/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/241226.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 26, 2024, Vol. 25, No. 259 Headlines F R A N C E ATOS SE: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable SECHE ENVIRONNEMENT: Fitch Affirms BB LongTerm IDR, Outlook Stable G E R M A N Y CHEPLAPHARM: Fitch Lowers LongTerm IDR to 'B', Outlook Stable EPHIOS SUBCO 3: Moody's Affirms 'B2' CFR, Outlook Remains Stable EUROPEAN MEDCO 3: Moody's Affirms 'B2' CFR, Outlook Now Stable HAPAG-LLOYD AG: Moody's Ups CFR to Ba1 & Alters Outlook to Stable REVOCAR 2023-1 UG: Moody's Ups Rating on EUR8.1MM D Notes to Ba1 STANDARD PROFIL: S&P Lowers Long-Term ICR to 'CCC-', Outlook Neg. I R E L A N D BARINGS EURO 2024-2: Fitch Assigns B-sf Final Rating to Cl. F Notes PENTA CLO 18: Fitch Assigns 'B-sf' Final Rating to Class F Notes TRINITAS EURO VIII: S&P Assigns B- (sf) Rating to Class F Notes I T A L Y FLOS B&B: Fitch Assigns 'B' Final Rating to EUR550M Sr. Sec. Notes LEATHER SPA: S&P Alters Outlook to Negative, Affirms 'B' ICR PIAGGIO & C: S&P Alters Outlook to Stable, Affirms 'BB-' ICR K A Z A K H S T A N KAZAKHSTAN TEMIR ZHOLY: S&P Affirms 'BB' LT Issuer Credit Rating N O R W A Y TGS NEWCO: S&P Withdraws 'BB-' Long-Term Issuer Credit Rating S W E D E N PMD DEVICE: Files Bankruptcy for Parent Company, Subsidiary SAMHALLSBYGGNADSBOLAGET: S&P Ups LT ICR to 'CCC', Outlook Negative S W I T Z E R L A N D TITAN HOLDINGS: S&P Withdraws 'B' Long-Term Issuer Credit Rating U K R A I N E UKRAINIAN RAILWAYS: S&P Downgrades ICR to 'CC', Outlook Negative U N I T E D K I N G D O M FLAMINGO GROUP: Fitch Affirms 'B-' LT IDR, Alters Outlook to Pos. PHARMANOVIA BIDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable TOWD POINT 2024: Fitch Assigns 'B-sf' Final Rating to Class F Notes VEDANTA RESOURCES: S&P Upgrades ICR to 'B', Outlook Stable - - - - - =========== F R A N C E =========== ATOS SE: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable -------------------------------------------------------- Fitch Ratings has assigned Atos SE (Atos) a Long-Term Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. Fitch has also assigned Atos's first-lien, 1.5-lien, and second-lien senior secured notes 'BB-'/'RR1', 'CCC+'/'RR5', and 'CCC'/'RR6', respectively. Atos's rating reflects high post-restructuring EBITDA leverage and weak EBITDA margin, negative free cash flow (FCF), and significant execution risks associated with its operational restructuring. Rating strengths are its strong market position, a global and diversified blue-chip customer base, its broad and mission-critical IT services, and supportive long-term industry trends. A positive rating action would be predicated on demonstrated improvements to its operating and credit metrics. Key Rating Drivers Meaningful Execution Risk: Atos faces a challenging two to three years to execute its strategic and operational goals. Initiatives to enhance profit include rationalising loss-making contracts and sectors, reducing headcount, improving asset utilisation and efficiencies, and reinvesting in sales and marketing using artificial intelligence and automation. These actions are crucial for maintaining competitiveness in a labour-intensive, high fixed-cost business but may yet lead to unforeseen costs and delays. Failure to execute its initiatives could delay deleveraging and increase cash absorption. EBITDA Margin Pressure; Negative FCF: Atos has struggled to stabilise operating performance, with EBITDA margin falling to low single digits and lagging peers'. Increasingly negative operating cash flows have necessitated extraordinary measures. Fitch forecasts EBITDA margin to trend to mid-single digits and FCF to turn positive in 2027, once restructuring costs totalling EUR1.2 billion for 2024-2025 and capex subside. Cost savings and commercial initiatives may enhance Atos's capacity to capitalise on business opportunities. Fitch would expect EBITDA margin to trend closer to low teens and mid-single digit FCF margins for a higher rating category. Headcount Reductions Underway: Atos has begun a process of headcount reductions since last year, cutting 3,500 by end-2024 and with around 10,000 total reductions planned by 2027. Fitch estimates around EUR800 million of run-rate savings from 2027. Atos will focus on utilising existing staff instead of expensive contractors, as well as moving offshore and removing redundant roles through natural attrition or severance. Negotiations with unions have not indicated any hurdles. Fitch forecasts total restructuring costs related to headcount reductions of around EUR960 million across 2023-2027. Financial Policy Underpins Deleveraging: Atos's forecast post-restructuring pro-forma EBITDA net leverage is high at 7.0x in 2024, falling to 6.8x in 2025 and below 5.0x in 2027 as underlying EBITDA improves. Having converted EUR2.9 billion of existing debt into equity, Fitch expects Atos to adopt a financial policy that reflects their priority of deleveraging and improving credit metrics. Lower gross and net leverage metrics, combined with sustained improved organic profitability and FCF, would support a positive rating trajectory. TFCo, Secular Shift: Tech Foundations (TFCo), a division of Atos and one of Europe's largest cloud infrastructure managers, supports 1,200 customers globally. It is transitioning from an on-premise model to a hybrid-cloud service, aligning with public cloud trends. This shift should reduce infrastructure revenue (2023: 36% of TFCo's revenue) over the next three years and weigh on margins, due to client losses and changes in revenue scope. However, growing trends in digitisation and remote working are likely to partly mitigate these declines, as robust technology environments become increasingly critical. Strong Challenger in Eviden: Eviden, another Atos division, is a strong contender in application modernisation, migration services, and managed security, with solid customer retention and IP rights. It has strong partnerships and a growing presence in quantum computing and AI. However, digital services (2023: 70% of Atos's revenue) are sensitive to macroeconomic conditions, leading to longer sales cycles and reduced service scope as customers manage costs. Eviden's low churn and high customer retention should enable it to capitalise on positive long-term trends in greater digitisation and automation. Scaled Operator: Generating around EUR10 billion of revenue, Atos benefits from a leading global position with a highly diversified revenue and customer base. However, profitability is constrained by its primary role as a reseller and managed service provider, which depends on operating leverage for earnings scalability. Fitch believes Atos has the potential to serve as a "one-stop-shop" for customers, enhancing its competitiveness by upselling and cross-selling. This approach can leverage economies of scale and scope, but it necessitates an effective commercial strategy. Moderate Barriers to Entry: The enterprise IT solutions industry is highly competitive with many established providers of similar scale across many facets of the value chain. The industry benefits from factors such as the need for highly skilled talent and provision of critical infrastructure and services, often in highly regulated environments. Global providers cover the full breadth of services while challengers target domain specialisations. Further Disposals Possible: Following the sale of Worldgrid to Alten SA, Atos has been in discussion with the French government for the sale of significant assets in big data & services. A sale is likely to support faster deleveraging, subject to the valuation achieved for these assets. However, the sale of these higher-margin assets may lead us to tighten its leverage sensitivities to reflect a weakening of the business profile. Derivation Summary Atos's businesses profile is comparable to those of other global IT services and systems integrators. US peers comprise Accenture plc (A+/Stable), DXC Technology Company (DXC; BBB/F2/Negative), Kyndryl Holdings, Inc. (Kyndryl; BBB/Stable) and Hewlett Packard Enterprise Company (HPE; BBB+/Stable). Emerging markets peers include Tata Consultancy Services Limited (TCS; A/Stable), Wipro Limited (A-/Stable), and HCL Technologies Limited (HCL; A-/Stable). Atos's credit profile is weaker than those of higher rated investment-grade peers, who benefit from larger scale, stronger market positions, EBITDA margins in the mid-to-high teens and lower leverage. Atos has a strong position in Europe, particularly within cybersecurity and high-performance computing. Globally, it is a strong challenger to industry leaders, with its broader offering of core IT managed services. Consequently, leverage thresholds are tighter for a given rating. Kyndryl, DXC and HPE have all been hit by a secular decline in legacy IT services, driven by the accelerated migration from on-premise to public cloud infrastructures. They are therefore further progressed in the transition than Atos. Atos is expected to continue to face operating challenges for the next three years as it belatedly transforms its contract portfolio and adjust its unprofitable cost structure, to align performance metrics more closely with industry peers'. Wipro and HCL Technologies benefit from the lower-cost Indian labour market, while Accenture has differentiated itself as a leader via a diversified business model, achieving above-market revenue growth with minimal leverage. Atos's post-restructuring leverage and profitability are broadly in line with those of 'B' category IT peers offering similar services, such as Clara.net Holdings Limited (B/Stable), Ainavda Parentco AB (Advania; B/Stable) and Engineering Ingegneria Informatica S.p.A (EII; B/Stable). In addition to high leverage, these peers have lower revenue, weaker or constrained market shares or service offerings. However, they also have more flexible financial policies and benefit from better EBITDA margins. Atos's equivalent leverage thresholds are looser relative to this peer group, reflecting its stronger business profile and potential for higher absolute EBITDA through operating leverage. Key Assumptions Total revenue to decline 9% in 2024 and 6% in 2025, followed by low single-digit growth in 2026-2027 Eviden's revenue to decline 4% in 2024, before reversing to 5% CAGR in 2025-2027 TFCo revenue to decline 13% in 2024 and 9% in 2025, implying a CAGR of -4% in 2025-2027 Fitch-defined, pre-IFRS16 EBITDA margin of 2.5% in 2024, before improving to 5.6% by 2026 and 8% in 2027. This reflects near-term operating challenges and high restructuring costs, followed by the benefit of cost-saving initiatives Working-capital outflow of EUR1.8 billion in 2024. Working capital to average -0.4% of sales in 2025-2027 Capex at 5% of sales in 2024, falling to 2.4% in 2025 and 1.9% in 2026-2027. Portion related to capitalised research and development costs is expensed in EBITDA and excluded from capex Non-recurring costs of EUR347 million in 2024, falling to EUR180 million in 2025 and below EUR100 million in 2026-2027 No dividends Sale of Worldgrid with proceeds received in November 2024. Revenue and operating margin before depreciation and amortisation excluded from forecasts from 2025. No further M&As Debt restructuring completed by end-2024 Recovery Analysis The recovery analysis assumes that Atos would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Fitch estimates that the post-restructuring Fitch-defined GC EBITDA would be around EUR400 million. Fitch would expect a default to come from a secular decline or a decline in revenue and EBITDA, following reputational damage or intense competitive pressure. An enterprise value (EV) multiple of 5.5x is applied to the GC EBITDA to calculate a post-reorganisation EV. The post-restructuring EBITDA accounts for Atos's scale, its customer and geographical diversification, and mission-critical services that support customer retention in several services. However, this is offset by a weaker-than-industry profitability and challenges stemming from secular trends in legacy IT services. Fitch has factored in 10% of administrative claims for bankruptcy and associated costs. This leads to a distressed EV of EUR1.98 billion. Its waterfall analysis generates ranked recoveries for the first-lien senior secured notes (SSN) equivalent to 'BB-'/'RR1'/100%, for the 1.5-lien SSN equivalent to 'CCC+'/'RR4'/27%, and for the second-lien SSN equivalent to 'CCC'/'RR6'/0%. Fitch assumes a full drawdown of Atos's EUR440 million revolving credit facility (RCF) on default. The RCF ranks equally with other first-lien secured debt. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Increasingly negative FCF, reducing liquidity buffers after utilisation of committed facilities Weak organic revenue growth and EBITDA margins or insufficient deleveraging resulting in EBITDA net leverage above 7.5x and EBITDA leverage above 8.5x for an extended period EBITDA interest coverage, including non-cash interest, consistently below 1.5x Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade FCF margin sustained above 1%, driven by improved operating cashflow and materially lower restructuring costs EBITDA net leverage and EBITDA leverage below 6.5x and 7.5x, respectively, on a sustained basis, supported by progress in Atos's turnaround strategy leading to an improved EBITDA margin in single digits EBITDA interest coverage, including non-cash interest, sustained above 2x Liquidity and Debt Structure Atos's liquidity will materially improve to EUR1.6 billion (excluding Worldgrid proceeds) on the completion of the financial restructuring. Fitch forecasts average balance-sheet cash to remain above EUR900 million in 2024-2027, further supported by an undrawn EUR440 million RCF. Following the unwinding of existing working capital actions of EUR1.8 billion, Fitch does not expect Atos to take on new factoring facilities. Fitch expects Atos to manage its working capital organically, although this option remains limited in scope. In addition to the RCF, Atos will have EUR1.1 billion of first-lien SSN maturing in 2029, EUR1.6 billion of 1.5-lien SSN maturing in 2030 and EUR356 million of second-lien SSN maturing in 2031. The SSN and term loans feature bullet payments and cash and non-cash interest payments. The first maturity in 2029 provides Atos with time to improve its credit profile ahead of a refinancing. Issuer Profile Atos SE is a global IT services provider with expertise in digital transformation, cybersecurity and high-performance computing, cloud solutions, and digital workplace services. Atos serves various sectors such as manufacturing, healthcare, financial services, public sector, and telecommunications with a leading position in Europe. Date of Relevant Committee 09 December 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 Atos has an ESG Relevance Score of '4' for Management Strategy. This reflects the company's challenges in executing its strategy to achieve growth in its digital offerings to offset the decline in legacy IT services. Further, multiple senior management changes have contributed to deteriorating operating performance and a financial restructuring. Atos has begun the process of implementing a new management team, whose interests are better aligned to a successful turnaround of the business, although execution risks weigh negatively on the credit profile. These ESG factors are relevant to the rating, in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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 scores are not inputs to the rating process; they are an observation of the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery ----------- ------ -------- Atos SE LT IDR B- New Rating senior secured LT BB- New Rating RR1 senior secured LT BB- New Rating RR1 Senior Secured 2nd Lien LT CCC+ New Rating RR5 Senior Secured 3rd Lien LT CCC New Rating RR6 SECHE ENVIRONNEMENT: Fitch Affirms BB LongTerm IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Seche Environnement S.A.'s (Seche) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BB' and removed the IDR from Rating Watch Negative (RWN). The Outlook is Stable. The Recovery Rating on the senior unsecured notes is 'RR4'. The rating actions mainly reflect Seche's disposal in November 2024 of a 49.9% stake in recently acquired ECO to the financial sponsor CVC DIF with higher than expected proceeds. This was a crucial milestone for Seche that has significantly offset the financial impact of the acquisition. Fitch now expects pro-forma EBITDA net leverage in 2024 slightly below its revised negative sensitivity of 4.2x for the 'BB' rating. The ratings reflect Seche's strong position in hazardous waste (HW) treatment in France, the long record of organic and acquisitive growth and the publicly stated financial policy of maintaining net debt/EBITDA (as reported by Seche) below 3.0x, and its relatively small size, exposure to industrial clients and the non-contracted nature of the business. Key Rating Drivers Transaction Completed, Stable Outlook: Seche's acquisition of ECO closed in July 2024 for an enterprise value of around EUR440 million and pro-forma EBITDA contribution of about EUR30 million. The impact of the acquisition on the company's net debt has been materially mitigated by the sizeable proceeds related to the disposal of 49% minority interests and Fitch now expects net debt of EUR0.8 billion at end-2024 (versus EUR0.6 billion in 2023). Seche sees CVC DIF as a long-term partner in ECO and Fitch understands that Seche will maintain control of ECO's dividend policy, and that no exit options have been established among ECO's shareholders. Forecasts Show Comfortable Headroom: In its updated projections, Seche's (pro-forma) net leverage is already within guidelines in 2024 and decreases to 3.6x in 2025, broadly in line with the company's stated financial target of reported net debt/EBITDA of 3x, which implies comfortable headroom under the revised sensitivities for the 'BB' rating. The rating case assumes organic revenue growth at close to 5% per year, reflecting positive sector trends as well as Seche's expertise in complex waste management. Fitch forecasts the Fitch-defined EBITDA margin gradually improving to about 19% (from 17% expected in 2024) driven by the growing contribution of ECO as well as gains from Seche's savings plan. FCF Generation, Acquisitive Strategy: Fitch forecasts EBITDA net leverage slightly above 3.5x over 2025-2026, reflecting neutral to positive (post-dividend) free cash flow (FCF) that will be driven by organic revenue growth and small bolt-on acquisitions. Fitch expects any deleveraging will also depend on Seche's M&A appetite, as the company follows an external growth strategy to expand its geographic footprint and extend its service offering. ECO's HW Leadership: ECO is a leading HW management operator in Singapore, benefiting from a strong market share and diversified customer base as well as defensive characteristics related to regulatory requirements and technical capabilities. Fitch sees ECO's contribution to Seche's EBITDA as moderate (10% in 2026 net of minority dividends), but expect it will support the group's profitability as ECO's EBITDA margin is close to 40%. Fitch expects ECO's revenues to increase on average 10% per year in 2024-2026, following ramp-up of operations in its carbon soot incineration plant. Improved Leverage Guidelines: Fitch has slightly relaxed its negative sensitivity for Seche's EBITDA net leverage to 4.2x (from 4.0x), reflecting the improving business profile and increasing diversification and better factoring in positioning compared with peers. Seche is smaller in size than other Fitch-rated European waste operators but this is offset by its strong position as a HW specialist. Seche owns an extensive HW management infrastructure in France with long-term permits allowing it to compete with the two global leaders in the environmental industry. Merchant and Re-contracting Risks: Seche's activities with industrial clients are either short-term contracted or merchant. As a result, it faces re-contracting risk for existing contracts, price and volume risk from renegotiation, and low revenue predictability in new (or expanded) contracts and one-off services. However, Seche has a strong record of customer retention, reflecting scarcity of treatment- and storage capacities in its primary waste markets, and stringent regulatory requirements. Exposure to Industrial Output: The majority of Seche's business (85% of revenues) relates to industrial waste, which leads to some revenue volatility. This is due to revenue being mostly set at an agreed price per waste ton treated (or per TWh of energy generated), while waste treatment is capital-intensive with large fixed costs. Seche mitigates structural risk by diversifying its customer base to less cyclical industries. The remaining 15% of revenues comes from its more stable business with municipalities in France under longer-term contracts. Healthy Sector Demand: The increasing focus of governments and regulators in the EU on circular economy provides growth opportunities for waste collection and treatment. As a result, Fitch expects demand for Seche's materials recovery and energy-from-waste services to remain healthy and for it to continue to offset cost inflation. Political support and the pace of regulatory development (particularly in emerging markets) will be key to Seche's business plan delivery. Derivation Summary Fitch views Paprec Holding SA (BB/Stable) as Seche's closest peer, as both companies are medium-sized waste treatment operators primarily in France. Seche specialises in HW management, which is subject to strict technical requirements that provide higher barriers to entry and greater pricing power than Paprec's lower-margin non-HW business. Paprec's counterparty risk is lower than Seche's (due to a higher share of revenues from public entities) but its recycling business is exposed to primary commodity prices and demand for manufactured goods, for which Paprec is a price taker. Overall, Seche has slightly higher debt capacity than Paprec, given its value and margin-added service offering, as well as a higher share of fee-based revenues. Spanish waste management operators Luna III S.a r.l. (BB/Stable, Urbaser S.A.U.'s holding company) and FCC Servicios Medio Ambiente Holding, S.A. (FCC MA; BBB/Stable) operate under long-term concession contracts with municipalities, and are largely shielded from price risk, compared with Seche's significantly higher merchant and re-contracting risk. Luna and FCC MA benefit from low exposure to private industrial and commercial customers and sound geographical diversification. The stronger business profiles of Luna and FCC MA support higher debt capacity than Seche. Key Assumptions - Revenues to increase 6.6% per year over 2024-2026, including organic growth of about 5% per year - EBITDA margin (Fitch-defined) averaging 18% over 2024-2026 - Capex on average at EUR119 million a year during 2024-2026, around 10% of revenues - Net working capital stable at 15.5% of revenues during 2024-2026, resulting in broadly neutral impact on cash flows - Dividend distributions based on Seche's dividend per share policy, with a slight annual increase (EUR0.1/share a year) until 2026 resulting in annual dividends of EUR10 million in 2026 - Bolt-on M&A outflows of EUR50 million assumed by Fitch cumulatively in 2025-2026 RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - EBITDA net leverage remaining above 4.2x on a sustained basis - EBITDA interest coverage below 4.0x - Consistently negative FCF - Increased earnings volatility within Seche's business portfolio, to the extent the changes are not adequately offset by lower financial risk - Aggressive M&A not sufficiently offset by managerial remedy actions Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: Fitch could upgrade the rating if EBITDA net leverage remains below 3.5x on a sustained basis, EBITDA interest coverage remains above 5.0x on a sustained basis, and Fitch-defined EBITDA margin is consistently at around 16%-17%. Liquidity and Debt Structure As of June 2024, Seche's sources of liquidity included EUR170million of cash on balance and EUR170 million under a EUR200 million committed revolving credit facility (RCF) due in 2027 (with two one-year extension options). The ECO acquisition was financed through the EUR330 million utilisation of an acquisition bridge facility due in 2025 (with two six-month extension options) and a EUR100 million drawdown under the RCF. With the sale of a 49.9% stake in ECO in November 2024 and the cash-in of the sizeable divestment proceeds, Fitch expects Seche's sources of liquidity at end-2024 to be sufficient to cover debt repayments due in 2025. Issuer Profile Seche is engaged in the collection, treatment and storage of waste, as well as the recovery of energy and materials. It generated 85% of 2023 revenues with industrial clients and environmental service companies; and the remaining 15% with local authorities. 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 ----------- ------ -------- ----- Seche Environnement S.A. LT IDR BB Affirmed BB senior unsecured LT BB Affirmed RR4 BB ============= G E R M A N Y ============= CHEPLAPHARM: Fitch Lowers LongTerm IDR to 'B', Outlook Stable ------------------------------------------------------------- Fitch Ratings has downgraded CHEPLAPHARM Arzneimittel GmbH's (Cheplapharm) Long-Term Issuer Default Rating (IDR) to 'B' from 'B+'. The Outlook is Stable. Fitch has also downgraded the senior secured debt to B+/RR3 from BB-/RR3. The downgrade reflects Cheplapharm's high leverage, modest size and slow structural organic decline of its portfolio of off-patent established and niche drugs with strong operating margins and free cash flow (FCF) generated by its asset-light business model in a non-cyclical sector. The Stable Outlook reflects Fitch's expectation that the group will continue to generate substantial FCF and that its performance will stabilise over the next 12-18 months, with organic revenue decline contained to low-single digits and stable EBITDA margins. Fitch assumes that the group will stop making acquisitions in 2025 and 2026 to focus on improving its organic performance, leading to an EBITDA leverage between 5.5x and 6.5x during the next three years. Key Rating Drivers Margins Fall; Organic Decline Accelerates: Fitch expects EBITDA to decline by slightly over 10% in 2024, caused by a decline in EBITDA margins to 45% from 52%. This is despite its expectation of low-single digit revenue growth in 2024, driven by the contribution of drugs acquired in 2023 and 2024. The organic revenue decline of the existing portfolio has accelerated from low-single digits to the low teens, due to a mix of temporary product availability issues for some drugs and commercial underperformance. In its view, recent commercial weakness has been driven by integration problems of recent large acquisitions and the increased complexity of the group following a period of very fast acquisition-driven growth, which saw the company almost triple in size from 2019 to 2023. Leverage Deteriorates: Over 2021-2023 Cheplapharm's leverage was moderate compared with private equity-owned peers, at 4.4x in 2021 and 2022 and 5.3x EBITDA. However, Fitch expects gross EBITDA leverage to increase to 6.5x in 2024 as a result of the EBITDA decline and material acquisitions in 2024, including around EUR400 million of new acquisition and EUR330 million in deferred payments related to previous acquisitions. Stabilisation Assumed: Although the degree of visibility has decreased, Fitch expects management to contain the organic revenue decline to the historical low-to-mid single-digit decline over the next 12-18 months, stabilising margins between 43% and 45%. Fitch expects a gradual recovery of a large portion of market share lost once product availability issues abate, given the nature of its portfolio. The portfolio of off-patent drugs includes a mix of small niche drugs with no or little generic competition and legacy drugs, of which at least half have strong brand recognition and are less affected by generic competition. Strong FCF Generation: Fitch expects that Cheplapharm will continue to generate strong FCF in 2025 to 2027, despite lower EBITDA margins than in recent years, enabling it to modestly reduce its debt or self-finance acquisitions. Fitch estimates FCF to average EUR235 million per year in 2025-2027, following a weaker 2024 due to large working capital outflows. Pause in M&A Activity: Fitch assumes that the group will stop making material acquisitions in 2025 and 2026 to focus on its existing drug portfolio and internal systems to improve its operating performance. Previously Fitch expected Cheplapharm to use internally generated cash, combined with the flexibility under its revolving credit facility (RCF), to prioritise inorganic growth. Fitch estimates that the group would need to invest around 8%-9% of its revenue each year in acquisitions (which Fitch treated as development capex) to offset its structural organic portfolio decline. Defensive Operations: The rating is underpinned by Cheplapharm's defensive business profile, with predictable revenue and high margins from a diversified portfolio of off-patent drugs, including niche and legacy drugs, although this visibility has reduced recently. The group has a solid record of strong performance, supported by a well-managed IP portfolio, active product life-cycle management, and well-executed acquisitions of drug IP rights. In its view, niche specialist pharmaceutical companies like Cheplapharm are well positioned to benefit from the trend of innovative pharma companies streamlining their product portfolios by divesting off-patent drugs. Derivation Summary Fitch rates Cheplapharm using its Ratings Navigator Framework for Pharmaceutical Companies. Cheplapharm is rated one notch below Pharmanovia Bidco Limited (B+/Stable), despite the smaller scale of the latter and comparable asset-light scalable business model with strong cash flow margins. Pharmanovia has a moderate EBITDA leverage of 4.5x-5.5x, while for Cheplapharm Fitch expects the leverage to increase to 6.5x in 2024 and stay elevated for the next 12-18 months. Cheplapharm is rated below Grunenthal Pharma GmbH & Co. Kommanditgesellschaft (BB/Stable). Grunenthal's credit profile reflects its more conservative financial policy with a leverage of 3.0x-4.0x and strong FCF margins derived from a portfolio of off-patent and innovative drugs and own manufacturing and distribution capabilities, albeit with lower EBITDA margins of about 20%. Fitch rates Cheplapharm at the same level as ADVANZ PHARMA HoldCo Limited (B/Stable). The latter is involved in bringing new niche, specialist and value-added generics to market through co-development, in-licencing, and distribution agreements, but it has smaller business scale and lower operating and cash flow margins, whereas leverage is lower in the range of 4.5-5.5x. Cheplapharm's IDR is at the same level as generics producer Nidda BondCo GmbH (B/Stable). Cheplapharm has much smaller scale and a more concentrated portfolio, which is mitigated by wide geographic diversification within each brand. Nidda BondCo's rating is limited by high EBITDA leverage at about 8x in 2023, but expected to reduce to below 7.0x from 2024 and be only marginally higher than that expected for Cheplapharm in 2024. Key Assumptions - Revenue growth around 3% in 2024, with an organic decline in the low teens offset by the contribution of drugs acquired in 2023 and 2024 - Revenue growth around 2% in 2025. With an organic decline in the low-single digits offset by the annualisation of the contribution of drugs acquired in 2024 - Revenue decline of around 3.5% per year in 2026 and 2027 in the absence of further M&A - EBITDA margin to reduce to 45% in 2024 and to 43% in 2025, with a gradual improvement thereafter towards 44-45% by 2027 - Maintenance capex at about 1% of sales - EUR400 million of M&A spend in 2024, followed by no new M&A in 2025-2027. Fitch treats acquisitions accounting to up 8%-9% of the previous year's sales as capex - Deferred payments related to previous acquisitions of EUR330 million in 2024 and EUR41 million in 2025 - One-off transformation-related costs of EUR20 million in 2025 and EUR10 million in 2026 - Trade working-capital outflows of about EUR170 million a year in 2024, then EUR70 million in 2025 and EUR50 million per year in 2026-2027 - No common dividends payments in 2025 to 2027 Recovery Analysis Fitch expects that in a bankruptcy Cheplapharm would most likely be sold or restructured as a going concern (GC) rather than liquidated, given its asset-light business model. Fitch estimates a post-restructuring GC EBITDA at about EUR600 million, which includes the contribution from the recently closed drug IP acquisitions. Cheplapharm would be required to address debt service and fund working capital as it takes over inventories following the transfer of market authorisation rights, as well as making smaller M&A to sustain its product portfolio to compensate for a structural sales decline. Fitch applies a distressed enterprise value/EBITDA multiple of 5.5x, reflecting the underlying value of the group's portfolio of IP rights. After deducting 10% for administrative claims, the allocation of value in the liability waterfall results in a Recovery Rating of 'RR3' for the existing senior secured debt, including its EUR695 million RCF, which Fitch assumes will be fully drawn prior to distress. This indicates a 'B+' instrument rating with a waterfall-generated recovery computation of 63% vs 62% previously. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - More aggressive financial policy, leading to EBITDA leverage above 6.5x on a sustained basis - EBITDA interest coverage below 2.0x on a sustained basis - Positive but continuously declining FCF - Unsuccessful management of individual pharmaceutical IP rights leading to material permanent loss of income and EBITDA margins declining below 40% Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - An upgrade is unlikely in the near term. Fitch could consider an upgrade once a viable transformation plan starts to be delivered, resulting in a stabilisation of organic operating performance with organic revenue decline contained to the low-single digits - EBITDA leverage below 5.5x on a sustained basis - EBITDA interest coverage above 3.0x on a sustained basis - Continuously positive FCF margins in the mid- to high teens Liquidity and Debt Structure Fitch views liquidity as satisfactory, with EUR379 million in readily available cash as of 3Q24 (excluding Fitch-restricted EUR20 million for operational purposes) and EUR330 million undrawn from its EUR695 million RCF maturing in February 2028. In addition, Fitch expects Cheplapharm to generate strong FCF, which Fitch estimates in the range of EUR200 million to EUR250 million on average from 2025 to 2027. The group has a medium-term maturity profile with EUR500 million maturing in February 2027, around EUR1 billion maturing in January 2028, EUR1480 million in February 2029 and EUR1,050 million maturing in May 2030. Summary of Financial Adjustments Fitch treats the EUR500 million shareholder loan as equity but includes its interest paid in its cash flow projections given the group's intention to pay interest in cash. Fitch also treats EUR20 million of readily available cash as restricted cash. 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 ----------- ------ -------- ----- CHEPLAPHARM Arzneimittel GmbH LT IDR B Downgrade B+ senior secured LT B+ Downgrade RR3 BB- EPHIOS SUBCO 3: Moody's Affirms 'B2' CFR, Outlook Remains Stable ---------------------------------------------------------------- Moody's Ratings has affirmed the B2 long term corporate family rating and B2-PD probability of default rating of Ephios Subco 3 S.a r. l. (Synlab or the company). Moody's have also affirmed the B2 rating on the EUR1 billion senior secured term loan B, the EUR450 million senior secured global notes, and the EUR500 million senior secured revolving credit facility (RCF) issued by Ephios Subco 3 S.a r. l. Concurrently, Moody's have downgraded to B3 from Ba2 the EUR385 million senior secured term loan B4 (TLB4) issued by Synlab Bondco PLC. The outlook on all entities remains stable. A List of Affected Credit Ratings is available at https://urlcurt.com/u?l=F5EKcH RATINGS RATIONALE The rating action reflects Synlab's resilient organic growth, excluding cyberattack impacts, and Moody's-adjusted credit metrics adequately positioned within the B2 rating category. For the nine-month period ending in September 2024, the company reported a 3% revenue growth, which excludes the negative impact of EUR23 million attributed to a severe cyberattack attack in Italy and the United Kingdom. As a consequence of the cyberattack-related disruptions and the costs associated with system restoration and interim solutions, the company estimated an exceptional cost of EUR35 million on its EBITDA. This resulted in a reported EBITDA margin of 15% for the nine-month period ending in September 2024, a decline from the 16.5% reported in the same period of 2023. However, when adjusting for the financial impacts of the cyberattacks, the EBITDA margin improves to 16.6%. To improve its profitability, Synlab is actively streamlining its portfolio by divesting lower-margin assets, including the sale of its Swiss and veterinary divisions in 2023, and has announced the divestments of operations in five countries in Q3 2024. The transactions include the expected completion of the sale in Spain in H1 2025 and the completed sale in Lithuania during Q3 2024, with the divestments of Romania, Cyprus, and North Macedonia awaiting antitrust approval. The use of the proceeds from these sales, estimated at around EUR100 million, remains uncertain, but Moody's understand they will not be used to pay exceptional dividends. Furthermore, the company projects to achieve cost savings through its SALIX program, which focuses on productivity enhancement, process digitalization, and optimization of the portfolio and laboratory footprint. In 2024, this will contribute to approximately EUR40 million of cost savings. For 2024, Moody's project Moody's-adjusted gross debt to EBITDA (leverage), excluding the impact of cyberattacks, to be 6.1x. Similarly, Moody's estimate the adjusted EBITA to interest expense ratio, also adjusted for cyberattack, to stand at 1.5x. Both of these adjusted ratios align with the guidance for a B2 rating, though the adjusted EBITA to interest expense ratio is at the lower end of the range expected for a B2 rating. In 2025, Moody's forecast leverage and interest coverage to be 5.5x and 1.6x, respectively. Moody's estimate that free cash flow will be negative in 2024, driven by an increase in interest expense resulting from the new capital structure, along with other factors such as high levels of capital expenditures required for IT infrastructure updates. In 2025, Moody's forecast an improvement in free cash flow due to a positive impact of EUR35 million from the avoidance of cyberattack related costs, a reduction in non-recurring items, organic volume growth and cost savings realized through the implementation of the Salix program to optimize operations. More generally, Synlab's B2 ratings are supported by (1) the company's scale and strong reputation in the clinical laboratory sector; (2) the good geographical diversification with a presence in 32 countries, with strong market positions in key European countries like France, Government of (Aa3 stable), Germany, Government of (Aaa stable), United Kingdom, Government of (Aa3 stable), and Italy, Government of (Baa3 stable); (3) the positive demand trends for clinical laboratory tests. Conversely, the ratings are constrained by (1) the exposure to change in regulation and continuous tariff pressure across key European countries, which will limit organic growth; (2) the execution risk with regards to the cost reduction and asset sale programme, notwithstanding good progress so far; (3) the leveraged financial profile, limited free cash flow generation, and risk of future debt-funded acquisitions. LIQUIDITY Synlab has a good liquidity. On a consolidated basis, it had EUR528 million of cash and EUR500 million of undrawn senior secured RCF as of September 30, 2024. In 2025, Moody's forecast negative free cash flow generation of EUR7 million. Its capital structure is composed of a senior secured term loan B of EUR1 billion and senior secured global notes of EUR450 million, both maturing in 2031. The senior secured TLB4 of EUR385 million will mature in July 2027 and the RCF of EUR500 million in 2030. The RCF has one springing covenant tested only when the facility is drawn by more than 40% net of cash, with a net senior secured leverage test of 7.2x. STRUCTURAL CONSIDERATIONS Synlab's capital structure includes a EUR1 billion senior secured term loan B, EUR450 million in senior secured global notes, and a EUR500 million RCF, all issued by Ephios Subco 3 S.a r.l.. These instruments are pari passu and rated B2, in line with the CFR. Synlab also holds a legacy EUR385 million TLB4 raised through Synlab Bondco PLC, which owns 100% of the operating subsidiaries. This debt instrument has not been redeemed as Moody's had previously anticipated. On September 29, 2023, Cinven launched a bid to acquire all Synlab AG shares it did not own, securing about 85% by November 20, 2023, but missing the squeeze-out threshold. This initially led to the expectation that proceeds from newly raised debt would be used to repay the TLB4. However, Ephios Subco 3 S.a r.l. used the funds to buy minority stakes for a future squeeze-out, keeping the TLB4 in Synlab's capital structure. By Q3 2024, Ephios Subco 3 S.a r.l. had increased its ownership stake in Synlab AG to 96.1%. Moody's expect Synlab to execute a minority squeeze-out in the first half of 2025 and have consequently downgraded the TLB4 to B3 from Ba2, one notch below the CFR. This rating positions the TLB4 a notch below the B2 rating of other secured debt instruments issued by Ephios Subco 3 S.a r.l. The TLB4 is structurally senior to the other debt facilities of the group as it is issued by Synlab Bondco PLC, the direct owner of the operating subsidiaries, and benefits from a pledge over the shares of that entity. However, Moody's rank the TLB4 behind the secured debt instruments issued by Ephios Subco 3 S.a r.l. for the purpose of Moody's loss given default assessment to reflect the fact that the latter will directly benefit from guarantees from material operating subsidiaries representing at least 80% of the group's consolidated EBITDA following the minority squeeze-out. The PIK note of EUR500 million issued by Ephios Subco 1 is outside of the restricted group. However, it enters the restricted group in the form of a shareholder loan which meets the criteria for equity treatment. RATING OUTLOOK The stable rating outlook considers that the company will maintain credit metrics aligned with the B2 rating over the forthcoming 12 to 18 months. This outlook is supported by expectations that the company will realise margin improvements, attributed to a strategic focus on asset sales and cost-reduction efforts, leading to positive free cash flow by 2026. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure could arise if Moody's-adjusted gross debt to EBITDA falls towards 5.0x; Moody's-adjusted EBITA to interest expense increases to around 2.5x; Moody's-adjusted free cash flow to debt improves towards the mid to high single digits - all on a sustained basis. An upgrade will also require a track record of Synlab's commitment to a conservative financial policy. Downward rating pressure could develop if Moody's-adjusted gross debt to EBITDA exceeds 6.5x; Moody's-adjusted EBITA to interest expense is below 1.5x; Moody's-adjusted free cash flow to debt remains negative - all on a sustained basis; or liquidity deteriorates. Negative rating pressure could also occur in the event of large debt-financed acquisitions or distributions to shareholders. The principal methodology used in these ratings was Business and Consumer Services published in November 2021. COMPANY PROFILE Synlab, headquartered in Munich, is one of the largest clinical laboratory and medical diagnostic service provider in Europe. As of September 2024, it had operations in 32 countries across four continents. The company is owned by Cinven (43.7%), Elliott (24.9%), Laboratory Corporation of America Holdings (Baa2 positive, 15%) soon to acquire a 15% share, Qatar Investment Authority (11.9%), and Dr. Bartl Wimmer (4.5%). The acquisition of the 15% stake by Labcorp is expected to be finalized in the first quarter of 2025, pending regulatory approvals. For the nine-month period ending in September 2024, Synlab reported revenue of EUR1,958 million and EBITDA of EUR294 million. EUROPEAN MEDCO 3: Moody's Affirms 'B2' CFR, Outlook Now Stable -------------------------------------------------------------- Moody's Ratings affirmed European Medco Development 3 S.a.r.l.'s ('Axplora', or the company) B2 long term corporate family rating and B2-PD probability of default rating. Moody's also affirmed European Medco Development 4 S.a.r.l.'s, B2 rating for its senior secured bank credit facilities. Concurrently, Moody's changed the outlook on both entities to stable from negative. The rating action reflects: -- Improved earnings that supports deleveraging towards Moody's adjusted total Debt/EBITDA of 6.0x by fiscal-year end 2024/25 (ending March 2025) and generation of free cash flow, albeit moderate -- Signing of a new long-term contract with a customer whose sales in 2023 had stopped due to oversupply -- Limited financial impact expected from the fire that destroyed a non-GMP workshop in Leverkusen, due to insurance coverage; also limited operational impact as Axplora allocated to a large extent its affected production to other production units at the same site RATINGS RATIONALE Axplora's B2 CFR benefits from its diverse exposure to ten different therapeutic areas; long term customer relationships with high barriers to entry due to regulatory specifications; strong pipeline of molecules to sustain future growth; and ability to largely pass on higher input costs, albeit with a time lag. At the same time, Axplora's moderate size with around EUR496 million revenues in FY23/24, where customer concentration and related revenue losses can have a material negative impact on profitability and cash flows, constrains the B2 CFR. Its ratings also reflect the heightened business risks inherent to producers of active pharmaceutical ingredients (APIs) as the Leverkusen incident illustrates. LIQUIDITY Axplora's liquidity is adequate. As of September 30, 2024, the company had access to EUR45.2 million of unrestricted cash on the balance sheet and access to its EUR92.5 million senior secured revolving credit facility (RCF), issued by European Medco Development 4 S.a.r.l., of which EUR10 million were drawn. Moody's forecast moderate FCF generation of around EUR9 million in FY24/25. European Medco Development 4 S.a.r.l.'s RCF is due in November 2026 and its senior secured term loan B matures in May 2027. OUTLOOK The stable outlook reflects Moody's expectation that the operational impact from the Leverkusen incident is mitigated by reallocation to other workshops, the financial impact will be materially covered by its insurance and that it does not negatively affect the company's reputation. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade ratings if Axplora (1) maintains an attractive product pipeline; (2) reduces Moody's-adjusted gross leverage to well below 5.0x on a sustained basis; (3) maintains its sound quality track record and remains in compliance with regulatory requirements; and (4) displays an adequate liquidity profile as evidenced by substantial free cash flow generation and prudent management of upcoming maturities. The ratings could be downgraded if: (1) Axplora experiences any material quality/operational disruption issues or non-compliance with regulatory standards; (2) leverage remains above 6.0x debt / EBITDA (Moody's adjusted) beyond early calendar-year 2025; (3) EBITDA to interest is below 2.0x; (4) liquidity weakens; or (5) free cash flow remains negative. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Chemicals published in October 2023. COMPANY PROFILE European Medco Development 3 S.a.r.l. (Axplora), based in Raubling, Germany, is a Contract Development and Manufacturing Organization (CDMO) and active pharmaceutical ingredients (API) producer for complex small molecules and antibody-drug conjugates (ADCs). Following the merger of PharmaZell and Novasep Holding SAS in 2022, the combined company, rebranded as Axplora, owns a diversified API portfolio in ten therapeutic areas such as dermatology, oncology, respiratory, pulmonary and inflammatory diseases. Axplora reported revenues of around EUR496 million and company-defined recurring EBITDA of about EUR92.5 million for fiscal 2023/24. Funds of private equity firm Bridgepoint acquired the company in February 2020 for an undisclosed consideration. HAPAG-LLOYD AG: Moody's Ups CFR to Ba1 & Alters Outlook to Stable ----------------------------------------------------------------- Moody's Ratings has upgraded the long term corporate family rating of Hapag-Lloyd AG to Ba1 from Ba2 and its probability of default rating to Ba1-PD from Ba2-PD. Concurrently, the company's senior unsecured global notes was upgraded to Ba1 from Ba3. The outlook was changed to stable from positive. "The rating action reflects Hapag-Lloyd's continued prudent balance sheet management during a period of exceptional strength in the container shipping industry, refraining from excessive capital spending" says Daniel Harlid, a Moody's Ratings VP - senior credit officer and lead analyst for Hapag-Lloyd. "Despite the risk of freight rates declining rapidly if carriers resume using the Red Sea and Suez Canal next year, Hapag-Lloyd has built a substantial liquidity cushion to mitigate any negative impacts," Mr. Harlid added. RATINGS RATIONALE During 2024, amidst elevated geopolitical risks, the container shipping industry has once again experienced strong demand, higher freight rates, and the return of double-digit EBIT margins. This outcome is in stark contrast to Moody's expectations from twelve months ago, when Moody's anticipated that the substantial inflow of new vessels in 2024 would create significant overcapacity, leading to one of the weakest periods in the industry in a decade. Since then, the inability to safely sail through the Red Sea has led to a significant rerouting of vessels around the Cape of Good Hope. This has resulted in the over 10% growth in new container shipping capacity being insufficient to offset the additional distance required to sail between Asia and Europe. This has put upward pressure on freight rates, which in the fourth quarter of this year were approximately 40% higher than the pre-COVID peak, according to data from the Clarkson Mainlane Container Freight Rate Index dating back to the first quarter of 2004. Although Moody's see a very high risk of rapidly falling freight rates should it become safe again for shipping companies to resume traveling though the Red Sea, this is balanced by persisting high geopolitical risks and high vulnerability in container shipping networks for external shocks. Although this uncertainty is credit negative for the sector as a whole, the decision to upgrade Hapag-Lloyds CFR to Ba1 is underpinned by still solid credit metrics for the Ba1 rating category even in a very weak container shipping market. This include its substantial liquidity position, which amounted to $7.3 billion as of September 30 this year, equivalent to 21.5 % of its total assets value. Hapag-Lloyd's Ba1 rating is constrained by its concentrated exposure to container shipping, despite its increasing focus on expanding its terminal operations through M&A. This makes the company more exposed than some of its peers to the aforementioned risks. Moody's also continue to view its dividend policy as more aggressive compared to other container shipping companies. However, Moody's partly attribute its record-high dividends in 2022 and 20223 to the extraordinary cash flow generation following the post-pandemic period. RATIONALE FOR STABLE OUTLOOK Despite the possibility of a deteriorating market environment, the stable outlook reflects Moody's expectations of key credit metrics being within the accepted range for the Ba1 rating. This includes a gross debt / EBITDA ratio not exceeding 3.0x and RCF / net debt of around 60% - 70% for the next 12-18 months. STRUCTURAL CONSIDERATIONS The upgrade to Ba1 from Ba3 of Hapag-Lloyd's senior unsecured rating reflects the company's high share of unencumbered assets relative to a low level of secured debt. Furthermore, the level of structural subordination for bondholders at Hapag-Lloyd is very limited as the holding company is also by far the largest operating entity of the group with approximately 80% of group revenue, assets and debt. At the same time, the senior unsecured notes will rank behind the company's secured debt which benefits from direct pledge over certain vessels and containers. As such, under Moody's Loss Given Default for Speculative-Grade Companies methodology, negative ratings pressure on the notes could be the result of Hapag-Lloyd significantly increasing the ratio of secured debt to unsecured debt. LIQUIDITY PROFILE Moody's view Hapag-Lloyd's liquidity as strong. As of Sept. 30 this year, the company had $7.3 billion of cash and cash equivalents and access to $725 million in revolving credit facilities, all undrawn. Given the high volatility typical for container shipping, the company's covenants include minimum equity and minimum liquidity, but no leverage or coverage ratios. Hapag-Lloyd has a number of unencumbered vessels and containers that could be pledged to raise additional liquidity if needed. Although maintenance capex needs are limited, the company has outstanding orders of 28 new vessels with a total capacity of 407,000 TEUs which Moody's assume will be financed with a combination of cash and debt. As of Sept. 30 this year, the company had around $580 million of financial debt and another $1.2 billion in lease liabilities maturing until Dec. 2025. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Further positive rating pressure requires a track record of sustaining a higher degree of margin stability with an EBIT-Margin in the high-single digit percentages, a successful integration of recent acquisitions combined with sustained credit metrics reflected in debt / EBITDA at or below 2.0x, retained cash flow / net debt at least in the high 30s in percentage terms. Furthermore a preservation of a strong liquidity would be required. Negative ratings pressure could be the result of a debt / EBITDA ratio above 3.0x on a sustained basis, an EBIT margin below 5% over the cycle and a retained cash flow / net debt ratio below 20%. Repeated years of negative free cash flow with a deteriorating liquidity profile would also put negative pressure on the rating. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Shipping published in June 2021. REVOCAR 2023-1 UG: Moody's Ups Rating on EUR8.1MM D Notes to Ba1 ---------------------------------------------------------------- Moody's Ratings has upgraded the ratings of five Notes in RevoCar 2022 UG (haftungsbeschraenkt) and RevoCar 2023-1 UG (haftungsbeschraenkt). The rating action reflects the increased levels of credit enhancement for the affected Notes. Moody's affirmed the ratings of the Notes that had sufficient credit enhancement to maintain their current ratings. Issuer: RevoCar 2022 UG (haftungsbeschraenkt) EUR452.4M Class A Notes, Affirmed Aaa (sf); previously on May 14, 2024 Affirmed Aaa (sf) EUR21M Class B Notes, Affirmed Aa1 (sf); previously on May 14, 2024 Upgraded to Aa1 (sf) EUR5M Class C Notes, Upgraded to Aa2 (sf); previously on May 14, 2024 Upgraded to A1 (sf) EUR6.5M Class D Notes, Upgraded to A2 (sf); previously on May 14, 2024 Upgraded to Baa1 (sf) Issuer: RevoCar 2023-1 UG (haftungsbeschraenkt) EUR455M Class A Notes, Affirmed Aaa (sf); previously on May 17, 2023 Definitive Rating Assigned Aaa (sf) EUR21.4M Class B Notes, Upgraded to Aa2 (sf); previously on May 17, 2023 Definitive Rating Assigned Aa3 (sf) EUR6.6M Class C Notes, Upgraded to A2 (sf); previously on May 17, 2023 Definitive Rating Assigned Baa1 (sf) EUR8.1M Class D Notes, Upgraded to Ba1 (sf); previously on May 17, 2023 Definitive Rating Assigned Ba2 (sf) RATINGS RATIONALE The rating action reflects the increased levels of credit enhancement available for the affected Notes in both transactions. Increase in Available Credit Enhancement Sequential amortization led to the increase in the credit enhancement available for both transactions. For RevoCar 2022 UG (haftungsbeschraenkt), the credit enhancement for the most senior tranche affected by the upgrade action, the Class C Notes, increased to 8.95% from 7.03% since the last rating action in May 2024. For RevoCar 2023-1 UG (haftungsbeschraenkt), the credit enhancement for the most senior tranche affected by the upgrade action, the Class B Notes, increased to 7.25% from 4.72% since closing. Revision of Key Collateral Assumptions As part of the rating action, Moody's reassessed Moody's default probability rate assumption for the portfolio reflecting the collateral performance to date. RevoCar 2022 UG (haftungsbeschraenkt) Total delinquencies have increased in the past year, with 90 days plus arrears currently standing at 0.99% of current pool balance up from 0.38% a year earlier. Cumulative defaults currently stand at 0.83% of original pool balance up from 0.42% a year earlier. Moody's have maintained the expected default assumption of 1.61% of original pool balance as performance is in line with expectations. The expected default assumption corresponds to 1.61% of current pool balance. RevoCar 2023-1 UG (haftungsbeschraenkt) Total delinquencies have increased in the past year, with 90 days plus arrears currently standing at 0.98% of current pool balance up from 0.25% a year earlier. Cumulative defaults currently stand at 0.63% of original pool balance up from 0.14% a year earlier. Correspondingly, Moody's have increased the expected default assumption to 1.59% of original pool balance from 1.45%. The revised assumption corresponds to 1.49% of current pool balance. The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in August 2024. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include: (1) performance of the underlying collateral that is better than Moody's expected, (2) an increase in available credit enhancement, (3) improvements in the credit quality of the transaction counterparties, and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include: (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the Notes' available credit enhancement, and (4) deterioration in the credit quality of the transaction counterparties. STANDARD PROFIL: S&P Lowers Long-Term ICR to 'CCC-', Outlook Neg. ----------------------------------------------------------------- S&P Global Ratings lowered to 'CCC-' from 'CCC+' its long-term issuer credit rating on Standard Profil Automotive GmbH and its issue rating on its EUR275 million secured notes. S&P has removed the ratings from CreditWatch, where it placed them with negative implications on Nov. 21, 2024. The negative outlook indicates that S&P could lower its ratings on Standard Profil if it pursues a debt restructuring that S&P views as tantamount to default, or if it fails to repay its RCF before the April 2025 due date. The downgrade reflects the increasing likelihood that Standard Profil could restructure its debt or default on its RCF over the next six months. The company has drawn down the full EUR30 million available under its supersenior RCF, which matures on April 30, 2025. Its liquidity position has deteriorated--as of Sept. 30, 2024, it had only EUR29.8 million of cash available, compared with EUR33.5 million on June 30, 2024. Automotive production has fallen globally, depressing Standard Profil's operating performance and cash generation; S&P Global Ratings anticipates that automotive market conditions will remain difficult in the first half of 2025. As a result, the company may not have enough liquidity to repay its short-term debt obligations without restructuring its debt or receiving support from its main shareholder, Actera Group (a Turkish private-equity firm). Its short-term debt obligations total EUR54 million, including EUR24 million in short-term bank loans and the RCF. Given that Standard Profil's senior secured notes due in April 2026 are currently trading at a distressed price of about EUR0.39 to EUR1, S&P expects it to be difficult for the company to achieve an orderly refinancing of its debt. Standard Profil has recently hired financial advisory firm Teneo, which specializes in situations such as restructuring and insolvency. S&P said, "In our view, Standard Profil's current capital structure is unsustainable because of its high investment intensity and the volatile conditions in the auto market. During the third quarter of 2024, Standard Profil's automotive original equipment manufacturer (OEM) clients continued to cancel auto parts deliveries. As a result, Standard Profil's revenue declined by 8.5% compared with third-quarter 2023 and its S&P Global Ratings-adjusted EBITDA margin halved to 8.0% from 16.1% a year ago. We forecast that full-year revenue for 2024 will be 11% lower than it was in 2023 (8% lower excluding the EUR15 million one-off cost compensation linked to raw materials inflation received in 2023). The adjusted EBITDA margin will slump to 12.6% from 19.7% over the same period (17.3%, excluding the exceptional compensations), leading to negative free operating cash flow (FOCF) of about EUR20 million because of the company's high capital expenditure and interest charges (EUR46 million and EUR28 million, respectively)." S&P considers a swift recovery in the company's profitability and FOCF to be unlikely during 2025. Key risks include: -- A prolonged slow-down in demand for battery-powered electric vehicles; -- Relatively flat light vehicle production, globally; and -- High labor cost inflation, particularly in Turkiye, where Standard Profil has sizable operations. Revenue at Standard Profil is now projected to grow by 3% next year, while adjusted EBITDA margin is forecast to recover by a moderate 2 percentage points, to about 14.5%. S&P said, "The company's current order book supports some overperformance over our forecast for global automotive production growth of 1%. We estimate that EBITDA will grow to EUR65 million-EUR70 million from about EUR57 million in 2024. In our view, this is probably insufficient to cover the group's high cash interest charges of close to EUR30 million per year and its persistent annual capex of about EUR45 million (about 10% of sales). Therefore, we estimate that if working capital remains broadly stable, FOCF in 2025 will remain negative by about EUR11 million." The negative outlook indicates that S&P could lower its ratings on Standard Profil if it pursues a debt restructuring within the next six months or if it defaults on its RCF before the April 2025 due date. S&P said, "We could lower our rating on Standard Profil if it announces a debt restructuring that we view as distressed under our criteria or if it fails to avert a default on its short-term debt maturities, including the EUR30 million due under its supersenior RCF. "We could revise the outlook to stable if we consider the likelihood of a default in the next six months to have reduced. This could happen if Standard Profil's liquidity position materially improves, for example, if it obtains a sizable equity injection from its financial sponsor and successfully refinances its capital structure without a distressed exchange." An outlook revision to stable would likely also require an unexpected material improvement to global automotive market conditions that would support stronger operating performance. ============= I R E L A N D ============= BARINGS EURO 2024-2: Fitch Assigns B-sf Final Rating to Cl. F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Barings Euro CLO 2024-2 DAC final ratings, as detailed below. Entity/Debt Rating ----------- ------ Barings Euro CLO 2024-2 DAC A XS2919166608 LT AAAsf New Rating B-1 XS2919167911 LT AAsf New Rating B-2 XS2919168307 LT AAsf New Rating C XS2919169453 LT Asf New Rating D XS2919169701 LT BBB-sf New Rating E XS2919170204 LT BB-sf New Rating F XS2919170543 LT B-sf New Rating Subordinated Notes XS2919171350 LT NRsf New Rating Transaction Summary Barings Euro CLO 2024-2 DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine, and second-lien loans. Note proceeds were used to fund an identified portfolio with a target par of EUR400 million. The portfolio is managed by Barings (U.K.) Limited. The CLO has a 4.6-year reinvestment period and an 8.5-year weighted average life (WAL) test. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch considers the average credit quality of obligors to be in the 'B' category. The Fitch weighted average rating factor of the identified portfolio is 23.8. Strong Recovery Expectation (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 63.8%. Diversified Portfolio (Positive): The transaction also 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 effective at closing with fixed-rate limits of 5% and 15%, and two effective 18 months post-closing with fixed-rate limits of 5% and 15%. All four matrices are based on a top 10 obligor concentration limit of 20%. The closing matrices correspond to an 8.5-year WAL test while the forward matrices correspond to a seven-year WAL test. The switch to the forward matrices is subject to the collateral principal amount (defaults at Fitch collateral value) is at least at the reinvestment target par balance. The transaction has reinvestment criteria governing the reinvestment similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash flow Modelling (Neutral): The WAL used for the transaction stress portfolio and matrices analysis is 12 months less than the WAL covenant to account for structural and reinvestment conditions after the reinvestment period, including the satisfaction of the OC tests and Fitch 'CCC' limit, together with a linearly decreasing WAL covenant. In the agency's opinion, these conditions would reduce the effective risk horizon of the portfolio during a 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 not have a rating impact on the notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class D to F notes display a rating cushion of two notches, the class C notes four notches and the class B notes three notches. The class A notes have no cushion as 'AAAsf' is the maximum achievable rating. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to four notches for the class A to E notes and to below 'B-sf' for the class F 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 two notches, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread 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 Barings Euro CLO 2024-2 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 Barings Euro CLO 2024-2 DAC. In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, programme, instrument or issuer, Fitch will disclose any ESG factor that is a key rating driver in the key rating drivers section of the relevant rating action commentary. PENTA CLO 18: Fitch Assigns 'B-sf' Final Rating to Class F Notes ---------------------------------------------------------------- Fitch Ratings has assigned Penta CLO 18 DAC final ratings, as detailed below. Entity/Debt Rating ----------- ------ Penta CLO 18 DAC Class A Notes XS2941196987 LT AAAsf New Rating Class A -1 Loan LT AAAsf New Rating Class A-2 Loan LT AAAsf New Rating Class B Notes XS2941197100 LT AAsf New Rating Class C Notes XS2941197365 LT Asf New Rating Class D Notes XS2941197522 LT BBB-sf New Rating Class E Notes XS2941197878 LT BB-sf New Rating Class F Notes XS2941198090 LT B-sf New Rating Subordinated Notes XS2941198256 LT NRsf New Rating Transaction Summary Penta CLO 18 DAC is a securitisation of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. Note proceeds have been used to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Partners Group (UK) Management Ltd. The collateralised loan obligation (CLO) has a reinvestment period of about 4.6 years and a 7.5-year weighted average life (WAL) test limit. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch places the average credit quality of obligors in the identified portfolio at 'B'/'B-'. The Fitch weighted average rating factor of the identified portfolio is 25.3. 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 61.6%. Diversified Asset Portfolio (Positive): The transaction includes four Fitch test matrices, two of which are effective at closing. All matrices correspond to a top 10 obligor concentration limit of 20%, fixed-rate obligation limits at 5% and 12.5% and a 7.5-year WAL covenant. It has two forward matrices corresponding to the same top 10 obligors and fixed-rate asset limits, and a WAL covenant that is shorter by six months. The forward matrices will be effective half a year after closing - barring the six-month period starting from the WAL step-up date - provided the collateral principal amount (defaults at Fitch-calculated collateral value) is at least at the reinvestment target par balance, among other things. The transaction also includes various concentration limits, including a maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has 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. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year, to 7.5 years, on the step-up date, which is one year after closing. The WAL extension is subject to conditions including satisfying the collateral-quality tests, coverage tests and the adjusted collateral principal amount being at least equal to the reinvestment target par. Cash Flow Modelling (Neutral): The WAL used for the Fitch-stressed portfolio is 12 months less than the WAL covenant to account for structural and reinvestment conditions after the reinvestment period, including passing the over-collateralisation and Fitch 'CCC' limitation tests, and a WAL covenant that progressively steps down over time, both before and after the end of the reinvestment period. In Fitch's opinion, these conditions reduce the effective risk horizon of the portfolio during stress periods. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would have no impact on the class A debt, but would lead to downgrades of one notch for the class B, C, D and E notes, and to below 'B-sf' for the class F notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B, C, D, E and F notes display a rating cushion of two notches. The class A notes do not have any rating cushion as they are already 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 notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to four notches for the notes, except for the 'AAAsf' rated notes. During the reinvestment period, upgrades, which are based on the Fitch-stressed portfolio, may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may result from stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread to cover losses in the remaining portfolio. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG Considerations Fitch does not provide ESG relevance scores for Penta CLO 18 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. TRINITAS EURO VIII: S&P Assigns B- (sf) Rating to Class F Notes --------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Trinitas Euro CLO VIII DAC's class A Loan and class A, B, C, D, E, and F notes. The issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes and loan will pay quarterly interest unless a frequency switch event occurs. Following this, the notes and loan will permanently switch to semiannual payments. The portfolio's reinvestment period will end approximately 4.6 years after closing, while the non-call period will end 1.5 years after closing. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes and loan through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which are in line with S&P's counterparty rating framework. Portfolio benchmarks S&P Global Ratings' weighted-average rating factor 2,663.21 Default rate dispersion 546.65 Weighted-average life (years) 4.93 Obligor diversity measure 163.52 Industry diversity measure 22.86 Regional diversity measure 1.22 Transaction key metrics Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.00 Actual target 'AAA' weighted-average recovery (%) 37.21 Actual target weighted-average spread (net of floors; %) 3.90 S&P said, "Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR425 million target par amount, the covenanted weighted-average spread (3.75%), the covenanted weighted-average coupon (4.70%), and the target portfolio weighted-average recovery rates for all the rated notes and loan. 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, the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "The transaction's legal structure and framework are bankruptcy remote. The issuer is a special-purpose entity that meets our criteria for bankruptcy remoteness. "Our credit and cash flow analysis show that the class B, C, D, and E notes benefit from break-even default rate and scenario default rate cushions that we would typically consider to be in line with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings on the notes. The class A and F notes and class A loan can withstand stresses commensurate with the assigned ratings. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for the class A to F notes and class A loan. "In addition to our standard analysis, we have also included the sensitivity of the ratings on the class A loan and class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category--and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met--we have not included the above scenario analysis results for the class F notes." Environmental, social, and governance S&P said, "We regard the exposure to environmental, social, and governance (ESG) credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average." For this transaction, the documents prohibit assets from being related to certain activities, including but not limited to, the following: activities in violation of "The Ten Principles of the UN Global Compact" and activities having corporate involvement in the end manufacture or manufacture of intended use components of biological and chemical weapons, anti-personnel land mines, or cluster munitions. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and S&P's ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities. Ratings Amount Credit Class Rating* (mil. EUR) enhancement (%) Interest rate§ A AAA (sf) 144.00 38.00 Three/six-month EURIBOR plus 1.30% A Loan AAA (sf) 119.50 38.00 Three/six-month EURIBOR plus 1.30% B AA (sf) 46.75 27.00 Three/six-month EURIBOR plus 1.90% C A (sf) 25.50 21.00 Three/six-month EURIBOR plus 2.45% D BBB (sf) 29.75 14.00 Three/six-month EURIBOR plus 3.10% E BB- (sf) 19.125 9.50 Three/six-month EURIBOR plus 5.65% F B- (sf) 12.75 6.50 Three/six-month EURIBOR plus 8.42% Sub. Notes NR 35.00 N/A N/A *The ratings assigned to the class A and B notes and class A loan address timely interest and ultimate principal payments. The ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. ========= I T A L Y ========= FLOS B&B: Fitch Assigns 'B' Final Rating to EUR550M Sr. Sec. Notes ------------------------------------------------------------------ Fitch Ratings has assigned Flos B&B Italia S.p.A.'s (Flos) new five-year EUR550 million senior secured notes a final instrument rating of 'B' with a Recovery Rating of 'RR4'. The proceeds from the notes are being used to partially refinance Flos's capital structure. The final rating is in line with the expected rating that Fitch assigned on 2 December 2024, as pricing of the instruments and receipt of the final documentation mainly conform to the information already received. Flos's 'B' Long-Term Issuer Default Rating (IDR) reflects tight leverage headroom and weak interest coverage, balanced by the good quality of its portfolio of high-end lighting and furniture offering. The Stable Outlook reflects its expectations of EBITDA leverage falling to below 6x from 2025 from an estimated 6.2x at end-2024, due to projected EBITDA growth to above EUR160 million. It also reflects its expectation of positive and growing free cash flow (FCF), which will support adequate liquidity in the medium term. Key Rating Drivers Refinancing Neutral to Rating: Fitch views the issuance of an upsized EUR550 million floating-rate senior secured notes as credit-neutral to Flos. This is because the majority of its proceeds are being used for the repayment of EUR470 million notes due in 2026 and EUR42.5 million of its existing fixed-rate EUR425 million notes due in 2028. At the same time, it addresses the 2026 maturity and helps lower interest costs due to the partial redemption of the high fixed-rate 2028 senior notes, thereby improving Flos's financial flexibility and EBITDA interest coverage marginally. Limited Rating Headroom: Fitch forecasts Flos's EBITDA leverage to be stable at 6.2x at end-2024, versus 6.1x before refinancing, which is tight for the rating. As Fitch assumes volumes and EBITDA to further improve from 2025, Fitch forecasts a gradual recovery in rating headroom on deleveraging to below 6x in 2025, and to below 5.5x thereafter. Any delay in the operating profitability recovery would result in leverage remaining high and could lead to a negative rating action. Sales to Resume Growth in 2025: Fitch anticipates a return to low single-digit sales growth in 2025, supported by new international projects, store openings and stabilisation in the Nordics and Italy. This follows a 3% sales decline projected for 2024, due to volume contraction of 1H24 resulting from challenging market conditions in both the lighting and furniture sectors. The wholesale and contract segments are showing modest recovery, supported by two large projects in the Americas, after weak 1H24 trading due to delayed project phases and a strong 2023 base. Resilient Profitability: Fitch estimates Flos will recover its profitability to above 20.1% in 2024, 60bp higher than last year, due to reduced inflationary pressures and the implementation of internal efficiencies. Fitch forecasts EBITDA margin will improve to above 21% in next four years, supported by the growth of the direct-to-customer channel, which allows greater control over pricing and lower costs, as well as ongoing brand reinforcement. Flexible Cost Supports Margins: Flos benefits from a flexible cost structure, given its largely variable costs of around 70%, which, combined with cost-optimisation measures and cost pass-through, will help protect and support margins. Flos's pricing strategy has helped preserve a gross margin of 60%-61%, despite some weakening in volumes. Positive and Growing FCF: Fitch expects FCF margins to remain positive at 3%-5% during 2024-2027, due to resilient profitability and minimal working-capital requirements. This will allow Flos to absorb moderately high capex of 4.5% of revenue. For 2024, Fitch expects some working-capital inflow due to inventory destocking and increasing customer advance payments. A largely flexible cost base and strong supply chain management also contribute to low working-capital requirements during the forecast period. Sustained positive FCF and moderating leverage are key to the IDR and Stable Outlook. Derivation Summary Flos's luxury peers are Capri Holdings Limited (BB/Rating Outlook Negative), the owner of Versace, Jimmy Choo, Michael Kors (USA), Inc., and Tapestry Inc., the owner of Coach, Kate Spade and Stuart Weitzman. Compared with Flos, Fitch observes higher fashion risk and higher exposure to retail distribution in Capri and Tapestry. However, the comparability is limited as Flos is smaller and has material differences in its capital structure. Within Fitch's LBO portfolio of branded consumer goods, Flos shares similarities with shoe producers Birkenstock Holding plc (BB/Positive) and Golden Goose S.p.A (B+/Stable). The latter has a smaller business scale and faces higher fashion and retail risks than Flos, but these are balanced by its materially higher margins. Birkenstock's rating reflects its larger scale, stronger brand recognition, better margins and lower leverage than Flos's, especially after its recent IPO and partial debt prepayment. Afflelou S.A.S. (B/Stable), a franchisor in the optical and hearing aid product markets, also has strong brand recognition and customer loyalty, but with a wider exposure to retail distribution than Flos. Affelou's retail risks are mitigated by its healthcare characteristics and constructive reimbursement policies for optical and hearing aid products in its core French market. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Total revenue to decline 3% in 2024, before growing 3% in 2025 and 4.5%-6% in 2026 and 2027. Revenue growth to be driven by organic growth and bolt-on M&As - EBITDA margins of 20%-21% for 2024-2027 - Minor working capital-related cash swings during 2024-2027 - Capex on average at 4.5%-5% of sales for the next four years - Deferred M&A considerations of about EUR20 million in 2024 and EUR18 million in 2025, with scope for bolt-on acquisitions of about EUR50 million a year in 2026 and 2027 Recovery Analysis The recovery analysis assumes that Flos would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated, given its immaterial asset base and the inherent value within its distinctive portfolio of brands. Additional value lies in its retail network and wholesale and contract client portfolio. Fitch has assumed a 10% administrative claim. Fitch assesses GC EBITDA at about EUR95 million, following slower revenue growth due to weak expansion under certain distribution channels and as weaker pricing leads to lower margins. At the GC EBITDA, Fitch estimates Flos would face an unsustainable capital structure, making refinancing extremely difficult, and thus, necessitating some form of debt restructuring. Fitch used a 6.0x multiple, which is at the high end of its distressed multiples for high-yield and leveraged finance credits. Its choice of multiple is justified by the premium valuations in the sector involving strong design and luxury brands. The security package includes share pledges in the main operating subsidiaries. No security is provided over the IP rights, access to which is, however, protected by negative pledges and limitation-of-lien provisions. Fitch assumes the upsized RCF of EUR145 million (previously EUR140 million) to be fully drawn on default. The RCF ranks super senior, ahead of the senior secured notes. Fitch expects Flos's factoring facilities of around EUR6 million to remain available during bankruptcy, given its industry and client base. Its waterfall analysis generates a ranked recovery for the senior secured noteholders in the 'RR4' category, leading to a 'B' instrument rating. This results in a waterfall-generated recovery computation output percentage of 39% (40% previously) following upsized RCF and senior secured notes amounts. RATING SENSITIVITIES Factors that Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA leverage higher than 6.0x through the cycle, as a consequence of debt-funded acquisitions or higher drawdowns under the RCF - EBITDA interest coverage deteriorating towards 2x - FCF margin lower than 2% Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA leverage below 5.0x on a sustained basis, including as a result of a lower leverage target - EBITDA interest coverage higher than 3.0x on a sustained basis - FCF margin at 5% or higher as a result of successful pass-through of input cost increases and strong retention of pricing power Liquidity and Debt Structure Fitch assesses Flos's liquidity satisfactory. Following the refinancing, Fitch expects available cash at end-2024 to be about EUR86 million with its EUR145 million RCF drawn down by an estimated EUR10 million. Liquidity is further supported by its expectations of positive FCF for 2025. The refinancing improves Flos's debt maturity profile by extending the notes maturity to 2029, with the next material EUR382.5 million senior secured notes due in May 2028. Date of Relevant Committee 14 November 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 ----------- ------ -------- ----- Flos B&B Italia S.p.A. senior secured LT B New Rating RR4 B(EXP) LEATHER SPA: S&P Alters Outlook to Negative, Affirms 'B' ICR ------------------------------------------------------------ S&P Global Ratings revised our outlook on Italian premium and luxury auto supplier Leather SpA (doing business as Pasubio) to negative from stable and affirmed its 'B' long-term issuer credit rating as well as 'B' issue-level rating on the company and its secured debt. The negative outlook reflects the risk that Pasubio might not be able to restore adjusted debt to EBITDA below 6.0x in 2025 in light of continued weak prospects for auto production. Deleveraging prospects are clouded by limited earnings growth, despite profitability improvement to 17%. S&P said, "We now expect Pasubio to generate about EUR56 million of S&P Global Ratings-adjusted EBITDA in both 2024 and 2025, corresponding to improvement in the S&P Global Ratings-adjusted EBITDA margin to 17.1%-17.3%, respectively, from 15.4% in 2023. In the first nine months of 2024, the company reported EBITDA margin of 17.8%, which exceeds 2023's 15.9%, when operating performance was impaired by a one-time spike in scrap rates in the fourth quarter. This year, profitability improvement comes from lower hide prices, reduced scrap rates, and Pasubio's streamlined production processes thanks investments into automation and standardization over the past two years. At the same time, the company's top 2 customers, European luxury and premium passenger car (PC) manufacturers, have faced production challenges this year due to supply issues with aluminum. As a result, despite improvements in the EBITDA margin, lower-than-expected volumes restrict absolute EBITDA expansion, limiting deleveraging. We now forecast S&P Global Ratings-adjusted leverage will stay at about 6.4x in 2024-2025, putting pressure on the rating, also because free cash flow will likely be relatively limited at just about EUR2 million in 2024, down from EUR13 million in 2023." Concentration on luxury and premium auto end-markets constrains Pasubio's top line development in the next year. The company is deriving significant revenue from its two largest customers, Porsche AG and Jaguar Land Rover (JLR). This year, JLR announced that its Jaguar brand will become an electric-only luxury car manufacturer and unveiled its new electric models, while winding down the production of the main models with internal combustion engines. S&P said, "We view positively that Pasubio has signed contracts with Bentley and Jaguar for their electric vehicle platforms, among others. However, we see a risk of potential start-of-production delays or that demand for electric models will not meet expectations due to tough competition, especially in the Chinese market, which could result in lower sales for Pasubio. Furthermore, according to auto market data provider S&P Global Mobility, European premium and luxury PC production will decrease 1% in 2025 after falling 16% in 2024. This will likely strain the company's sales, which are primarily with established European carmakers. We therefore now expect Pasubio's revenue to shrink about 8.4% in 2024 and 1.7% in 2025, after growing 0.6% in 2023. This will lead to lower-than-anticipated earnings. We estimate the impact of operations in the new Mexican facility will be limited in 2025, since the start of production is planned for the fourth quarter of next year." S&P said, "Sound free cash flow and liquidity profile support the rating. In 2024, we expect a temporarily lower adjusted FOCF of EUR2 million, mainly due to higher-than-historical capex of EUR19 million (after deducting EUR2 million of capitalized development costs) and some working capital absorption. In 2025, we anticipate capex intensity to decrease to about 4% from 6%-7% in 2023-2024 as the company completed about 70% of its investments in the new facility in Mexico as well as its investments into performance improvement initiatives. For 2025, we expect about EUR5 million of working capital release as Pasubio will optimize its inventory levels, what should further support the company's free cash flow generation. We project a FOCF-to-debt ratio of 0.6% in 2024, before improving to 3%-4% in 2025. Pasubio's sufficient liquidity position supports the rating, whereby the group's liquidity sources more than cover its cash outlays for the next 12 months." As of Sept. 30, 2024, the group had EUR11 million of cash on its balance sheet and EUR65 million available under its super-senior secured revolving credit facility (RCF) with ample headroom under its springing covenant. In addition, the group has a long-dated debt-maturity profile, with no material maturities until 2028. Substitution risk for auto leather remains a medium-term rating risk. Demand could decrease in the next few years due to consumer preferences switching toward environmentally friendly products. S&P said, "We also see a risk of original equipment manufacturers (OEMs) launching new programs with synthetic leather, to accelerate the implementation of their sustainability strategies. To mitigate this risk, Pasubio acquired Innova S.r.l. for about EUR5 million in 2023 and gained additional know-how and production capacity in synthetic materials. We view positively the company's 2024 contract to provide alternative materials to BMW. However, we estimate synthetic materials' revenue contribution will be less than 5% next year." S&P said, "The negative outlook reflects slower-than-expected deleveraging resulting from uncertain prospects for auto production. We estimate this could result in the company's adjusted debt to EBITDA staying above 6x and funds from operations (FFO) cash interest coverage below 2x in the next 12 months. We expect Pasubio will generate S&P Global Ratings-adjusted EBITDA margin of about 17.0% and positive FOCF, translating into FOCF to debt of more than 2% in 2025. "We could lower our rating in the next 9-12 months if we anticipate the company's adjusted debt to EBITDA will stay well above 6x in 2025, FOCF to debt to be below 2%, or FFO cash interest coverage not strengthening to about 2.0x. This could stem from operating setbacks such as prolonged weakness in European auto production, weaker-than-expected demand from key customers, or higher input costs. A more aggressive financial policy favoring material debt-funded acquisitions or shareholder returns could also result in rating pressure. "We could revise our outlook to stable if we believe Pasubio can restore adjusted debt to EBITDA to 6x or below and FFO cash interest coverage to 2x or above, while maintaining FOCF to debt above 2%. We think this could stem from production efficiencies materializing more quickly and more strongly than expected, a firmer recovery in auto production, and the company allocating its FOCF toward debt repayment." PIAGGIO & C: S&P Alters Outlook to Stable, Affirms 'BB-' ICR ------------------------------------------------------------ S&P Global Ratings revised its outlook on Italian two-wheeler and commercial motor vehicles manufacturer Piaggio & C. SpA to stable from positive and affirmed its 'BB-' ratings on Piaggio and its senior unsecured note. The recovery rating of '3' is unchanged with estimated recovery prospects at 65%. The stable outlook reflects S&P's expectation that Piaggio will retain solid profitability with a S&P Global Ratings-adjusted EBITDA margin of 14%-15% in 2024-2025, notwithstanding the ongoing market challenges related to weaker volume demand. This will translate into adjusted FFO to debt recovering to around 28% in 2025, from 26% in 2024. Piaggio's deleveraging potential has diminished amid a challenging market environment. S&P said, "In the first nine months of 2024, Piaggio's revenues fell by 16%, and we now expect a full-year revenue decline of 15% to EUR1.7 billion from EUR2.0 billion in 2023, contrasting sharply with our previous forecast of 4% growth, made in September 2023 when we revised the outlook to positive. The company has experienced double-digit volume declines across all geographies except India, driven by reduced discretionary spending amid high inflation and interest rates, and destocking by dealers in Europe in anticipation of the 'Euro 5+' vehicle emission standards regulations, due to be implemented from Jan. 1, 2025 for all new motorbikes sold. We anticipate revenues will recover at only low single-digit growth rates over 2025-2026, reaching EUR1.8 billion in 2026, which is about 25% lower than our EUR2.4 expectation in September 2023. Despite slightly better-than-expected profitability, with S&P Global Ratings-adjusted EBITDA margin expected to remain between 14% and 15% over the next couple of years (13.9% in 2023), our expectations around EBITDA expansion have not materialized in the current market environment, haltering deleveraging potential." S&P said, "We view positively the improvement in profitability that the company recorded over 2024, which is partially offsetting the negative impact of declining volumes on EBITDA. In the first nine months, Piaggio reported an EBITDA margin of about 17.3% (all time high), up from 16.6% over the first nine months of 2023. This marks a significant improvement in a context of declining volumes, and we believe is primarily attributed to the company's cost discipline initiatives and lower input costs. We now forecast the adjusted EBITDA margin to improve to 14.3% in 2024 and 14.7% in 2025, up from 13.9% in 2023, and compared to our prior expectations of 13.7% and 13.9% for 2024 and 2025, respectively, as of September 2023. "Despite robust free operating cash flow (FOCF), we expect net debt to decrease only slightly over the next couple of years due to continued sizable dividend payments. This will make deleveraging prospects largely dependent on EBITDA evolution, which in turn is highly influenced by the market conditions. We still expect robust FOCF of about EUR76 million in both 2024 and 2025 and about EUR105 million in 2026, compared with EUR78 million in 2023 and EUR40 million in 2022, mainly thanks to EUR10 million-EUR20 million of cash inflow related to working capital per year, and decreasing capital expenditures (capex) from 2025. We expect capex, including our adjustments, to have peaked at EUR118 million in both 2023 and 2024, due to investments in new models and the Moto Guzzi factory in Mandello. FOCF should also be supported by the one-off government subsidy of EUR36 million over 2025 and 2026 related to R&D investments already incurred in previous years. However, we anticipate that most of the excess FOCF generated will likely be distributed to shareholders in the form of dividends that we estimate at about EUR60 million in 2025 and about EUR65 million in 2026. Hence, we expect only limited discretionary cash flow that could be used to decrease debt. Therefore, Piaggio's deleveraging prospects remain exposed to the fluctuations in revenues and broader market conditions, which are no longer supportive of a rating upgrade." Although Piaggio has publicly committed to reducing its leverage, the absence of clearly articulated financial policies around leverage and shareholder remuneration compares negatively with other similarly rated peers. Furthermore, S&P believes that dividend payments to shareholders are likely to remain sticky, as the payout ratio (calculated as the ratio between the sum of the interim and final dividends and the net income of the reference year) has remained above 70% since 2019, averaging 81% over the same period. For 2025 and 2026, S&P anticipates a payout ratio in the range of 60%-70%, following an expected 83% in 2024. Over 2021-2023 the company's discretionary cash flow (DCF) remained negative at about negative EUR2 million, EUR19 million, and EUR3 million, respectively, per year. The stable outlook reflects S&P's expectation that Piaggio will retain solid profitability, with a S&P Global Ratings-adjusted EBITDA margin of 14%-15% in 2024-2025, notwithstanding the ongoing market challenges related to weaker demand. This will translate into adjusted FFO to debt recovering to around 28% in 2025, from about 26% in 2024. Downside scenario S&P said, "We could downgrade Piaggio if its operating performance materially deteriorates. This may occur if demand does not recover over time or the group is unable to offset lower revenues with cost savings, causing adjusted FFO to debt to fall below 20% and DCF to turn negative. We may consider a negative rating action in the event of a prolonged and continued decline in market share, particularly in a context of intensifying competition and a weakening of the company's strategic positioning and pricing power." Upside scenario S&P could upgrade Piaggio if the company succeeds in keeping FFO to debt materially above 30% under any market circumstances, coupled with DCF to debt sustainably in the 2%-5% range, supported by the company consolidating its market positioning in its key regions. An upgrade would also be conditioned on the company's commitment to sustain credit ratios commensurate with a 'BB' rating. =================== K A Z A K H S T A N =================== KAZAKHSTAN TEMIR ZHOLY: S&P Affirms 'BB' LT Issuer Credit Rating ---------------------------------------------------------------- S&P Global Ratings affirmed its 'BB' long-term issuer credit rating on Kazakhstan Temir Zholy (KTZ) and its 'kzA+' Kazakhstan national scale rating. S&P said, "The stable outlook is underpinned by our assumption that KTZ's shareholder, 100% state-controlled SK will support the company with refinancing of its upcoming $880 million bullet maturity in 2025 (with a more specific refinancing approach to be clarified in the first quarter of 2025), that KTZ will be able to maintain manageable liquidity thanks to access to long-term funding and to some flexibility in its capex, and that the planned IPO on a minority stake will not weaken the link between KTZ and the Kazakh government represented by SK. "We think that KTZ will retain healthy metrics, with FFO to debt of above 12% in the next two to three years, thanks to material tariff increases and continuing robust freight turnover, and despite heavy capex. We expect the company will reach about 266 billion ton-kilometers of freight turnover by year-end 2024, a 1.3% increase compared with record high 2023 levels when KTZ reached its highest volumes since Kazakhstan gained independence in 1991. We forecast minimal growth of 1%-2% for KTZ's freight turnover in 2025-2026. In addition to the higher transit to Russia, China, and Central Asia (an increase of 18% in 2023 compared with 2022), which could be exposed to competition with alternative routes and geopolitical volatility. KTZ's freight turnover increase reflects steady growth of Kazakhstan's commodity exports and imports, including chemicals and fertilizers, oil derivatives, grains, and ferrous metals. To sustain such high freight volumes, KTZ will need to exercise its aggressive capital investments plans for maintaining and renewing its fleet and infrastructure. In addition, KTZ's management has successfully negotiated an additional material increase of the regulated freight tariff (about 24.0% in 2024-2026 annually in addition to the 23.7% increase in 2023), which should help mitigate increases in labor, energy, and fuel costs, and the high inflation and high interest environment. Although about a third of KTZ's debt is denominated in hard currencies, we think that 25%-30% of operating cash flows denominated in foreign currencies provide a natural hedge against the risk of local currency devaluation, and the company's policy to increase the share of debt in local currency provides additional support." KTZ faces a massive hike in capital investments in 2024-2026 to capture higher growth potential. To fully benefit from higher freight volumes, KTZ must substantially increase its capex to maintain its current infrastructure and renovate its locomotives and wagon fleet. The company spent about Kazakhstani tenge (KZT) 785 billion in 2023 (about $1.5 billion), a 234% increase compared with 2022. S&P said, "We understand KTZ's management is committed to a very aggressive capital investment plan in 2024-2026 and that it will be funded by the mix of internal sources, government equity injections, and low-interest loans. In our base case, we forecast a capex outflow of close to KZT650 billion-KZT700 billion in 2024, KZT700 billion-KZT800 billion in 2025, and KZT400 billion-KZT500 billion in 2026, leading to severely negative free operating cash flow." S&P said, "High capex plans, the upcoming maturities in 2025, and current high interest rates put further pressure on KTZ's liquidity position, which we currently expect to be mitigated by support from SK as the key tool of Kazakhstan's government. The upcoming $880 million (approximately KZT450 billion) bullet bond maturing in October 2025 is a sizable debt amount for the company (about 17%-19% of the total debt in 2024), compared to generated EBITDA of KZT490 billion in 2023. Considering this, together with high capex plans, we now expect liquidity sources to be lower than liquidity uses over the next 12 months. However, because SK is the sole holder of the upcoming $880 million bond, and because of the stable track record of support from SK to KTZ via refinancing, equity injections, and subsidized interest rates, we do not expect a default on this bond. "We understand that KTZ and SK are currently discussing specific plans for refinancing the upcoming $880 million bond due in 2025, the final decision will take place in the first quarter of 2025. It is not clear if any part of the bond could be refinanced with equity or a subordinated instrument (which could provide some upside to our current base case), if KTZ will retain the current favorable interest rate (the existing interest rate for the $880 million bond is 2%, which is well below current interest rates in Kazakhstan), and what the maturity of any new debt could be. Pending the final decision on refinancing, we see liquidity risk as an important credit consideration for KTZ, given the sizable debt amount, relative near-term maturity, and still high interest rates in Kazakhstan, which could affect KTZ financial metrics. "Regarding capex funding, we think that KTZ is well positioned on the domestic capital market, it is in the process of arranging long-term credit lines to fund its capex, and we think that KTZ could enjoy some support from SK to negotiate long-term funding options. We also understand that, although most of the capital works are contracted, there is still some level of flexibility, and KTZ should be able to adjust the timing of its capex depending on funding availability. Considering this, we continue to assess KTZ's liquidity as less than adequate and not weak. "A very high likelihood of extraordinary state support underpins our rating on KTZ and will be tested by liquidity arrangements and the upcoming IPO. The company plays a very important role in Kazakhstan's national transport sector, given the country's land-locked position and strong commodity sectors. We think KTZ has a very strong link with the Kazakh government, which wholly owns KTZ via the Sovereign Wealth Fund Samruk-Kazyna JSC (BBB-/Stable/A-3). We understand that the government is considering an IPO for up to a 25% stake in KTZ in 2025, but there is no clarity yet about the size of the stake to be sold, the use of proceeds (e.g. whether KTZ would get any equity funding to support capex or deleveraging), and any changes to the company's strategy or financial policy related to the IPO. At this stage, we assume there will be no material changes in KTZ's governance or links with the government, and we expect the government to remain the controlling shareholder of KTZ, in line with the prior IPO experience of other government-related entities in Kazakhstan, including KazMunayGas NC JSC and Kazakhstan Electricity Grid Operating Co. (JSC), which have previously sold minority stakes at IPOs. Therefore, we continue to see the likelihood of timely and sufficient extraordinary financial support for KTZ from the Kazakhstan government as very high and incorporate two notches of uplift above our 'b+' assessment of KTZ's stand-alone credit quality in our 'BB' rating on KTZ. Having said that, we continue to monitor the IPO plans and will adjust the KTZ ratings accordingly if, contrary to our current expectations, the IPO weakens the link between the company and the government of Kazakhstan, as represented by 100% state-controlled SK. "The stable outlook reflects our expectation of the very high likelihood of state support for KTZ and of sufficient headroom in KTZ's credit metrics, with FFO to debt above 12%. The stable outlook is also underpinned by our assumption that the KTZ's shareholder SK will support the company with refinancing of its upcoming $880 million bullet maturity in 2025 and that specific details of the refinancing will be agreed in the first quarter of 2025. We also anticipate that KTZ will be able to secure new long-term credit lines and to modulate its capex amount and timing depending on availability of long-term funding sources, leading to a manageable liquidity. "We could lower our rating on KTZ in case of material liquidity pressures, which could affect our assessment of KTZ's SACP and of its likelihood of state support. We will monitor KTZ's capex funding and specific refinancing solutions for the upcoming $880 million maturity due in October 2025. "Apart from liquidity, given our expectation of a very high likelihood of extraordinary state support, a one-notch downgrade of Kazakhstan could lead us to lower our rating on KTZ, all else unchanged. "We could also revise down our assessment of KTZ's SACP if S&P Global Ratings-adjusted FFO to debt deteriorates below 12% due to weaker-than-expected operating performance or higher capex." S&P could raise its ratings on KTZ if its SACP strengthens to 'bb-', which could likely result from: -- Stronger liquidity, supported by the ratio of committed sources to uses of sustainably above 1.2x over the next 12 months, a manageable maturity profile and no covenant breaches; and -- FFO to debt improving sustainably above 20% due to gradual deleveraging, supported by a solid increase in traffic and/or favorable tariffs, material subsidies, or equity injections (including refinancing of debt with equity, equity injections from the state, or IPO proceeds), absent material liquidity gaps. A one-notch upgrade of the sovereign could also lead S&P to take a positive rating action on KTZ, all else unchanged. =========== N O R W A Y =========== TGS NEWCO: S&P Withdraws 'BB-' Long-Term Issuer Credit Rating ------------------------------------------------------------- S&P Global Ratings withdrew its 'BB-' long-term issuer credit rating on Norway-based TGS NewCo AS and Petroleum Geo-Services AS at the company's request, along with the issue and recovery ratings on the bonds issued by these entities that have been repaid. The outlook was stable at the time of the withdrawal. =========== S W E D E N =========== PMD DEVICE: Files Bankruptcy for Parent Company, Subsidiary ----------------------------------------------------------- The Board of PMD Device Solutions AB has filed for bankruptcy on December 22, 2024, following extensive reviews of the company's financial position. The bankruptcy filing will be submitted to the Stockholm District Court on December 22, 2024, in parallel with the bankruptcy filing of its Irish subsidiary, PMD Device Solutions Limited. The Board's decision follows a detailed assessment of the financial circumstances affecting both the parent company and its Irish subsidiary. Key factors include: 1. The Irish subsidiary has been prevented from resolving its intended short-term liquidity requirement. This stems from delayed payments from a major public sector client and the subsequent decision of tax authorities not to approve a payment plan and release of revenues that would allow operations to continue in a sustainable way. After discussions with critical creditors, no other solution has been made available to the Company. 2. Without access to short-term liquidity, the Irish subsidiary has been unable to meet critical obligations, including payroll, effectively halting operations. This has directly impacted the parent company's ability to continue as a going concern. "Despite exhaustive efforts to secure short-term liquidity and maintain operational continuity, we have been unable to overcome the financial challenges facing PMD Device Solutions. This situation has left us no choice but to proceed with coordinated bankruptcy filings for both the parent company in Sweden and our subsidiary in Ireland," said Myles Murray, CEO. "While this is a deeply unfortunate outcome, we are committed to handling this process with the utmost transparency and in accordance with all applicable regulations to protect the interests of our stakeholders." This information is information that PMD Device Solutions is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 2024-12-22 16:03 CET. About PMDS PMD Device Solutions AB develops and sells medical products for respiratory monitoring in both the hospital acute monitoring sector and the remote monitoring homecare sector. Its primary product is RespiraSense, a solution used for monitoring respiratory rate to support the detection of patient deterioration early and to avoid preventable respiratory failure and adverse patient outcomes. RespiraSense is, to the Company's knowledge, the world's only continuous, motion-tolerant respiratory rate monitor delivering class-leading reliability in measuring respiratory rate. RespiraSense is a novel technology that is commercialised in Europe, the UK, and FDA cleared in the US. The company's shares are listed on Nasdaq First North Growth Market (STO: PMDS). SAMHALLSBYGGNADSBOLAGET: S&P Ups LT ICR to 'CCC', Outlook Negative ------------------------------------------------------------------ S&P Global Ratings raised its long-and-short term issuer credit rating on Swedish real estate landlord Samhallsbyggnadsbolaget i Norden AB (SBB) to 'CCC/C' from 'SD/D' (selective default), and its issue rating on its senior unsecured debt, issued by SBB and SBB Treasury AB to 'CC' from 'D' (default). S&P revised its recovery rating on the debt to '6' from '3'. In addition, S&P assigned its 'CCC' issue rating and '4' recovery rating on SBB Holding's new senior unsecured debt. S&P maintained its 'D' issue ratings on the three euro-denominated subordinated bonds, and our 'C' issue ratings on the commercial paper. The negative outlook reflects the risk of a conventional default or further distressed debt offers within the next 12 months if SBB does not secure sufficient funding sources. S&P raised the issuer credit rating to 'CCC' from 'SD' following the tender and exchange offer's completion, with the company's liquidity position remaining weak. SBB tendered nominally about EUR111 million in cash, mainly related to its EUR550 million 1.75% senior unsecured notes due January 2025 (with EUR411.3 million outstanding, or EUR304 million including the tendered amount) and to a smaller extent its Swedish krona (SEK) 1.1 billion (EUR95 million) floating-rate notes due January 2025 (SEK851 million outstanding; SEK811 million including the tendered amount). The company further exchanged about EUR327 million of its euro-denominated hybrid bonds at a discount of about 50% into a new senior unsecured instrument due October 2029, issued under SBB Holding. It further exchange about EUR2.63 billion of senior unsecured notes into new senior unsecured notes, issued also by SBB Holding. S&P understands the latter was exchanged at a one-to-one rate and that the interest rate have not changed, with maturity two months earlier versus the original issued instruments for the respective exchanged notes. In summary, following the exchange offers, SBB issued: -- Securities due 2026 with total principal of EUR507.9 million; -- Securities due 2027 with total principal of EUR682.8 million; -- Securities due 2028 with total principal of EUR663.5 million; -- Securities due September 2029 with total principal of EUR773.2 million; and -- Securities due October 2029 with total principal of EUR154.4 million. SBB will continue to face significant debt maturities of above SEK10 billion over 2025 and 2026. S&P said, "While we expect the company to service its upcoming maturity of its EUR550 million senior unsecured bond due January 2025 (with EUR304 million outstanding post-tender) in a timely manner with available liquidity sources, including proceeds of its IPO of Sveafastigheter as well as drawing on its new SEK2.5 billion credit facility, liquidity remains constrained for the next 12 months. We think its access to capital markets remains impeded. The need for additional funding sources or further negotiations with bondholders continue to be the most likely path to SBB deleveraging and managing the maturity wall for the foreseeable future. Moreover, we will continue to view the capital structure as unsustainable until the company can demonstrate capital structure stability and an improved liquidity position through access to diversified funding sources. Although SBB has attracted some funding through the sale of equity stakes in asset portfolios over the past 12 months, we think executing these transactions remains challenging and can carry a high degree of uncertainty. In addition, it may not result in a material deleveraging of the group." S&P said, "We maintained our 'D' rating on SBB's subordinated bonds because the company has announced the deferral of hybrid coupons in July 2024 and we expect it to continue deferring these for at least the next 12 months. Following management's intention to replace its hybrid capital with debt, we conclude SBB is no longer committed to retaining hybrid instruments as a long-standing part of its capital structure to absorb losses or conserve cash. The company started deferring coupon payments on its hybrids in July 2024 and could have continued deferring them while maintaining equity content for more than 10 years, given the instruments' long-dated nature. Our assessment of management's intent is no longer in line with our criteria for maintaining intermediate equity content, so revised it to no equity content on all hybrid capital outstanding. "SBB's potential further exchange offer announcement announced Dec. 13 would be neutral to the ratings. We understand the transaction would include an exchange offer for its 2040 securities for an equivalent principal amount into its newly issued 2040 securities, issued by SBB Holding with substantially similar terms, including the same interest rate and a one-to-one exchange rate. In addition, SBB could offer to exchange the SEK1.5 billion subordinated perpetual notes into the newly issued October 2029 securities, issued by SBB Holding with total principal of EUR100 million-EUR150 million. We would see such a transaction as opportunistic and therefore not tantamount to default." Pending legal claims by some bondholders could hurt SBB's liquidity further in 2025. The company received two letters from Corbin Capital Partners and Fir Tree, bondholders in SBB's 2028 and 2029 securities. They intend to accelerate their holding, which together amounts to about EUR128 million. The claim relates to the company's Euro Medium-Term Note consolidated interest coverage covenant ratio in its first-quarter report for 2023, which both bondholders believe has been breached. S&P said, "We understand court proceedings will commence in January 2025. We remain cautious on any potential outcome of legal processes that could affect SBB's liquidity further. However, the new covenant package has more favorable terms for SBB, including only incurrence covenants." That should limit the risk of an increase in acceleration claims for the same reasons. The negative outlook reflects the risk of a conventional default or further distressed debt offers within the next 12 months. S&P said, "We could lower the ratings on SBB if the company fails to secure sufficient funding for its short-to-medium-term liquidity needs. "We could also downgrade SBB if additional unexpected events adding material legal risk and significantly constraining SBB's credit profile or liquidity; or another tender offer or bond buyback that we considered distressed and tantamount to default. "We could raise the ratings on SBB if the company successfully refinanced debt maturities and restored its liquidity." ===================== S W I T Z E R L A N D ===================== TITAN HOLDINGS: S&P Withdraws 'B' Long-Term Issuer Credit Rating ---------------------------------------------------------------- S&P Global Ratings withdrew its 'B' long-term issuer credit rating on Switzerland-based packaging producer Titan Holdings II B.V. (Eviosys) and its financing subsidiary, Kouti B.V., at the issuer's request. The rating action follows the completion of the group's takeover by Sonoco Products Co. (BBB-/Stable/A-3). S&P also withdrew its ratings on the debt issued by Titan Holdings II B.V. and Kouti B.V., because it was repaid in full upon the acquisition's completion Dec. 4, 2024. The ratings were on CreditWatch with positive implications at the time of the withdrawal. ============= U K R A I N E ============= UKRAINIAN RAILWAYS: S&P Downgrades ICR to 'CC', Outlook Negative ---------------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit rating on Ukraine Railways JSC (UR) to 'CC' from 'CCC+'. The negative outlook reflects S&P's view that UR is likely to implement its debt restructuring plans in the next few weeks, which it consider tantamount to a default. S&P said, "We would view the proposed coupon deferral as distressed and tantamount to a default once approved by the required majority of bondholders. Our assessment of UR's liquidity as weak and the continued challenging operating environment suggest a realistic possibility of a conventional default, absent the proposed debt restructuring. UR announced the consent solicitation offer on Dec. 16, 2024, in which it proposed to holders of its 2026 and 2028 Eurobonds (not rated by S&P Global Ratings) to defer two coupon payments for each respective bond for 12 months. We understand that the bondholders have been asked to vote on the deferral by Dec. 27, 2024. In our view, it is almost certain that UR will stop payments on its debt obligations in January 2025 as per the proposal. "According to "S&P Global Ratings Definitions," published Dec. 2, 2024, under the proposed terms, we would likely consider this debt restructuring as distressed. Therefore, we would lower our rating on UR to 'SD' should it be implemented. Once the debt restructuring takes effect, we would subsequently reflect the new terms and conditions of the debt in the rating. We understand that the proposal to defer coupon payments does not affect the debt maturities, neither does it include any debt haircuts or changes to coupon rates, and offers some additional compensation and covenant concessions to investors." The proposed deferred amounts will continue accruing interest at the respective bond’s coupon rate. The two Eurobond issues are due in July 2026 (approximately $703.9 million outstanding, including capitalized interest) and July 2028 (about $351.9 million, including capitalized interest) and constitute more than 75% of UR's debt. The proposal comes amid significant liquidity pressures emanating from the war between Russia and Ukraine. The company's operational and financial results are materially weaker in the second half of this year than in first-half 2024. UR now expects to end 2024 with a net loss of Ukrainian hryvnia (UAH) 1.5 billion–UAH2.5 billion (about $35 million-$60 million). The company expects its results to deteriorate even further in 2025. S&P said, "Considering this, we believe there is a high risk that UR will not make payments in accordance with its debt maturity schedule, due to the adverse operating environment and high uncertainties regarding the Ukrainian government's financial capacity to provide further support to UR. The deferral of the debt service payments will allow UR to use its liquidity to cover ongoing operating and critical capital expenditure in 2025. We note that UR is currently discussing with the government potential tariff increases. However, because these are subject to the authorities' approval, as well as the consensus of industry representatives (UR’s major clients are also under financial pressures due to the ongoing war), the timing and extent of such tariff increases are uncertain. We also note that the company is considering next steps during the proposed deferral period for the upcoming maturities of its Eurobonds, including potential refinancing or other options." S&P Global Ratings notes a high degree of uncertainty about the extent, outcome, and consequences of the Russia-Ukraine war. Irrespective of the duration of military hostilities, related risks are likely to remain in place for some time. As the situation evolves, S&P will update its assumptions and estimates accordingly. The negative outlook reflects high risks to UR's debt service payments, given the company's debt restructuring plans, which stem from its weak liquidity position and high uncertainty regarding the Ukrainian government's financial capacity to provide support to UR. S&P could lower the rating to 'SD' (selective default) if UR implements the proposed restructuring on its debt, which would in its view constitute a distressed debt restructuring, or if UR fails to make payments on its debt obligations in accordance with the original terms, and S&P does not expect such a payment to be made within the applicable grace period. A positive rating action is highly unlikely at this stage. =========================== U N I T E D K I N G D O M =========================== FLAMINGO GROUP: Fitch Affirms 'B-' LT IDR, Alters Outlook to Pos. ----------------------------------------------------------------- Fitch Ratings has revised Flamingo Group International Limited's (Flamingo) Outlook to Positive from Stable, while affirming its Long-Term Issuer Default Rating at 'B-'. Fitch has also upgraded the senior secured debt rating to 'B+' from 'B'. The Recovery Rating is 'RR2'. The Positive Outlook reflects improved operating performance, following an enhanced product mix, price adjustments and efficiency measures in 2024. Fitch expects this to boost its EBITDA margin and free cash flow (FCF) in 2025-2027. These improvements, together with partial debt repayment in 2024, will allow the company to reduce EBITDA leverage to 3.8x in 2024, with the potential to further decrease toward 3.0x by 2027. The 'B-' IDR reflects Flamingo's exposure to a highly fragmented agriculture-like floriculture market, and some concentration in its customer base. This is balanced by its low-cost production location and recent enhanced EBITDA generation, due to cost optimisation and successful pricing. Key Rating Drivers Profitability Improvement: Fitch projects Fitch-adjusted EBITDA margin at 9.2% in 2024, up from 7.4% in 2023, and above 10% in 2025-2027. In 2024, Flamingo has increased sales of higher-margin farm- direct mixed bouquets, raised prices to offset cost inflation and implemented efficiency measures, which Fitch expects to continue for the next three years. The future success of these measures remains subject to execution risks, as well as potential logistic issues and climate-related risks. Vertical Integration Supports Profitability: Most of Flamingo's EBITDA comes from selling their own grown products. The strategic location of its assets allows for low-cost rose production and a sizeable market share of the east African flower supply, enhancing the profitability of Flamingo's own-grown flowers and produce. Fitch takes a positive view of Flamingo's strategy to further increase its vertical integration, which would support profitability improvement in the medium term, as thin margins from supplying third-party products have weighed on profitability. Third-party products make up about 65% of Flamingo's total volumes sold in the UK. Further, expansion to packed-at-source and transportation solutions such as sea freight also contribute to added value, enhancing profitability. The latter remains subject to potential impact from disruption to the Red Sea transportation routes. Improved Deleveraging Capacity: The Positive Outlook reflects its expectation of EBITDA leverage declining to 3.8x in 2024 from 6.1x in 2023, and further toward 3x by 2027, driven by EBITDA growth. The deleveraging is also supported by its repayment of a GBP44 million term loan B (TLB) during its amend-and-extend transaction with an equity injection of GBP50 million in January 2024. Neutral to Positive FCF: Fitch projects neutral to positive FCF margins in 2024-2025, reversing its mildly negative trend in 2021-2023. This is mainly driven by EBITDA margin recovery, while capex needs remain fairly high. Fitch assumes annual gross capex of around GBP25 million to support investments in replanting, productivity-enhancing automation and maintenance. Fitch expects FCF margins to further improve to above 2% in 2026-2027, driven by EBITDA margin surpassing 10%. High Inherent Business Risks: Fitch assesses Flamingo faces high business risks due to its operations in the agriculture market, resulting in a fundamentally lower debt capacity than the broader consumer products sector. Flamingo shares the characteristics of a crop breeder with its long product cycles and its exposure to variable crop productivity and climate risk. In 2Q24 its crop yields were temporarily hit by El Nino weather conditions, although they recovered in 3Q24. The business also faces volume volatility driven by consumer demand and changing preferences, and to a lesser extent, selling price fluctuations. UK Grocers Concentration: Flamingo's highly concentrated customer base results in limited bargaining power, particularly in its core UK market. The UK represents above 70% of its revenues for flowers, plants and premium packed vegetable offering, with supermarkets accounting for most of its client base. However, this is partially offset by Flamingo's strong partnerships and leading market share with major UK retailers, driving volume growth and garnering support for their innovation initiatives. Derivation Summary Flamingo is rated lower than Camposol Holding PLC (B/Positive), a Peruvian-based fully vertically integrated agro-industrial business. This rating differential is explained by Camposol's higher profitability, forecast lower net leverage of 3x in 2024-2025, and its leading position in Peru. Camposol's Positive Outlook also reflects its deleveraging capacity, driven by expected profitability improvements. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - Flat revenue at GBP600 million in 2024, followed by growth of 2%-3% a year to 2027 - EBITDA margin at 9.2% in 2024, up from 7.4% in 2023, rising to around 10% in 2025 and towards 11% by 2027 - Gross capex at around GBP23 million-GBP25 million a year to 2027 - Working-capital inflow of GBP5 million in 2024, due to shortened inventory days following the expansion of its direct-sale model and better working-capital management. This is followed by minor trade working-capital outflows of around GBP1 million-GBP2 million a year in 2025-2027, along with growing sales - Flamingo to utilise around GBP7.5 million of its supply-chain finance agreements with clients during 2024-2027 - No M&As to 2027 - Restricted cash of GBP10 million as minimum cash required for operating purposes Recovery Analysis The recovery analysis assumes that Flamingo would be reorganised as a going concern (GC) in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. Its GC EBITDA assumption of GBP35 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA on which Fitch bases the enterprise valuation (EV). This level reflects a loss of key customers, adverse contract changes, or climate-related events eroding yields at Flamingo's African farms. A multiple of 5.0x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation EV. The multiple is in the mid-range for the sector and is supported by modest but stable long-term growth prospects for the floriculture sector. The multiple is also supported by the company's asset location in east Africa underpinning its strong market position as a European importer of roses. This is in line with the multiple used for Camposol. Fitch assumes local operating company debt of around GBP6 million as structurally prior-ranking. This is followed by the senior secured TLB and revolving credit facility (RCF), which rank equally among themselves. Fitch has assumed GBP30 million of supply-chain finance (SCF), provided by some of Flamingo's clients, would remain only partly available during and post distress, given an assumed drastic reduction in contract size in the event of financial distress. Based on these assumptions, its waterfall analysis generates a ranked recovery for the senior secured debt in the Recovery Rating 'RR2' band, leading to a senior secured rating of 'B+' with a waterfall-generated recovery computation of 72%, which is higher than 64% previously. This reflects the partial redemption of its TLB in 2024, the positive foreign exchange impact on TLB when translated into sterling and the impact of availability of SCF during financial distress. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Deteriorating liquidity position that leads to additional cash requirements to fund operations - Operational challenges leading to declining EBITDA margin - Negative FCF - EBITDA leverage consistently above 5.5x - EBITDA interest cover below 2.0x on a sustained basis Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Well-executed business strategy supporting EBITDA at or above GBP60 million, with margins around 10% on a sustained basis - Positive FCF margins rising towards low-to-mid single digits - Liquidity headroom of GBP30 million, including internal cash generation and committed external financing lines (excluding GBP10 million as restricted) - EBITDA leverage sustained below 4x - EBITDA interest cover sustained above 3x Liquidity and Debt Structure Fitch estimates a freely available cash balance of around GBP10 million at end-2024 (after restricting GBP10 million for ongoing operational needs, which Fitch assumes will not be available for debt service). Its liquidity is supported by access to an EUR15 million RCF, which remained fully undrawn as of September 2024. The company utilised GBP7 million of its committed GBP30 million SCF as of September 2024. The facility is subject to continued sales volumes with these customers. Flamingo's key debt maturities are in August 2027 for its RCF and in August 2028 for its TLB. 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 Flamingo has an ESG Relevance Score of '4' for Exposure to Environmental Impacts, due to the influence of climate change and extreme weather conditions on its assets, productivity and operating performance, 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 ----------- ------ -------- ----- Flamingo Group International Limited LT IDR B- Affirmed B- senior secured LT B+ Upgrade RR2 B PHARMANOVIA BIDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Pharmanovia Bidco Limited's (formerly Atnahs) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. It has also affirmed its EUR980 million term loans and EUR203 million senior secured revolving credit facility (RCF) at 'BB-' with a Recovery Rating of 'RR3'. The IDR reflects Pharmanovia's small scale and concentrated product portfolio, balanced by strong cash generation. The Stable Outlook reflects Fitch's expectation that Pharmanovia will regain its robust profitability after temporary softness in FY24 (year-end March), with mild but steady revenue growth and high cash generation. Fitch also expects the company to maintain its disciplined approach to M&A, focusing on strengthening its defined strategic therapeutic areas. All this should lead to gradually declining leverage and a recovery of leverage headroom under Fitch's rating sensitivities. Fitch has withdrawn the RCF's rating as it is no longer relevant for the agency's coverage. Key Rating Drivers EBITDA Growth in FY25: Fitch expects EBITDA to grow to EUR184 million in FY25 from EUR149 million in FY24 with around a 300bp improvement in margin as lower prices and volumes of Rocaltrol sales in Chinese hospitals are mitigated by sales volume growth in retail channels. EBITDA will also be boosted by the full year integration of the Ellipse acquisition, with its profitability improved by effective product life-cycle management. Fitch estimates most of FY25 EBITDA to be generated in the second half of the year, due to sales-phasing in indirect channels. Tight Leverage Headroom: Fitch expects EBITDA leverage to decrease to 5.3x in FY25 from 6.2x in FY24, as sales for Rocaltrol China recover with replenished stocks and the Ellipse portfolio completes its transition. Fitch anticipates EBITDA leverage to trend toward 5.0x in FY28 on gradual performance recovery and IP drug acquisitions. As leverage headroom remains limited under its rating case in FY25-FY26, extensively debt-funded acquisitions would put pressure on its ratings. Manageable Execution Risks: Pharmanovia's decision to internalise some functions, such as marketing and distribution, will in its view, enable management to have greater control over sales, facilitating mild organic growth. Further, targeted expansion in China has broadened the company's franchise. Nevertheless, the strategy has some execution risks, due to an evolving regulatory environment in China, which accounts for about 25% of Pharmanovia's sales. Failure to achieve profitable organic growth may lead to a negative rating action. Strong Free Cash Flow: Fitch forecasts Pharmanovia's free cash flow (FCF) margin to remain strong at around 10%, lower than historical levels due to higher interest costs, and milestone contingent payments for acquiring the commercial rights of Rocatrol in China. Its strong internal liquidity is a key credit strength, allowing the company to sustain earnings of its moderately declining portfolio, self-fund much of its growth and maintain adequate financial flexibility. Fitch expects FCF to be reinvested in portfolio expansion, rather than towards debt prepayment or shareholder distributions. Reconfiguring Portfolio: Fitch expects Pharmanovia to prioritise organic growth in its defined therapeutic areas, driven by product redevelopment and new market launches. This is underscored by its in-licensing agreements for novel complementary therapies, which bolster its M&A-driven growth and diversification strategy that has gained momentum since the pandemic. Fitch assumes a moderate decline of its established off-patent drug portfolio from FY26, while the company aims to maintain growth based on the planned active life-cycle management. Constrained by Scale: Pharmanovia's rating is constrained by its small size, despite recent product additions. Fitch also views the company's narrow product portfolio with high sales concertation - its top 10 products accounted for 68% of sales in 1HFY25 - as constraining its rating to the 'B' category. Fitch expects this to improve only moderately in the next three to four years as the company continues to grow through medium-to-large acquisitions. Derivation Summary Fitch compares Pharmanovia's 'B+' rating against other asset-light scalable niche pharmaceutical companies such as CHEPLAPHARM Arzneimittel GmbH (B/Stable), ADVANZ PHARMA HoldCo Limited (B/Stable) and Neopharmed Gentili S.p.A. (Neopharmed; B/Stable). Pharmanovia's moderate business scale and concentrated brand portfolio, albeit benefiting from growing product and wide geographic diversification within each brand, constrains its IDR to the 'B' category. Pharmanovia and Cheplapharm, which both operate asset-light business models, have historically had almost equally high and stable operating and cash flow margins. Cheplapharm was recently downgraded to 'B' from 'B+' due to expectation of gross EBITDA leverage increasing to 6.5x in 2024 and remaining high over the next 12-18 months, driven by organic EBITDA declines and recent large acquisitions. The difference with lower-rated ADVANZ PHARMA is due mainly to ADVANZ's higher execution risks in its refocused strategy to actively develop and market targeted specialist generic drugs, as well as remaining litigation risks. Neopharmed's lower rating is due to its slightly smaller operations and higher leverage. Key Assumptions Fitch's Key Assumptions Within Its Rating Case for the Issuer - Sales growth of 13.1% in FY25, including sales carried forward from FY24. Sales to decline 1.7% in FY26, followed by around a 2% annual growth in FY27-FY28 - EBITDA margin at 40.1% in FY25 and improving to 40.4% from FY26 onwards - Broadly neutral trade working capital over FY25-FY29 after outflows in FY24 - M&A of product IP and commercial infrastructure assets of around EUR85 million a year during FY26-FY28. Targeted acquisitions at an enterprise value (EV) of 4x sales, funded with internally generated FCF - Maintenance capex at around 1% of sales. Fitch treats acquisitions as equivalent capex at 8%-10% of sales, as it views such investments as necessary to offset the organic portfolio decline - No debt-funded dividend payments Recovery Analysis Pharmanovia's recovery analysis is based on a going-concern (GC) approach, reflecting the company's asset-light business model, which supports higher realisable values in financial distress than balance-sheet liquidation. Financial distress could arise primarily from material revenue contraction following volume losses and price pressure, given Pharmanovia's exposure to generic pharmaceutical competition, possibly also in combination with an inability to manage the cost base of a rapidly growing business. Fitch maintains its post-restructuring GC EBITDA estimate of EUR137 million, and apply a 5.5x distressed EV/EBITDA multiple, reflecting the underlying value of the company's growing portfolio of IP rights before considering value added through portfolio and brand management. This multiple is also in line with the distressed multiples for other Fitch-rated asset-light pharma peers. Its principal waterfall analysis generated a Recovery Rating of 'RR3' for the all senior secured capital structure after deducting 10% for administrative claims. This comprises the senior secured term loan B of EUR980 million and a revolving credit facility (RCF) of about EUR203 million, assumed to be fully drawn before distress, with both facilities ranking equally among themselves. This indicates a 'BB-'/'RR3' instrument rating for the senior secured debt with a recovery percentage based on current metrics and assumptions of 57%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Inability to execute its profitable organic growth strategy, with EBITDA margins at around 40% on a sustained basis - Positive but continuously declining FCF - A more aggressive financial policy leading to EBITDA leverage above 5.5x on a sustained basis - EBITDA interest coverage below 3x on a sustained basis Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Fitch does not envisage an upgrade to the 'BB' rating category in the medium term until Pharmanovia achieves a maturing business risk profile. This would be manifested in sustainable revenue, a more diversified product portfolio, as well as resilient operating and strong FCF margins that allow the company to finance development M&A and reduce execution risks - Conservative leverage policy leading to EBITDA leverage at or below 4.0x on a sustained basis Liquidity and Debt Structure Pharmanovia's cash on balance sheet at FYE24 was around EUR37 million (excluding EUR5 million Fitch deems as not readily available). It has full access to its EUR203 million RCF. It also benefits from mainly positive FCF generation and no maturities until 2030, leading to comfortable liquidity. Issuer Profile Pharmanovia is a UK-based specialty pharma focused on acquiring and managing branded off-patent drugs. Main therapeutic areas are cardiovascular, endocrinology, neurology and oncology. 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 ----------- ------ -------- ----- Pharmanovia Bidco Limited LT IDR B+ Affirmed B+ senior secured LT BB- Affirmed RR3 BB- senior secured LT WD Withdrawn TOWD POINT 2024: Fitch Assigns 'B-sf' Final Rating to Class F Notes ------------------------------------------------------------------- Fitch Ratings has assigned Towd Point Mortgage Funding 2024 - Granite 7 PLC final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Towd Point Mortgage Funding 2024 - Granite 7 PLC Class A1 XS2950571062 LT AAAsf New Rating AAA(EXP)sf Class B XS2950571492 LT AA-sf New Rating AA-(EXP)sf Class C XS2950571575 LT A-sf New Rating A-(EXP)sf Class D XS2950571732 LT BBB-sf New Rating BBB-(EXP)sf Class E XS2950571815 LT BB-sf New Rating BB-(EXP)sf Class F XS2950571906 LT B-sf New Rating B-(EXP)sf Class XA1 XS2950572201 LT CCsf New Rating CC(EXP)sf Class XA2 XS2950572383 LT NRsf New Rating NR(EXP)sf Class Z XS2950572110 LT NRsf New Rating NR(EXP)sf Transaction Summary The transaction is a securitisation of owner-occupied (OO) residential mortgage assets originated by Northern Rock (now Landmark Mortgages Limited) and secured against properties in England, Scotland and Wales. It also contains a small proportion of unsecured loans (about GBP11.8 million) linked to the mortgage products. Landmark Mortgages Limited is the legal title holder and master servicer at close. In February 2025, the legal titles and servicing will transfer to Topaz Finance Limited. KEY RATING DRIVERS Seasoned Loans: The portfolio consists of seasoned OO mortgage loans (secured, 96.5% by current balance), and unsecured loans (3.5% by current balance), originated predominantly before 2008 (99.4%). It has benefited from a considerable degree of indexation with a weighted average (WA) indexed current loan-to-value (LTV) of 44.5%, leading to a WA sustainable LTV of 55.7% on the mortgage loans. The pool contains a relatively high proportion of interest-only (IO) loans and a material proportion of the loans may have been originated as fast-track loans. Nevertheless, Fitch considered the lending criteria of the originator at the time of origination to be in line with prime market standards and therefore applied its prime matrix assumptions. Weaker Performance: Fitch considered the historical performance of the pool when setting the originator adjustment. Arrears and default levels have historically been above those typical of prime UK pools. This underperformance has increased significantly over the last year as interest rates have risen, with arrears greater than one month on the total secured pool rising to 20.9%, as at November 2024 (21.4% for the total pool including the unsecured loans). The pool has also underperformed Fitch's Prime index on an arrears and defaults basis. Taking these factors into consideration, Fitch applied an originator adjustment of 1.4x, in line with TPMF - Granite 6 and Curzon Mortgages plc. Borrowers' Refinancing Challenges Remain: The WA debt-to-income ratio of 35.2% on the secured pool suggests borrowers may have had reasonable affordability at origination. However, 89.6% of the mortgage borrowers are still on the standard variable rate (SVR) which means refinancing is still an issue for many. As indicated by the available prepayment data for TPMF - Granite 4 since closing, prepayment rates have averaged around 16.6%, peaking at end-2023 at 26.5% before decreasing to 20.6% at end-February 2024. Prepayments on the TPMF - Granite 7 pool are likely to have been in line with this. This partially explains the deterioration in the arrears performance over the last year and has increased the adverse selection on the remaining pool. Deviation from MIR (Criteria Variation): The collateral performance may worsen and excess spread is likely to be further depressed in light of the rise in arrears. In addition, recovery rates on repossessed properties have been lower than suggested by the seasoning on the assets and could persist due to adverse selection. Fitch assessed the model-implied ratings (MIR) against a scenario flooring the WA foreclosure frequency (FF) at the level of the six-months-plus arrears and reducing the estimated recoveries. The MIRs were broadly in line with the standard 15% WA recovery rate (RR) sensitivity reduction, which drove its rating determination. The assigned final ratings are two to four notches below the base MIRs for the class B to F notes, which constitutes a criteria variation. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. In addition, unanticipated declines in recoveries could result in lower net proceeds, which may make certain notes susceptible to potential negative rating action depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction's base-case FF and RR assumptions. For example, a 15% WAFF increase and 15% WARR indicate downgrades of one notch for all classes. Around 89.6% of the mortgage borrowers in the pool have paid a relatively high SVR over the last decade, despite low interest rates in this period. Some borrowers in the UK, most likely including some in this pool, have joined a pressure group (UK Mortgage Prisoners) to achieve a lower interest rate, a change of lender/product offering or compensation. Fitch understands that to date, they have been largely unsuccessful in court actions but continue to lobby for government action or legal redress. Fitch notes that widespread remedial actions, set-offs, or further relevant legislative or regulatory changes are difficult to quantify at this stage, and each could lead to negative rating action. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the WAFF of 15%, and an increase in the WARR of 15%, indicating upgrades of up to two notches for the class B notes, up to five notches for the class C notes, up to seven notches for the class D and F notes, and up to eight notches for the class E notes. CRITERIA VARIATION The collateral performance may worsen and excess spread is likely to be further depressed in light of the rise in arrears. In addition, recovery rates on repossessed properties have been lower than suggested by the seasoning on the assets and could persist due to adverse selection. Fitch assessed the MIRs against a scenario flooring the WAFF at the level of the six-months-plus arrears and reducing the estimated recoveries. The MIRs were broadly in line with the standard 15% WARR sensitivity reduction, which drove its rating determination. The assigned ratings are two to four notches below the base MIRs for the class B to F notes, which constitutes a criteria variation. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, Fitch's assessment of the asset pool information relied on for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Date of Relevant Committee 22 November 2024 ESG Considerations TPMF - Granite 7 has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to a high proportion of IO loans in legacy owner-occupied mortgages, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. VEDANTA RESOURCES: S&P Upgrades ICR to 'B', Outlook Stable ---------------------------------------------------------- S&P Global Ratings raised its issuer credit rating on Vedanta Resources Ltd. to 'B' from 'B-' and raised its issue ratings on the company's guaranteed bonds to 'B-' from 'CCC+'. At the same time, S&P removed its ratings from CreditWatch with positive implications. S&P also assigned out 'B-' long-term issue rating to the senior unsecured notes that Vedanta Resources Finance II PLC issued. This is in line with the preliminary ratings we assigned to the notes on Nov. 20, 2024. S&P said, "The stable outlook reflects our expectation that refinancing risks will be more manageable after the transaction given a newfound funding flexibility and improved capital market access. "We view it as a virtual certainty Vedanta Resources will succeed with its bond solicitation exercise, after the company received the minimum acceptances needed. "In our opinion, the passing of the consent solicitation eliminates the residual risk of an accelerated maturity following a US$400 million shortfall in Vedanta Resources' most recent bond raising. The upgrade also reflects a likelihood of improvement in the company's capital structure. "We had previously considered the acceleration of maturities in the event of failure to refinance the US$600 million bond due in April 2026 by December 2025 as a key risk." However, this will no longer be the case; new bonds issued in Vedanta Resources' recent US$800 million debt raising, together with the expected outcome of the bond solicitation process conducted on the remaining outstanding bonds due 2027 and 2028, will no longer have any springing maturity clause. This clause contained a requirement that the issuer refinance the April 2026 bond by December 2025; if it did not, the clause would bring forward payment of its January 2027 and December 2028 bonds, to April 20, 2026. The proposed revised covenants align with those for Vedanta Resources' bond issuances maturing in 2028, 2029, and 2031. The key amendments will: (1) remove the springing maturity embedded in the outstanding 2028 bonds; (2) facilitate an increase in debt headroom at Vedanta Resources' immediate holding company Twin Star Holdings Ltd. to US$4 billion; (3) realign certain leverage thresholds to allow Vedanta Resources to increase dividends to shareholders. Following the transaction, debt headroom will increase at the Twin Star level by more than US$1 billion. This will give Vedanta Resources flexibility to raise funds to address the US$1.15 billion April 2026 maturities. The company will pay bondholders voting in favor of the proposal an early voting consent fee of 35 cents per US$100, and 10 cents per US$100 for acceptances after the early voting deadline of Dec. 16, 2024. Although the compensation is modest, we regard this transaction to be opportunistic and not distressed, particularly in light of Vedanta Resources' recent trajectory of improved creditworthiness. S&P said, "The recent US$800 million capital raising, along with US$1.2 billion of bonds issued in September 2024, support our view that the issuer's access to capital markets has been improving since the January 2024 restructuring. It also paves the way for future refinancing that should be more manageable, especially considering the smaller volume of Vedanta Resources' upcoming debt maturities. "Still, we note Vedanta Resources' recent debt raisings have yet to directly address the US$1.15 billion April 2026 maturities. As a result, we estimate a funding gap of more than US$700 million in the first quarter of fiscal 2027 (year ending March 31, 2027). This maintains pressure on the company's liquidity, and remains a key rating consideration. That said, we believe the associated refinancing risks will be more manageable after the transaction given the funding flexibility and improved capital market access. This is reflected in our revised liquidity assessment to less than adequate, from weak. "At a consolidated level, we project the sources of liquidity over the next 12 months will remain below the uses of liquidity. This will deteriorate further in April 2025 (on a rolling 12-month basis) given the large maturities in April 2026. "Our ratings incorporate our management and governance (M&G) assessment of moderately negative (-1 notch). The negative aspects of our M&G assessment largely reflect Vedanta's complex corporate structure, which has led to additional credit risk within the debt structure, and the recency of the January 2024 debt restructuring, which we regarded as distressed. Our assessment also continues to reflect the presence of a dominant shareholder, and a long record of last-minute refinancing. "The stable outlook reflects our expectation that Vedanta Resources will proactively address its US$1.15 billion April 2026 debt maturities. The stable outlook also reflects the company's sound underlying operations, which should support internal cash generation and refinancing efforts." Downward rating pressure could emerge if Vedanta Resources' liquidity weakens because of a significant deterioration in earnings at subsidiary Vedanta Ltd. affecting its dividend potential, or if the refinancing risks at Vedanta Resources mount. The absence of tangible progress on the refinancing of the April 2026 debt maturities within 12 months of maturity could signal increasing refinancing and liquidity risk. Rating upside is contingent on a sustained improvement in liquidity. Timely fundraising to address the April 2026 maturities, together with continued visibility on healthy operational performance, could indicate such an improvement. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2024. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. 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