assets that act as security on the senior secured notes issued by TVL Finance PLC and Propco will not act as a guarantor of the existing senior secured notes. Also, we see an overall positive impact in cash flow generation resulting from lower lease expense. We understand that management could explore further real estate transactions which could denote a change in its lease strategy and financial policy as the group uses cash from the operating company structure to finance acquisitions outside the restricted group or receive additional debt facilities. We will continue to monitor the group for the eventuality of such a situation because it could affect the creditworthiness of the operating entity. "We believe Travelodge will maintain an adequate liquidity profile in the next 12 months. The group holds GBP295.5 million of cash on the balance sheet as of Sept. 30, 2024, in addition to the fully undrawn GBP50 million revolving credit facility (RCF) due October 2027 and our estimate of GBP180 million cash funds from operations (FFO). The liquidity is also supported by the lack of near-term maturities, with GBP415 million senior secured fixed-rate notes due April 2028 and EUR250 million senior secured floating-rate notes due June 2030. "The negative outlook reflects uncertainties in relation to the evolution of travel demand in the U.K. in 2025, as well as the group's ability to successful mitigate cost pressures. Under our base case S&P Global Ratings-adjusted EBITDA margin would decline approximately 170-190bps in 2024 and 2025 compared with 2023, leading to the leverage increasing to about 6.8x in 2024 and 2025 before moderating to about 6.4x in 2026 on the back of improving demand fundamentals and hotel openings. We also expect FOCF after leases will decline to about GBP40 million in 2024 before improving to about GBP70 million-GBP80 million in 2025-2026, which should support the group's liquidity profile." S&P could lower the rating in the next 12 months if: -- Operational missteps or softness in the macroeconomy and the sector weaken the group's operating performance below S&P's base case, such that adjusted debt to EBITDA remains above 6.5x without a clear path of deleveraging; -- FOCF after leases turns negative, weakening the group's liquidity position; or -- The group pursues a more aggressive financial policy or real estate acquisition strategy, resulting in credit metrics persistently weaker than our current base-case expectations. A lower rating could also result from a meaningful deviation in credit quality between the rated topco (T&L Holdco Ltd.) and the operating company of the restricted group (Thame and London Ltd). S&P said, "We could revise the outlook to stable over the next 12 months if the group outperforms our base case and we were to observe a clear deleveraging path toward 6.5x as measured by S&P Global Ratings, while it maintains positive and growing FOCF after leases. Under this scenario we would expect the group to be able to withstand structural cost pressure in the U.K. labor market, amid its expansion in real estate and the ongoing need to invest in its brands." THAMES WATER: Fitch Affirms 'C' Rating on Senior Secured Debt ------------------------------------------------------------- Fitch Ratings has affirmed Kemble Water Finance Limited's (holding company of Thames Water Utilities Limited (TWUL); not rated) Long-Term Issuer Default Rating (IDR) at 'Restricted Default' (RD). The senior secured debt rating has been affirmed at 'C' and the Recovery Rating updated to 'RR6'. The 'RD' rating indicates that Kemble continues to face an uncured payment default, and has not completed an amend and extend (A&E) or approved exchange for its senior secured notes. Kemble has not initiated bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedures. Key Rating Drivers Kemble's Financial Distress: Kemble's rating reflects the company's failure to service its scheduled amortisation and interest payments since April 2024, due to a severely distressed liquidity position and a cash-lock up at TWUL. The non-payment of the GBP190 million term loan due April 2024 underscores its financial instability. Fitch understands that Kemble's secured creditors have not taken any enforcement actions regarding their share pledge in Thames Water Limited and are expected to maintain this stance until there is clarity regarding TWUL's financial stability. Future decisions about Kemble will ultimately depend on TWUL's financial and operational developments. Alvarez and Marsal and Norton Rose Fulbright have been appointed as restructuring advisors for Kemble to facilitate negotiations during the restructuring process. TWUL Liquidity Extension Efforts: TWUL and Thames Water Utilities Holdings Limited are currently undertaking measures to extend the liquidity runway through two tranches of GBP1.5 billion each. If the process is successful, signing of the new liquidity facilities is expected in 1Q25. Fitch expects the first tranche to address short-term liquidity needs. The availability of the second tranche will be contingent upon TWUL's board decision on whether to appeal to the Competition and Markets Authority regarding the final determination from Ofwat about AMP8, due on 19 December 2024. TWUL is also running a process to raise new equity to partially fund the large capex plan it needs to improve its operational and environmental performance. Kemble's shareholders do not intend to invest further equity into the company at this stage. A restructuring at the TWUL ring-fenced group may result in a change in shareholding for the OpCo. Derivation Summary The uncured payment default is the key driver of the 'RD' rating. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Ofwat's financial models and TWUL's business plan submissions are the main information source Recovery Analysis Kemble's recovery analysis is based on a liquidation approach - A 10% discount to the reported regulatory capital value (RCV) of about GBP20 billion as of the financial year ending March 2024 (FY24), to account for the required equity injections - An administrative claim of 0.8% of the discounted RCV, or about 10% of Kemble's outstanding debt - TWUL's net debt/RCV at 85% (dividend lock-up) before considering any super senior liabilities from mark-to-market (MtM) derivatives and the proposed liquidity transaction - Super senior MtM derivative liabilities for TWUL of about GBP1.35 billion at end-FY24 - Kemble net debt at end-FY24 of about GBP1.35 billion as per TWUL investors' report - These assumptions result in a recovery rate for the senior secured debt in the 'RR6' band. The waterfall generated recovery computation output percentage is 0%, indicating a 'C' instrument rating RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The rating could be downgraded to 'D' in the absence of an agreement with lenders and bondholders, leading to bankruptcy filings or other procedures Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Completion of debt restructuring would likely lead Fitch to affirm the IDR at 'RD' and subsequently re-rate the amended structure Liquidity and Debt Structure Kemble's liquidity is insufficient to sustainably cover its interest payments or repay debt. Issuer Profile Kemble is the holding company of TWUL, the largest Ofwat-regulated, regional monopoly provider of water and wastewater services in England and Wales, based on its RCV of about GBP20 billion as of end-FY24. Summary of Financial Adjustments - Statutory cash interest reconciled with investor reports - Statutory total debt reconciled with investor reports - Capex and EBITDA net of grants and contributions - Cash post maintenance interest cover ratios adjusted to include 50% of the accretion charge on index-linked swaps with five-year pay-down, and 100% of the accretion charge on indexed-linked swaps with less than five-year pay-down 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 Kemble has an ESG Relevance Score of '4' for customer welfare - fair messaging, privacy & data security due to large penalties expected for the customer service performance measure. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Kemble has an ESG Relevance Score of '4' for group structure due to its debt being contractually and structurally subordinated to TWUL, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Kemble has an ESG Relevance Score of '4' for exposure to environmental impacts due to the impact severe weather events could have on its operational performance and financial profile. These include colder winters, heavy rainfalls and extreme heat during summers that cause higher leakage and mains bursts, as well as higher internal sewer flooding and pollution incidents. Although severe weather events are unpredictable in nature, they have the potential to significantly increase operating costs and lead to additional outcome delivery incentives penalties and regulatory fines from combined sewer overflows, which have a negative impact on the credit profile, and are relevant to the ratings in conjunction with other factors. Kemble has an ESG Relevance Score of '4' for water & wastewater management due to TWUL's significantly weaker-than-sector average operational performance and sizeable penalties. This 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Thames Water (Kemble) Finance Plc senior secured LT C Affirmed RR6 C Kemble Water Finance Limited LT IDR RD Affirmed RD senior secured LT C Affirmed RR6 C ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. 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