/raid1/www/Hosts/bankrupt/TCREUR_Public/250128.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, January 28, 2025, Vol. 26, No. 20
Headlines
F I N L A N D
AHLSTROM HOLDING 3: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
F R A N C E
ELIOR GROUP: Fitch Assigns 'B+(EXP)' Rating on Sr. Unsecured Notes
QUESTEL UNITE: Moody's Assigns First Time 'B2' Corp. Family Rating
G E R M A N Y
AVIV GROUP: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable
AVIV GROUP: Moody's Assigns First Time 'B3' Corporate Family Rating
I R E L A N D
THERMAL POWER: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
K A Z A K H S T A N
FORTEBANK JSC: Fitch Assigns BB(EXP) Rating on Unsec. Eurobonds
FORTEBANK JSC: Moody's Assigns Ba3 Rating to Sr. Unsecured Notes
L U X E M B O U R G
CONTOURGLOBAL POWER: Fitch Gives 'BB+(EXP)' on New EUR940MM Notes
INEOS GROUP: Fitch Alters Outlook on 'BB' LongTerm IDR to Negative
VENGA HOLDINGS: S&P Affirms 'B' LongTerm ICR, Outlook Stable
N E T H E R L A N D S
FLORA FOOD: Fitch Assigns 'B+(EXP)' Rating on EUR250MM Sec. Notes
VDK GROEP: S&P Assigns Prelim. 'B+' ICR, Outlook Stable
S P A I N
CAIXABANK PYMES 13: Moody's Ups Rating on EUR390MM B Notes to B3
S W E D E N
AQUEDUCT EUROPEAN 9: Fitch Assigns B-(EXP)sf Rating on Cl. F Notes
HEIMSTADEN AB: Fitch Affirms 'B-' LongTerm IDR, Outlook Negative
S W I T Z E R L A N D
PEACH PROPERTY: Fitch Affirms 'CCC+' LongTerm Issuer Default Rating
U N I T E D K I N G D O M
ANNINGTON LIMITED: Fitch Lowers LongTerm IDR to 'BB-', Outlook Neg.
CAMBRIDGE SOLAR: Begbies Traynor Named as Administrators
IMMERSIVE GROUP: Begbies Traynor Named as Administrators
IN PRACTICE: Crowe U.K. Named as Administrators
KINGSWOOD COLOMENDY: Teneo Financial Named as Administrators
KINGSWOOD LEARNING: Teneo Financial Named as Administrators
LIBERTY GLOBAL: S&P Assigns 'BB-' ICR Amid Sunrise Spin-Off
LUXURY LOCKSTITCH: CG&Co Named as Administrators
MAN COED: Leonard Curtis Named as Administrators
TILON (HOLDINGS): Begbies Traynor Named as Administrators
WAGAMAMA (HOLDINGS): S&P Assigns Prelim. 'B' ICR, Outlook Stable
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F I N L A N D
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AHLSTROM HOLDING 3: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Finland-based diversified industrial
group Ahlstrom Holding 3 Oy's Long-Term Issuer Default Rating (IDR)
at 'B+' with a Stable Outlook. Fitch has also affirmed its senior
secured instrument ratings at 'B+' with a Recovery Rating of
'RR4'.
The rating affirmation reflects the group's still high, albeit
improving, leverage as well as increasing underlying earnings
margins and cash flows, solid positions in several end-markets, and
sound geographical diversification.
The Stable Outlook reflects its expectation that Ahlstrom's key
metrics will remain within the rating sensitivities, supported by
the company's broad product range and its ability to control costs,
despite vulnerable end-market demand.
Key Rating Drivers
High but Improving Leverage: Ahlstrom's gross EBITDA leverage has
been above the present downgrade sensitivity of 5.5x for the past
three years, but Fitch estimates it to have improved to 5.5x at
end-2024. Fitch assumes further improvement to around 5x in 2025,
driven primarily by growth in earnings. Further gradual
deleveraging to under 5x after 2025 is anticipated as demand, and
therefore earnings, continue to recover.
Sustainable Positive FCF Expected: Fitch estimates free cash flow
(FCF) was positive in 2024, which Fitch expects to continue in the
short-to-medium term. This will be driven by improved underlying
demand, a stabilisation of working-capital flows, and lower capex.
Fitch also expects an elimination of restructuring and
transformation cash costs from 2025.
Solid Earnings Margins: Despite slower demand in 2024, Fitch
estimates that the group's EBITDA margin improved to 14.6%, from
12.8% in 2023, driven by cost-cutting measures and improved
price-setting mechanisms. Fitch expects the EBITDA margin to rise
to 15% in 2025 and remain above that level in the next three
years.
Solid Business Profile: Ahlstrom's business profile is strong for
its rating, based on the its strong position in a high number of
niche markets and its solid geographical and end-market
diversification. It has some exposure to cyclical end-markets, such
as automotive, trucks, building materials and industrial
applications. However, this is mitigated by its limited exposure to
new vehicle production, offering of sustainable fibre-based
materials and by its high exposure - above 50% of sales - to
non-cyclical and resilient applications.
Derivation Summary
Ahlstrom's business profile is close to that of investment-grade
peers such as GEA Group Aktiengesellschaft (BBB/Positive) and KION
GROUP AG (BBB/Stable), based on its solid market positions, strong
diversification and exposure to non-cyclical end-markets, but
Ahlstrom's leverage is significantly higher.
Ahlstrom's EBITDA margins of 12%-14% are weaker than those for the
same-rated INNIO Group Holding GmbH (B+/Positive) and the similarly
sized ams-OSRAM AG (B+/Stable). This is mainly an effect of its
position in the value chain as a producer of the fibre-based
materials used in end-products, but not of the product itself.
Ahlstrom's EBITDA gross leverage is higher than at ams-OSRAM.
Ahlstrom's short-term deleveraging profile is slightly better than
Flender International GmbH's (B/Stable).
Key Assumptions
Fitch's Key Assumptions for the Rating Case of the Issuer
- Revenue flat in 2024, due to lower volumes, before increasing 4%
p.a. in 2025-2028 as end-markets recover from 2H25
- EBITDA margin increasing to almost 15% in 2024 and remaining
broadly stable in 2025-2028, based on long-term cost savings and
pricing benefits
- No new large transformation, restructuring costs or significant
dividends after 2024
- Working-capital outflows broadly in line with revenue growth in
2025-2028
- Average capex at 5% of revenue in 2025-2028
Recovery Analysis
- The recovery analysis assumes that Ahlstrom would be restructured
as a going concern (GC) rather than liquidated in a default
- Fitch applies a distressed multiple of 5.5x to its EBITDA
calculate its GC enterprise valuation, reflecting Ahlstrom's strong
market positions and solid diversification in end-markets, products
and geography
- Post-restructuring GC EBITDA is estimated at EUR280 million,
reflecting a low profitability, reduced capex and
neutral-to-negative cash flow generation
- These assumptions result in a recovery rate for the senior
secured instrument rating within the 'RR4' range, and,
consequently, an equal instrument rating with the IDR. The
principal and interest waterfall analysis output percentage on
current metrics and assumptions is 45%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage above 5.5x
- EBITDA interest coverage below 3x
- FCF margin below 1%
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage below 4.5x
- EBITDA interest coverage above 4x
- FCF margin above 2%
Liquidity and Debt Structure
Readily available cash was around EUR130 million at end-3Q24. It
included Fitch's adjustments for restricted cash of about EUR81
million, due to offshore holdings of EUR59 million for intra-year
working-capital changes.
Liquidity is supported by a revolving credit facility of EUR325
million with a maturity in June 2027 and by expected FCF margins of
above 2.5% from end-2024. Ahlstrom benefits also from available
committed local overdraft facilities of EUR32.7million.
The group's debt structure is fairly well-diversified and consists
of term loans B of EUR1,017 million and USD532million, and senior
secured notes of EUR350 million and USD286 million. The maturities
are long, but concentrated in February 2028, which could increase
refinancing risk in the coming 12-18 months.
Issuer Profile
Ahlstrom is a global leader in specialty fibre-based materials with
a wide range of uses in many sectors, including industrial
applications and consumer-driven products.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
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Ahlstrom Holding 3 Oy LT IDR B+ Affirmed B+
senior secured LT B+ Affirmed RR4 B+
Spa US Holdco, Inc.
senior secured LT B+ Affirmed RR4 B+
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F R A N C E
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ELIOR GROUP: Fitch Assigns 'B+(EXP)' Rating on Sr. Unsecured Notes
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Fitch Ratings has assigned Elior Group S.A.'s proposed notes an
expected senior unsecured rating of 'B+(EXP) with a Recovery Rating
of 'RR4'. The debt rating is in line with Elior's Issuer Default
Rating (IDR) of 'B+', which has a Positive Outlook.
Elior plans to use the notes proceeds and cash on its balance sheet
to redeem the EUR550 million notes due 2026, enhancing its maturity
profile. Adjusting for the proposed bonds, Fitch estimates Elior's
gross adjusted debt/EBITDA would have reduced to 7.1x at FYE24
(year-end September) from 7.5x. The assignment of final rating is
subject to final documentation conforming to information already
received.
Elior's Positive Outlook reflects Fitch's expectation of an
improvement in credit metrics over the next 12-18 months as
strengthening profitability increases free cash flow (FCF) and
reduces Fitch-adjusted EBITDA leverage to 5.5x. This may support an
upgrade in the next 12-18 months, assuming Elior maintains a solid
business profile and a stable relationship with its parent
Derichebourg S.A..
Key Rating Drivers
Refinancing Addresses Upcoming Maturities: If successfully placed,
Elior's proposed bonds would extend comfortably its maturity
profile, with no major debt repayment before 2029. A new EUR430
million revolving credit facility (RCF) also enhances its liquidity
and extends its maturity profile. The current main maturities are
its EUR550 million notes due in July 2026 and its EUR350 million
RCF - due in July 2025 for EUR39 million and in July 2026 for
EUR311 million - which the company plans to repay as part of
today's transaction.
Robust Business Model: Elior's robust business model owing to its
strong position in the French catering market, its large contract
base and a diverse customer pool with low churn rates support its
'b' Standalone Credit Profile (SCP). The addition of Derichebourg
Multi Services (DMS) increases business diversification away from
its sole catering business, with the multi-services segment
representing 27% of revenue in FY24. It also provides scope for
future growth through cross-selling.
PSL Approach, Stronger Parent: Fitch applies a bottom-up assessment
in accordance with its Parent and Subsidiary Linkage (PSL)
Criteria, reflecting the stronger parent in Derichebourg S.A.
(BB+/Stable) versus a weaker subsidiary in Elior. Fitch assesses
the legal and operational incentives to support Elior as 'Low' and
the strategic incentive as 'Medium'. This reflects the material
asset value Elior represents for Derichebourg S.A., leading to an
uplift from Elior's 'b' SCP by one notch to arrive at its 'B+'
IDR.
Recovering Profitability: Fitch estimates Fitch-adjusted EBITDA
margin to have reached 3.5% in FY24 and forecast it to rise above
4% after FY25. This is a meaningful increase from FY20-FY23 and
will be key in driving Elior's FCF and leverage to levels that are
commensurate with a 'b+' SCP, as underlined in its Positive
Outlook. This follows the exit of non-profitable contracts over the
last 18 months, and the full impact from integrating the more
profitable DMS. Elior has also been working on optimising its
catering cost structure to adapt to changing customer needs.
Rapid Deleveraging Expected: Fitch expects rapid deleveraging, as a
result of continued recovery, profitability improvements, and the
proposed transaction. Fitch forecasts Fitch-adjusted EBITDA
leverage to decline to 6.5x in FY25 and 5.5x in FY26, from a high
7.5x at FYE24. Fitch sees manageable execution risk, as most of the
profitability improvement measures relate to contract
renegotiation, while its group cost structure has been updated.
Fitch expects continuing good retention rates with its main
customers. Deleveraging 0.5x a year until FY28 may support an
upgrade in the next 12-18 months.
Stabilising FCF: Fitch expects Elior to return to moderate FCF
generation in the next 12-18 months, which should strengthen to
more than EUR50 million a year or 1% of revenues from FY26. This
will be driven by improving profitability and contained capex under
its asset-light business model. The improved FCF profile comes
after years of negative FCF during the pandemic and high inflation.
Stabilising FCF is a key factor behind an upgrade. Conversely,
persistently neutral-to-negative FCF could weigh on the ratings.
Limited Geographical Diversification: Elior's revenues are
concentrated in Europe, at 78% of FY24 net sales. It has a
historical focus on the French market, with around half of its
sales generated in the country. This concentration exposes Elior to
downturns affecting the region. This is partly mitigated by its
diverse end-markets.
Strong Market Share, Revenue Visibility: Elior benefits from a
strong market share in its key French catering market, at 22%.
Fitch also views positively its exposure to different end-markets,
such as private businesses, healthcare providers and education
companies, which provides some revenue and earnings stability
across economic cycles. Elior also has high retention rates (92.7%
at FYE24, excluding voluntary contract exits) across its
diversified customer base on multi-year contracts and with its top
10 customers, which accounted for 13% of FY24 total revenue.
Financial Policy Focuses on Deleveraging: Fitch factors into its
rating analysis Elior's focus on deleveraging and on limiting
dividend payments until net leverage (as calculated by company)
falls below 3.0x, which corresponds to a Fitch-defined leverage of
below 5.0x. Fitch expects Derichebourg S.A. to be supportive of
this strategy, given the nature of its investments in Elior.
Evidence of a more aggressive financial policy undermining the
deleveraging of the business will put the ratings under pressure.
Derivation Summary
Elior's closest peer in business profile is Sodexo SA
(BBB+/Stable). The large rating difference is warranted by Elior's
lower geographical diversification, much smaller scale and weaker
credit metrics overall. Elior is mostly present in Europe (around
78% of its revenue), while Sodexo has a balanced presence across
Europe (35% of FY23 revenue), North America (46%) and rest of the
world (18%). Elior's leverage is expected to remain above 5.5x over
the next 24 months, while Sodexo's is forecast at 2.5x.
Fitch also compares Elior with other business services providers
such as Circet Europe SAS (B+/Stable) and Assemblin Caverion Group
AB (B/Stable). Compared with both peers, Elior 'b' SCP reflects a
more balanced end-market and geographical mix, but also lower
profitability and FCF, as well as higher forecast leverage.
However, the Positive Outlook for Elior reflects its deleveraging
prospects. Finally, Elior's 'B+' IDR benefits from a one-notch
uplift, due to the stronger parent, in accordance with Fitch's PSL
Criteria.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth of mid-single digits to FY28
- EBITDA margin to gradually rise to 4.3% by FY28
- Capex at 2% of revenue over the forecast period
- Working-capital outflows of 0.1%-0.3% to FY28
- No dividend payments over the forecast period
- M&A spend of about EUR10 million a year to FY28
Recovery Analysis
In conducting its bespoke recovery analysis, Fitch estimates that
Elior's asset-light business model, in the event of default, would
generate more value from a going-concern (GC) restructuring than a
liquidation of the business.
Fitch has assumed a 10% administrative claim in the recovery
analysis.
Its analysis assumes post-restructuring GC EBITDA of around EUR180
million. Fitch has applied a 5x distressed multiple, reflecting
Elior's scale, customer and geographical diversification.
Fitch assumes Elior's securitisation programme at around EUR400
million, ranking senior to its unsecured notes and RCF, would need
to be replaced by alternative funding in the event of financial
distress. The proposed new EUR500 million unsecured notes and
EUR430 million RCF rank pari passu among themselves, and Fitch
assumes a fully drawn RCF in its recovery analysis.
Based on current metrics and assumptions, the waterfall analysis
generates a ranked recovery at 44% for the proposed notes,
corresponding to the 'RR4' band, which indicates a 'B+' instrument
rating, in line with Elior's IDR.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Loss of contracts leading to a deterioration of Elior's
competitive position in its main markets
- EBITDA margins remaining below 3.5%
- Gross debt/EBITDA above 6.5x on a sustained basis
- EBITDA interest cover below 2.0x
- Cash flow from operations (CFO) less capex/debt below 1%
- Neutral-to-negative FCF
- A multi-notch downgrade of Derichebourg S.A.'s rating or a
weakening of strategic ties between Elior and Derichebourg S.A.
would lead Fitch to assess Elior on a standalone basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Continued recovery in revenue growth and demonstration of
cross-selling capabilities across segments
- Improving profitability leading to EBITDA margins above 4% on a
sustained basis
- Gross debt/EBITDA below 5.5x on a sustained basis
- EBITDA interest cover above 3.0x
- CFO less capex/debt above 3%
- FCF margins consistently in excess of 1%
Liquidity and Debt Structure
Pro-forma for the proposed transaction, Fitch estimates Elior to
have a reported cash position of EUR40 million (EUR142 million
reported at FYE24) and EUR278 million available under its new RCF
of EUR430 million, upsized from EUR350 million currently. In
addition, it has access to a securitisation programme, which
provides additional liquidity through receivables financing.
Elior currently has a senior unsecured bond due in July 2026, a
EUR39 million portion of its RCF due in July 2025 and the remainder
in July 2026, and has repaid in full its EUR100 million term loan
in December 2024. The proposed transaction, if successful, will
extend its main maturities to 2029 for the new RCF, and to 2030 for
the proposed notes.
Issuer Profile
Elior is an international contract catering and diversified
services provider with a leading catering market share in France.
Its services include cleaning, facility management, electrical and
climate engineering, remote surveillance, energy efficiency, public
lighting and green spaces.
Date of Relevant Committee
14 October 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery
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Elior Group S.A.
senior unsecured LT B+(EXP) Expected Rating RR4
QUESTEL UNITE: Moody's Assigns First Time 'B2' Corp. Family Rating
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Moody's Ratings has assigned a first time B2 long term Corporate
Family Rating and a B2-PD Probability of Default Rating to Questel
Unite SAS (Questel), a global intellectual property (IP) management
software and service company. Concurrently, Moody's have assigned
B2 ratings to the proposed EUR485 million senior secured term loan
B (TLB) due in 2032 and the proposed EUR100 million senior secured
revolving credit facility (RCF) maturing 6 months before the TLB
and issued by Questel. The outlook is stable.
Proceeds from the proposed TLB, together with the EUR161 million of
payment-in-kind (PIK) notes and EUR5 million of cash on balance
sheet will be used to refinance the existing EUR635 million of
unitranche debt and to pay EUR16 million of estimated transaction
costs.
"The B2 rating reflects the company's strong position as one of the
leading global IP management software and service providers, its
good geographical and customer base diversification, its high
revenue visibility and its good cash conversion," says Agustin
Alberti, a Moody's Ratings Vice President-Senior Analyst and lead
analyst for Questel.
"However, the rating also factors in the company's high opening
leverage of 6.1x (Moody's-adjusted), which Moody's expect to
decrease towards 5.5x over the next 12-18 months," adds Mr.
Alberti.
RATINGS RATIONALE
Questel's ratings are supported by (1) its strong position as one
of the leading software and services provider in the fragmented IP
management market, (2) its good geographical and customer base
diversification, (3) its strong value proposition supported by its
integrated platform (one-stop shop offering) for the IP life cycle,
resulting in long-standing client relationships and in high revenue
visibility, (4) the growth opportunities supported by the secular
growth of IP activities and the company's cross-selling and
upselling strategy, and (5) its high cash conversion capacity
because of the low capital intensity, which results in positive
free cash flow (FCF) generation.
However, the ratings are constrained by (1) the company's modest
size, (2) the highly competitive environment and uncertainties
linked to potential new disruptive technologies in the IP market,
(3) the execution and integration risks related to potential
bolt-on acquisitions, (4) its high initial leverage of 6.1x
(Moody's-adjusted), and (5) the overhang from the EUR161 million of
PIK notes sitting outside of the restricted group, which could be
refinanced within the restricted group once sufficient financial
flexibility develops.
Questel benefits from high earnings visibility because of its
substantial recurring and reoccurring revenue streams. As of 2024,
97% of Questel's revenue was either recurring or reoccurring.
Recurring revenue, accounting for 39% of total revenue, which
includes software as a service (SaaS), annuities, and renewals, is
predictable and underpinned by long-term client contracts.
Reoccurring revenue, which accounts for 58% of total revenue, comes
from consistent volumes of IP translations, filings, and services
that clients request every year, which are not fully predictable
but have good visibility because of Questel's high customer
retention rates.
New technologies present significant opportunities for Questel, as
they allow the company to enhance its offerings and improve
operational efficiency. The company has already started using
artificial intelligence (AI) to develop new products, although
Moody's expect competing firms will do the same. While Questel may
benefit as AI usage grows, the final impact is difficult to
determine and could bring changes in the competitive environment.
Questel's operating performance from 2021 to 2023 was flattish
because growth in core activities was offset by weak performance at
Morningside, a business acquired in 2021 and which accounts for
around 13% of revenues in 2024. Morningside's revenues have
declined significantly from 2021 to 2023 because of the depressed
European Patent Validation (EPV) market and some operational
issues, but have already stabilised in 2024.
Moody's expect Questel's revenues to close 2024 at 6% organic
growth and to continue to grow at mid-single-digit percentages over
the next 12-18 months. Revenue growth will be mainly driven by
overall IP market growth, some market share gains (mainly to law
firms), additional cross-selling and upselling opportunities
because of its integrated platform, and higher penetration in the
trademarks market.
Moody's expect the company's Moody's-adjusted EBITDA margin to
improve to around 27%-28% in 2024 and 2025 (compared with 23% in
2023), driven by revenue growth and a reduction in restructuring
and integration costs. Profitability improvement will be supported
by higher operational leverage, with further cross-selling and
upselling opportunities, and cost efficiency measures.
Questel's gross debt/EBITDA (Moody's-adjusted) will be initially
high at 6.1x in 2024. However, Moody's expect a reduction to 5.6x
in 2025 and to 5.3x in 2026 supported by EBITDA growth. Moody's
base case scenario does not factor in any distribution to
shareholders, debt-financed acquisitions or other significant
changes in its capital structure, which could delay its leverage
reduction path.
Moody's forecast that the company's FCF (Moody's-adjusted) will
increase to around EUR30 million in 2025 and 2026 (compared to
around EUR25 million pro forma in 2024), with FCF/debt around
5%-6%. FCF generation will be supported by the company's moderate
capital spending requirements, accounting for 7% of total revenues
(including lease payments).
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Governance risks as per Moody's ESG framework are key rating
drivers of this first-time rating assignment. Governance risks
reflect the company's high tolerance for leverage and appetite for
acquisitions. However, Moody's acknowledge its diversified
ownership given that Questel is owned by Eurazeo (32%), IK Partners
(32%), the Besson family (10%), and management, employees and
others (26%).
LIQUIDITY
Questel's liquidity is good. At transaction closing, the company
will have (1) a cash balance of EUR82 million, (2) a new EUR100
million undrawn RCF due 2031, and (3) long-dated maturities with
the TLB maturing in 2032 and the RCF maturing 6 months before the
TLB. Additionally, Moody's expect that the company will generate
positive FCF of around EUR30 million annually in the next two
years.
The RCF is subject to a net leverage springing covenant set at
9.0x, with ample capacity at closing, tested only in case the RCF
is drawn by more than 40%.
STRUCTURAL CONSIDERATIONS
The B2-PD probability of default rating is in line with the B2 CFR,
reflecting the 50% family recovery rate that Moody's use for all
first-lien bank debt covenant-lite capital structures. The new
EUR485 million TLB and the EUR100 million RCF are rated B2, in line
with the company's CFR.
Moody's note the presence of EUR161 million of PIK notes at the
parent company Questel Midco 1 SAS, outside of the restricted group
defined by the lenders of Questel. While the PIK instrument is
sitting outside of the restricted group, it represents an overhang
for Questel because it could be refinanced within the restricted
group once sufficient financial flexibility develops.
COVENANTS
Moody's have reviewed the marketing draft terms for the new credit
facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of consolidated EBITDA
(determined in accordance with the agreement) and include all
companies incorporated in guarantor jurisdictions. Security will be
granted over key shares and receivables, and a US obligor will
grant security over substantially all assets (subject to customary
"excluded assets").
Incremental facilities are permitted up to a senior secured net
leverage ratio of 4.25x, plus 100% of EBITDA.
Unlimited junior secured subject to a secured net leverage ratio
(SNL) of 6.15x, junior secured debt subject to a 2.00x fixed charge
coverage ratio and unlimited unsecured debt is permitted subject to
a 6.15x total net leverage ratio or a 2.00x fixed charge coverage
ratio. Restricted payments are permitted if SNL is 3.75x or lower,
alternative ratios will be set for repayment of subordinated debt
and permitted investments.
Adjustments to consolidated EBITDA include the full run rate of
cost savings and synergies, capped at 25% of consolidated EBITDA
and believed to be realisable within 24 months of the relevant
event.
The proposed terms, and the final terms may be materially
different.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Questel will
maintain its solid market position, which will result in sustained
revenue and EBITDA growth, while maintaining Moody's-adjusted gross
debt/EBITDA leverage below 6.0x on a sustained basis.
The outlook also takes into consideration Moody's assumption that
management will not embark on any large debt-funded acquisitions or
shareholder distributions and that liquidity will be adequate at
all times.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the rating if Questel (1) reports steady
revenue growth while improving its margins and market position, (2)
improves its credit metrics on a sustained basis, such that its
Moody's-adjusted gross debt/EBITDA remains below 4.5x, and
generates solid FCF, such that its FCF/debt (Moody's-adjusted)
improves to high-single-digit percentages, and (3) maintains good
liquidity.
However, the PIK instrument outside of the restricted group
represents an overhang for Questel and could be a constraint to a
rating upgrade.
Moody's could downgrade the rating if (1) Questel's operating
performance weakens, (2) it undertakes large debt-funded
acquisitions or makes distributions to shareholders, such that its
Moody's-adjusted gross debt/EBITDA increases above 6.0x on a
sustained basis, (3) its FCF turns negative, (4) or its liquidity
weakens.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Questel is a leading global IP management company based in Paris,
France, which delivers complete software and tech-enabled services
for each stage of the IP life cycle. Questel operates across four
business units, including patents, trademark, non-IP translation
and innovation. In 2023, the company generated EUR295 million of
pro forma revenue and EUR82 of pro forma company-adjusted EBITDA.
=============
G E R M A N Y
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AVIV GROUP: Fitch Assigns 'B+(EXP)' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has assigned AVIV Group GmbH a first-time expected
Long-Term Issuer Default Rating (IDR) of 'B+(EXP)' with a Stable
Outlook. Fitch has also assigned an expected senior secured debt
rating of 'BB-(EXP)' with a Recovery Rating of 'RR3' to the
issuer's proposed EUR1,050 million term loan B (TLB).
AVIV will be operated and financed as an independent digital real
estate classifieds company under the majority ownership of KKR &
Co. (KKR) and CPP Investments following its separation from Axel
Springer SE (AS). The debt proceeds will be mostly used to repay
the existing debt of AS.
The assignment of final ratings is contingent on the completion of
the transaction, the issue of the senior secured debt, and the
receipt of the final debt documentation conforming to information
already received.
The IDR reflects AVIV's robust business profile, with leading
market positions in France Belgium, and Israel and a main
challenger position in Germany. Fitch projects increasing EBITDA
margins following significant costs savings and a recovery of the
real estate market. The rating reflects high pro forma opening
leverage but Fitch believes the margin improvement following the
technology platform transformation, alongside strong, sustainable,
cashflow generation will support solid deleveraging capacity to
levels commensurate with the 'B+(EXP)' rating in 2026.
Key Rating Drivers
Leading Market Positions: AVIV is the market leader in France and
Belgium by professional listings, and holds a number-two position
in Germany, which Fitch considers a strong competitive advantage in
the classifieds industry. Being a market leader creates a positive
loop with greater traffic, as consumers use platforms offering a
better selection, which leads to increasing listings as a result.
It makes the group more resilient during economic downturns and
provides significant pricing power. AVIV also owns Yad2, the number
one horizontal classifieds platform in Israel, providing additional
diversification.
Positive Growth Outlook: Fitch projects revenue to remain steady in
FY24, but Fitch expects a rebound from FY25, likely in mid-single
digits in annual percentage terms. Growth will be supported by the
positive outlook for the real estate market after a few years of
decline following a sharp rise in interest rates. Central banks
have already started to reduce interest rates, which will support a
recovery of the real estate market, especially in Europe.
Revenue growth will also be supported by new revenue sources,
allowing AVIV to diversify from its traditional core revenues from
agents and new build contracts. These new sources include entrance
to the private market, media ads and commissions from financing or
moving services leads.
EBITDA Margin Improvement: Fitch expects the Fitch-defined EBITDA
margin to increase to 37.3% in FY27 from 28.8% in FY24, supported
by transformational programmes initiated by AVIV. Management is
targeting run-rate cost savings of EUR47 million by end-2024,
contributing to an about 8 percentage points margin increase versus
its adjusted EBITDA margin (Axel Springer company definition) of
32% in FY24. EBITDA will be further supported by the
mid-single-digit revenue growth anticipated in Fitch's rating case
from FY25 to FY27.
High Leverage, Deleveraging Capacity: Fitch expected AVIV's
Fitch-defined EBITDA gross leverage to reach a high of 6.5x at
end-2024, a level that is not fully consistent with the assigned
rating. However, the company has a strong ability to rapidly
deleverage, thanks to EBITDA improvement and sustainable cash flow
generation, supported by its asset-light business model. Fitch
expects AVIV to bring leverage down to 5.6x in FY25 and 4.7x in
FY26, a level more commensurate with a 'B+' rating.
Cash-Generative Business: Fitch expects AVIV to continue generating
positive cash flow through the forecast horizon, except in FY25
when the company will have to pay one-off restructuring costs.
Fitch expects the FCF margin to improve from 5.7% in FY24 to 9.7%
in FY27, supported by declining transformation-related capex and no
dividend distribution. The cashflow generation will further support
comfortable liquidity with a cash balance of EUR100 million and an
undrawn revolving credit facility of EUR200 million at end-2024;
Fitch expects EUR50 million to be used to pre-fund restructuring
costs.
Leading Positions Mitigate Cyclical End-Market: The company is
exposed to the cyclicality of the real estate market, with its
revenue and activity levels fluctuating in tandem with its
end-market ups and downs. These cycles are influenced by factors
such as interest rates or employment levels, and consumer
confidence, which affect property values or transaction volumes.
AVIV's exposure to its cyclical end-market is mitigated by its
leading market positions, which make it less vulnerable to
professional agents ceasing to use its services, which are critical
for them.
No Committed Financial Policy: Management's primary focuses are on
organic growth and deleveraging, supported by no contemplated M&A
activity and no dividend distribution. Nevertheless, the company
does not have a committed target leverage and might remain
opportunistic for bolt-on acquisitions. Fitch also cannot exclude
that available cash might be directed towards dividends to
shareholders after leverage reaches a certain threshold.
Derivation Summary
AVIV's key competitors include Immoscout24, the real estate
classifieds leader in Germany, and Leboncoin, the main horizontal
classifieds platform in France. While the first one is the clear
market leader with significant pricing power compared to AVIV, the
second one outperforms AVIV in total real estate listings,
including private listings, but not in the professional-only
segment, which is AVIV's core addressable market.
AVIV's closest Fitch-rated peer in EMEA is Speedster Bidco GmbH
(AutoScout24; B/Stable). AutoScout24 is one of the leading European
digital automotive classifieds platforms and offers listing
platforms for used and new cars, motorcycles and commercial
vehicles to dealers and private sellers. AutoScout24 generates
higher EBITDA margins and, following the Trader acquisition, has
much bigger scale than AVIV. However, it has higher leverage and
weaker cash flow generation potential because of significant
interest costs.
The Stepstone Group Holding GmbH (B+(EXP)/Stable), a leading job
board and recruitment platform, generates similar EBITDA margins
and has a similar current gross leverage. However, it operates in a
more cyclical end-market and has lower deleveraging capacity than
AVIV. This is mitigated by its bigger scale and better geographic
diversification.
Key Assumptions
- Steady revenue growth in FY24 followed by mid-single-digit growth
from FY25
- Fitch-defined EBITDA margin increasing from 29% to 37% between
FY24 and FY27
- Working-capital outflows of EUR5 million to EUR15 million a year
- Capex intensity at 13% in FY24, continuously decreasing
throughout the forecast horizon to about 5% in FY27
- No dividend payments for FY24-FY27
- No M&A for FY24-FY27
Recovery Analysis
Its recovery analysis assumes that AVIV would be considered a
going-concern in bankruptcy, and that it would be reorganized
rather than liquidated. This is underscored by the company's
immaterial tangible asset base, online platform and existing user
base of real estate agents, private sellers, buyers and renters.
Fitch assesses post-transformational and restructuring
going-concern EBITDA at EUR140 million in a scenario where the real
estate market would face a significant downturn in the regions
where the group operates, leading to a loss of customers and lower
margins. At this level of EBITDA, Fitch expects FCF to be negative,
and this may lead to an unsustainable capital structure.
Fitch has used an EV/EBITDA multiple of 6.0x and assumed 10%
administrative claims in its analysis. The capital structure
includes a EUR1,050 million term loan B and an equally ranking
revolving credit facility of EUR200 million, assumed fully drawn in
a default. These assumptions generate a ranked recovery in the
'RR3' band, leading to a senior secured debt instrument rating of
'BB-(EXP)', one notch above the IDR. This results in a
waterfall-generated recovery rate of 60%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Pressure on EBITDA margins due to lower cost savings or pricing
pressure in a competitive environment that keep Fitch-defined
EBITDA leverage above 5.5x
- Volatile FCF generation
- EBITDA interest cover below 3.0x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Fitch-defined EBITDA leverage below 4.5x through the cycle on a
sustained basis
- FCF margin consistently above 10%
- Greater commitment to a financial policy aligned with creditors'
interests
Liquidity and Debt Structure
Fitch estimates AVIV's cash balance at around EUR100 million at
year-end 2024, of which Fitch anticipates EUR50 million are
earmarked to pre-fund restructuring costs in 2025, hence Fitch
considers this to be restricted for the purposes of liquidity. The
liquidity is further supported by a strong expected cashflow
generation throughout its rating horizon and by an undrawn RCF of
EUR200 million at closing of the transaction.
Issuer Profile
AVIV Group is a leading digital real estate classifieds company
operating across Europe and Israel. Through its prominent real
estate marketplaces, including SeLoger in France, Immowelt in
Germany, and Immoweb in Belgium, the group connects buyers,
sellers, and renters by offering comprehensive listings, market
insights, and digital tools to enhance the real estate experience.
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
----------- ------ --------
AVIV Group GmbH LT IDR B+(EXP) Expected Rating
senior secured LT BB-(EXP) Expected Rating RR3
AVIV GROUP: Moody's Assigns First Time 'B3' Corporate Family Rating
-------------------------------------------------------------------
Moody's Ratings has assigned a first-time B3 long-term Corporate
Family Rating and a B3-PD Probability of Default Rating to AVIV
Group MidCo GmbH (Aviv), a pan European real estate classifieds
company.
Concurrently, Moody's have assigned B3 ratings to the proposed
EUR1,050 million senior secured term loan B (TLB) due in 2032 and
to the proposed EUR200 million senior secured revolving credit
facility (RCF) maturing 6 months before the TLB and borrowed by
AVIV Group GmbH. The outlook on both entities is stable.
Proceeds from the TLB will be used to set up a new capital
structure for AVIV, following the corporate reorganization of Axel
Springer SE (Axel Springer), which is currently 48.5% owned by
Traviata II S.a r.l (Traviata, B3 stable). Following this
reorganisation, Traviata, owned by affiliates of KKR & Co Inc.
(KKR) and CPP Investments, will no longer hold an equity stake in
Axel Springer and will own around 90% of AVIV. The transaction is
expected to close in the second quarter of 2025, pending signing
and regulatory approvals.
"The B3 rating reflects the company's strong position as one of the
leading online real estate platforms in Europe supported by
favourable industry growth drivers, revenue visibility and the
expected improvement in its competitive profile following the
implementation of a unified technology platform," says Agustin
Alberti, a Moody's Ratings Vice President-Senior Analyst and lead
analyst for AVIV.
"The rating also factors in the company's very high initial
leverage of 8x. Moody's expect that the real estate market recovery
as well as the reduction in transformation costs overtime will lead
to revenue growth, margin improvement and deleveraging, although
this is subject to execution risks in the transformation project,"
adds Mr. Alberti.
RATINGS RATIONALE
AVIV's B3 rating is supported by (1) the company's strong position
as one of the leading online real estate platforms in France,
Belgium and Germany, as well as its leading position in Israel as a
horizontal classifieds provider; (2) its good brand awareness and
the network benefits that lead to a compelling value proposition
for real estate agents; (3) its diversified revenue mix across
geographies with high share of subscription-based revenues
accounting for around 65% of total; (4) the migration to a unified
technology platform enabling faster go-to-market for new products;
and (5) the expected improvement in margins and free cash flow
(FCF) once the transformation plan is completed.
Conversely, the ratings are constrained by (1) AVIV's moderate
scale; (2) the very competitive environment and the threat of new
disruptive technologies and business models; (3) macroeconomic
risks stemming from its exposure to the cyclical real estate
market, as well as geopolitical risks affecting its business in
Israel; (4) its low margins compared to historical levels and
negative FCF at least over the next 12-18 months because of
sizeable costs associated with the transformation plan; (5) its
high initial leverage of 8x, which Moody's expect to improve
because of a significant reduction in transformation costs in 2026;
and (6) execution risks related to the transformation plan which
could delay Moody's deleveraging expectations.
AVIV's core European markets in 2023 and 2024 were affected by
higher interest rates than over the previous decade, resulting in a
slowdown of demand for properties for sale and, consequently, a
decreasing number of transactions in the real estate market. The
company's pro forma organic revenue growth in Europe slowed down to
broadly flat in 2023 from around 4% in 2022. In 2024, Moody's
expect the group's organic sales to remain broadly flat because of
persistently high interest rates and the weakness of the French
business (high single digit rate revenue decline) driven by high
churn, especially in the lower ARPA agents segment, offset my low
single digit growth in Germany, mid single digit growth in Belgium
and double digit growth in Israel.
Moody's project revenues to grow in the mid-single-digits in
percentage terms over 2025 and 2026, supported by improving
macroeconomic trends in the EMEA region and the reduction in
inflation and interest rates, which should support a recovery of
the real estate market. Additionally, AVIV should benefit from its
cross-selling strategy and from the introduction of further real
estate-related services, segment-based pricing strategies, and
expansion into some underpenetrated segments such as private
listings or mortgages.
Sizeable costs related to the transformation plan are impacting
margins and FCF in 2024 and 2025. AVIV is investing in a unified
integrated platform to be rolled out across all European real
estate platforms that will gradually replace the existing legacy
platforms. The white label investment plan offers significant
benefits, including cost efficiencies through reduced labour and
platform expenses. The impact of the plan on margins is
considerable since Moody's-adjusted EBITDA margin will remain low
at around 25% in 2024 and 2025. Concurrently, capital spending over
sales will stand at 10% in 2025 (c.14% in 2024). As a result,
Moody's expect the company to generate annual negative FCF of EUR30
million- EUR50 million over the same period.
Moody's expect AVIV's Moody's-adjusted EBITDA margin to improve
significantly to around 34% in 2026, driven by revenue recovery and
the significant reduction in transformation plan costs, together
with efficiency measures. This forecast projects that costs
associated with the unified platform development will significantly
reduce because the bulk of the programme should be accomplished
over the next 12-18 months. However, Moody's note that the
implementation of the plan is subject to execution risks such as
delays, operational disruptions and higher costs than expected,
which could delay the expected improvement.
Moody's project that AVIV's gross debt/EBITDA (as adjusted by
Moody's) will improve in 2025 to 7.5x (from 8.0x in 2024) supported
by revenue and EBITDA growth and that it will further reduce
towards 5.5x in 2026 mainly driven by the reduction in costs
related to the transformation plan and the associated EBITDA
growth. Moody's base case scenario does not factor in any
distribution to shareholders or any debt-financed acquisitions,
which could delay this leverage reduction. Moody's project that FCF
will turn slightly positive around EUR35 million by 2026, with
FCF/debt of around 3%.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Governance risks as per Moody's ESG framework were considered key
rating drivers of this first-time rating assignment. Governance
risks reflect its concentrated ownership given that Traviata will
own approximately 90% of the company (subject to final valuation
and signing), as well as the company's high tolerance for leverage.
However, Axel Springer has been granted some minority rights
through the shareholder agreement with Traviata, which is a
mitigant compared to full ownership by a private equity sponsor.
LIQUIDITY
AVIV's liquidity is good. At transaction closing, the company will
have a cash balance of EUR100 million, and an undrawn EUR200
million RCF due 2031, which will cover negative FCF of EUR25
million- EUR50 million annually over the next 12-18 months, and
long dated maturities with the TLB and the RCF maturing in 2032 and
2031, respectively.
The RCF is subject to a net leverage springing covenant set at
9.75x, with ample capacity (4.2x at closing), tested only in case
the RCF is drawn by more than 45%.
STRUCTURAL CONSIDERATIONS
The B3-PD probability of default rating is in line with the B3 CFR,
reflecting the 50% family recovery rate that Moody's use for all
first-lien bank debt covenant-lite capital structures. The new
EUR1,050 million TLB and the EUR200 million RCF are rated B3, in
line with the company's CFR.
Moody's note the presence of EUR550 million worth of
payment-in-kind (PIK) notes (unrated) at the shareholder company,
Traviata B.V., outside of the restricted group defined by the
lenders of AVIV. While the PIK instrument is sitting outside of the
restricted group, it represents an overhang for AVIV, as it could
be refinanced within the restricted group once sufficient financial
flexibility develops. However, Moody's note that Traviata will also
own a 90% equity stake in The Stepstone Group Midco 1 GmbH
(Stepstone, B1 stable), a leading digital recruiting platform.
COVENANTS
Notable terms of the TLB documentation include the below. The
following are proposed terms, and the final terms may be materially
different.
Guarantor coverage will be at least 80% of consolidated EBITDA
(determined in accordance with the agreement) and include
wholly-owned subsidiaries representing 5% or more of consolidated
EBITDA incorporated in Germany. Security will be granted over key
shares, material bank accounts and material intercompany loans.
Additional pari passu facilities are permitted up to the greater of
EUR112.5 million and 50% of EBITDA; plus additional amounts up to a
cons. senior secured net leverage ratio (SSNLR) of 4.5x.
Any restricted payment is permitted up to a SSNLR of 34.5x and any
permitted investment is allowed if either: (i) the SSNLR is 4.0x or
lower; (ii) the SSNLR is not made worse; (iii) the fixed charge
coverage ratio (FCCR) is greater than 2.0x; or (iv) the FCCR is not
made worse. Asset sale proceeds are only required to be applied in
full where the SSNLR is 34.75x or greater.
Adjustments to consolidated EBITDA include cost savings and
synergies capped at 25% of EBITDA and believed to be obtainable
within 24 months.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on AVIV's rating is based on Moody's assumption
that the company will maintain its market position and that there
will be no major disruption in the competitive environment.
Moreover, the stable outlook reflects Moody's expectation that the
company will continuously improve its leverage from the high
initial level. Finally, the stable outlook does not factor in any
distribution to shareholders or debt-financed acquisitions, which
could delay Moody's expectation for leverage reduction.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop if AVIV reports steady
revenue growth while improving its margins and market shares;
improves its credit metrics on a sustained basis, such that its
Moody's-adjusted debt/EBITDA remains below 6.0x, and generates
positive FCF, such that its FCF/debt (Moody's-adjusted) improves to
around 5%; and maintains good liquidity.
Moody's note that the PIK instrument outside of the restricted
group represents an overhang for Aviv and could be a constraint to
a rating upgrade in the future.
Moody's could downgrade AVIV's rating if the company falls short of
its business plan objectives, such that its Moody's-adjusted
debt/EBITDA remains above 8.0x over the next 12-18 months; its
competitive profile weakens, for example, as a result of a
significant erosion in its market share; its FCF/debt remains
negative; or its liquidity weakens.
Moody's could also downgrade the rating if AVIV undertakes
debt-funded acquisitions or makes distributions to shareholders,
delaying Moody's expectation for leverage reduction.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Headquartered in Berlin, Germany, AVIV Group MidCo GmbH (AVIV) is a
pan European real estate online classifieds company with operations
in France, Germany and Belgium. It also operates the leading
horizontal online classifieds company in Israel. After the split
from Axel Springer SE (Axel Springer), the company will be majority
owned and controlled by KKR & Co Inc. and CPP Investments. In 2023,
the company generated revenue of EUR571 million and
company-adjusted EBITDA of EUR158 million.
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I R E L A N D
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THERMAL POWER: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Uzbekistan-based electricity generation
company Thermal Power Plants Joint Stock Company's (TPP) Long-Term
Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.
TPP's rating is equalised with its parent Uzbekistan's
(BB-/Stable), reflecting that almost all of TPP's debt is secured
by government guarantees or provided by the state.
TPP's 'ccc' Standalone Credit Profile (SCP) continues to reflect
its weaker business profile, following the government-driven
disposal of several large power plants, and weak cash flow
generation of the remaining assets leading to high leverage and
poor standalone liquidity. Positively, the SCP reflects TPP's still
large market share compared with other market participants' and its
expectations of tariff growth and efficiency improvements.
Key Rating Drivers
Rating Equalised with Uzbekistan: Around 95% of TPP's debt at
end-1H24 (versus 94% at end-2023) was secured by state guarantees
or provided by the state via the Ministry of Finance, which
on-lends funds from international financial institutions to the
company, or by Uzbekistan's Fund for Reconstruction and
Development. The remaining debt mostly comes from a large
state-controlled bank. State-guaranteed debt falling below 75% of
total debt would lead Fitch to notch down TPP's IDR from the
sovereign ratings under its Government-Related Entities (GRE)
Criteria.
Updated GRE Assessment: Under its GRE Criteria, Fitch assesses both
decision-making and oversight, and precedents of support as 'Very
Strong'. The Uzbek government owns 100% of TPP shares, approves the
company's strategy and capex, and sets its tariffs. TPP is also
listed among the strategically important and systemic enterprises
in Uzbekistan. The government directly provides or guarantees over
90% of the company's debt and provides liquidity support through
the extension of loan repayments or budget loans. Other forms of
support include equity injections and dividend exemptions.
Fitch assesses preservation of government policy role as 'Strong'
as a TPP default may temporarily endanger the continued provision
of services, including electricity and heat production, due to its
social function, still large market share of around 20%-25%, and a
large workforce. Contagion risk is 'Not Strong Enough' as, despite
a large amount of outstanding debt (USD1.2 billion at end-1H24),
most of it is incurred with or on-lent by the state. TPP is not
present in the Eurobond market.
Regulatory Decisions Drive Financials: Tariffs for electricity from
most TPP power plants rose 11% from June 2024, while tariffs for
gas, TPP's key cost, remained flat in 2024. This should support
EBITDA in 2024, after a very weak 2023 result. All of TPP's revenue
and around 80% of costs are regulated, underlining the influence of
regulatory decisions on tariffs on its financials. Regulated costs
include the purchase of gas and fuel oil from other state-owned
enterprises, and almost all regulated revenue comes from the sale
of electricity to a single state-owned buyer, Uzenergosotish JSC.
Reduced Scale and Market Share: The disposal of three power plants
in 2023 and Talimarjan thermal power plant (1.7GW) being classified
as discontinued operations has reduced TPP's installed capacity to
4.5GW, with a market share in generation at 20%-25% in 2024, from
around 70% in 2022. Consolidation of the Angren plant and Tashkent
heating plant in 2023 was insufficient to offset the loss of
disposed power plants, due to their small size and weak
profitability. Timing for the consolidation of a large Novo-Angren
plant (2.1GW) remains unclear, and Fitch therefore does not include
it in its rating case.
Competitive Position Issues: Syrdarya thermal power plant, the
largest remaining plant of TPP, saw electricity generation fall 20%
year on year in 1H24, following the commissioning of new and more
efficient capacity in the Syrdarya region. Management expects the
Syrdarya plant's profitability to weaken from 2024, although the
plant will remain competitive, due to its role in the regional
energy balance. In its view, commissioning a new efficient 900MW
unit at Talimarjan plant in 2025-2026 will support TPP's
competitive position and market share.
'ccc' SCP: The SCP reflects its expectations that funds from
operations (FFO) leverage will be above its positive sensitivity of
7.5x over 2024-2026; its smaller scale and asset base; weaker asset
quality; and uncertainty over the company's strategy in the medium
term after asset deconsolidation. The business profile is
constrained by an opaque regulatory framework and short-term
tariffs leading to weak revenue visibility. TPP's financial profile
is under pressure from high projected leverage, large
foreign-exchange (FX) mismatch between revenue and debt, and a
reliance on state funding.
Evolving Counterparty Risk: In July 2024, all energy purchase and
selling obligations were transferred to a single buyer
Uzenergosotish JSC. TPP expects that it will improve financial
discipline in the sector and reduce non-payments. TPP also expects
that the government will support it with past receivables
collection from National Electric Grid. Both of these changes will
take time to implement. Fitch expects that cash collections for TPP
will remain dependent on other parties of the electricity value
chain that are outside of TPP's control.
Planned Liberalisation: The Uzbek government plants to liberalise
the electricity market in 2026 to improve efficiency and modernise
its aging infrastructure. In 2024, the government introduced social
norms of electricity and gas consumption for households, with
higher tariffs for above-the-limit consumption. Further progress
will depend on how the government balances the need for reforms
with social aspects to tariff increases. Liberalisation leading to
higher prices and margins has a potentially positive impact on
TPP's cash flows.
Derivation Summary
The ratings of Uzbekistan-based electricity distribution and sales
company Regional Electrical Power Networks JSC (BB-/Stable; SCP:
ccc) and Uzbekhydroenergo JSC (BB-/Stable; SCP: b+) are also
equalised with the sovereign's. Similarly to TPP, nearly all of
their debt is provided by the state or secured by government
guarantees. Among other GREs in Uzbekistan, the ratings of JSC
Almalyk Mining and Metallurgical Complex (BB-/Stable; SCP: b+) and
JSC Uzbekneftegaz (BB-/Stable; SCP: b) are also equalised with
Uzbekistan's, due to strong links with the government.
Among international peers', Kazakhstan Electricity Grid Operating
Company's (KEGOC, BBB/Stable; SCP: bbb-) IDR is notched up once
from its SCP for strong links with its sole owner, the Republic of
Kazakhstan (BBB/Stable). TPP's links with the state are similar to
those of JSC Samruk-Energy (BB+/Stable; SCP: b+). Samruk-Energy's
rating reflects a 'top-down minus two' notch approach from
Kazakhstan. Samruk-Energy's links with the state strengthened after
Kazakhstan committed to providing guarantees for Samruk-Energy's
debt to fund gasification projects, leading to an average 53% share
of total guaranteed debt over 2024-2028.
On a standalone basis, TPP has a weaker business profile than
Samruk-Energy and Limited Liability Partnership Kazakhstan Utility
Systems (KUS, BB-/Stable) as Kazakh peers benefit from better cash
collections, a stronger operating environment, and higher revenue
visibility. TPP shares the same operating and regulatory framework
as Uzbekhydroenergo. Following the asset divestments, TPP continues
to benefit from larger-scale operations, but this is balanced by
weaker profitability.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Rating scope includes Angren thermal power plant and excludes
Talimarjan thermal power plant and three other deconsolidated
plants
- Electricity tariff growth of around 60% in 2024 and close to
inflation for 2025-2027
- US dollar/Uzbekistan soum at between 12,900 and 14,100 over
2024-2027
- Capex on average at around UZS2.2 trillion (USD174 million) per
year over 2024-2027
- No dividends
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A sovereign downgrade
- State guaranteed debt falling below 75% of total debt, assuming
unchanged SCP and government links
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A sovereign upgrade
- Stronger cash collections, better visibility on strategy, a more
transparent and predictable operating and regulatory framework
(including implementation of multi-year tariffs), together with a
stronger financial profile (funds from operations gross leverage
below 7.5x on a sustained basis) could be positive for the SCP.
Liquidity and Debt Structure
At end-2023, TPP had UZS0.2 trillion (USD16 million) of cash and
equivalents. Debt amortisations were around UZS3 trillion (USD230
million) in 2024 and UZS0.9 trillion-UZS1.4 trillion annually in
2025-2028. During 2024, the government extended by one year TPP's
repayments to Ministry of Finance and Uzbekistan's National Bank
for Foreign Economic Activity and Fund for Reconstruction and
Development, which accounted for almost all of TPP's short-term
debt. Fitch expects that in 2025 the government will continue to
support TPP's liquidity.
At end-2024, the undrawn amount of credit lines from Asian
Development Bank, EBRD, Japan International Cooperation Agency
(JICA) and Uzbekistan's Fund for Reconstruction and Development,
was UZS4.8 trillion (USD375 million). Fitch expects TPP to use
those lines for capex.
At end-1H24, around 78% of TPP's debt was provided by the state
through direct loans from the Ministry of Finance, on-lending funds
from JICA and EBRD to the company, or through Uzbekistan's Fund for
Reconstruction and Development. Another 17% was from state-owned
banks under state guarantees. Around 85% of debt was in foreign
currencies, like the US dollar, euro and Japanese yen, versus all
revenue in Uzbek soum, with no foreign-exchange hedging.
Issuer Profile
TPP is a 100% state-owned company, whose principal activity is
generation of electricity and heat in Uzbekistan, predominantly at
its gas-fired power units.
Public Ratings with Credit Linkage to other ratings
TPP's IDR is linked to the rating of Uzbekistan.
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
TPP has an ESG Relevance Score of '4' for Financial Transparency,
due to delays in the publication of IFRS accounts compared with
international best practice and the absence of interim IFRS
reporting. The lack of transparency limits its ability to assess
the company's financial profile, 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 Prior
----------- ------ -----
Thermal Power Plants
Joint Stock Company LT IDR BB- Affirmed BB-
===================
K A Z A K H S T A N
===================
FORTEBANK JSC: Fitch Assigns BB(EXP) Rating on Unsec. Eurobonds
---------------------------------------------------------------
Fitch Ratings has assigned ForteBank JSC's (Forte) upcoming issue
of US dollar-denominated senior unsecured Eurobonds an expected
rating of 'BB(EXP)'.
The issue size and tenor are yet to be determined.
The assignment of the final rating is contingent on the completion
of the issue and receipt of documents conforming to the information
previously received.
Key Rating Drivers
The expected rating is in line with Forte's Long-Term Issuer
Default Ratings (IDRs) of 'BB', which are on Stable Outlook, as the
Eurobonds will represent unconditional, senior unsecured
obligations of the bank, which rank pari passu with all other
unsecured unsubordinated obligations of Forte.
Forte's IDRs are driven by the bank's intrinsic credit strength.
This factors in solid capital and liquidity buffers and robust
operating profitability, providing a strong buffer against
potential credit losses. Nonetheless, the ratings are constrained
by the bank's fairly narrow franchise in a highly concentrated
Kazakh banking sector, and above-average credit costs in the
unsecured retail segment, which put pressure to the bank's asset
quality and weigh down its assessment of the risk profile.
For more details on Forte's ratings and credit profile, see 'Fitch
Affirms ForteBank at 'BB'; Outlook Stable', dated 21 August 2024.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Forte's senior unsecured debt rating may be downgraded if the
bank's IDRs are downgraded. Forte's IDRs could be downgraded on a
material weakening of asset quality or capitalisation. In
particular, the ratings could be downgraded if higher loan
impairment charges consume most of the profit for several
consecutive quarterly reporting periods.
In addition, downward rating pressure may result from a combination
of weaker profitability, faster loan growth and large dividend
distributions reducing the Fitch core capital ratio to below 15% on
a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Forte's senior unsecured debt rating may be upgraded if the bank's
IDRs are upgraded. A stronger risk profile and continued
asset-quality improvement, underlined by a substantially lower cost
of risk, could justify an upgrade. This should be accompanied by an
extended record of business-model stability.
Date of Relevant Committee
Aug 20, 2024
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
----------- ------
ForteBank JSC
senior unsecured LT BB(EXP) Expected Rating
FORTEBANK JSC: Moody's Assigns Ba3 Rating to Sr. Unsecured Notes
----------------------------------------------------------------
Moody's Ratings has assigned a Ba3 senior unsecured
foreign-currency debt rating to the US dollar-denominated notes to
be issued by ForteBank JSC (ForteBank). The outlook on the rating
is positive.
The maturity, the size and the pricing of the notes are subject to
prevailing market conditions during placement.
RATINGS RATIONALE
The Ba3 rating is based on the fundamental credit quality of
ForteBank. It is in line with the bank's Baseline Credit Assessment
(BCA) of ba3 and one notch below the bank's long-term deposit
ratings of Ba2 (which incorporates moderate probability of
government support). Unlike for depositors Moody's incorporate a
low probability of government support for debtholders of banks in
Kazakhstan. Moody's existing approach towards rating the debt of
local banks takes into account historical precedents of resolutions
in Kazakhstan and the instances in other regions where public funds
were primarily used to bail out depositors of failed banks when
needed, while debtholders suffered losses.
ForteBank's ba3 BCA is supported by ample liquidity, strong
profitability and capital ratios. At the same time, it is
constrained by its loan and deposit concentrations, and substantial
stock of problem loans.
The obligations of ForteBank to make payments under the notes will
rank at all times at least pari-passu with the claims of all other
unsubordinated creditors of the borrower, save for those claims
that are preferred by any relevant law. The bond documentation
contains a cross-acceleration clause, a negative pledge clause and
a number of covenants restricting certain transactions and capital
distribution.
The documentation includes a change-of-control clause, which gives
the bondholders a right to redeem the notes at 100% of principal
amount with interest accrued if the following conditions are met:
1) the new shareholder who owns at least 51% of the bank's voting
shares is not an investor which has a long-term foreign currency
obligations rating equal or above that of ForteBank or 2) the
bank's ratings will be withdrawn or downgraded specifying that such
event is a factor to withdraw or downgrade the rating.
ForteBank is headquartered in Astana, Kazakhstan, and is ranked
fifth in terms of total assets, with a share of about 7.0% of the
total Kazakh banking system assets as of July 01, 2024, according
to the National Bank of Kazakhstan.
POSITIVE OUTLOOK
The positive outlook on ForteBank's senior unsecured
foreign-currency debt rating reflects Moody's view of improving
credit fundamentals of the bank because a better operating
environment will support the bank's efforts to grow its franchise,
reduce the volatility in its funding base and improve its asset
quality and solvency.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Positive rating pressure could stem from improved asset quality,
with solvency and profitability maintained at a good level. The
outlook on the bank's senior unsecured foreign-currency debt rating
could revert to stable in case the bank is unable to improve asset
quality or in the event of a deterioration in solvency and
profitability, or both.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Banks published
in November 2024.
===================
L U X E M B O U R G
===================
CONTOURGLOBAL POWER: Fitch Gives 'BB+(EXP)' on New EUR940MM Notes
-----------------------------------------------------------------
Fitch Ratings has published ContourGlobal Power Holdings S.A.'s
(CGPH) proposed EUR940 million senior secured notes (SSNs) rating
of 'BB+(EXP)' with a Recovery Rating of 'RR2'. CGPH's other ratings
including existing SSNs' 'BB+'/'RR2' and ContourGlobal Limited's
(CG) Long-Term Issuer Default Rating (IDR) of 'BB-'/Stable, are
unaffected.
The assignment of the final rating is contingent on the receipt of
final documents conforming to information already reviewed.
Fitch expects holding company (holdco) leverage to remain
commensurate with the current ratings following the SSNs issue,
while headroom should be exhausted by 2026 as the company continues
to invest in renewables. Proceeds will be used to refinance CGPH's
existing EUR410 million SSNs due in 2026 and the first tranche of
the middle company (midco) loan due in 2028. The refinancing
reduces downside risk for CGPH's senior secured rating as it
decreases materially prior-ranking debt. The proposed notes will be
due in 2030.
Key Rating Drivers
Refinancing to Drive Leverage Higher: Fitch forecasts the
refinancing to increase holdco leverage to 4.1x in 2025 from an
estimated 2.2x in 2024. Cash flows available for debt service
(CFADS) will increase by around USD30 million per year from 2026
onwards, due to lower midco debt servicing. Fitch expects leverage
headroom to be fully exhausted by 2026 as the company continues to
focus on growth and decarbonisation of its portfolio.
Post-Refinancing Capital Structure: CG's proposed EUR940 million
senior secured notes will be used to partially repay the midco
debt, streamlining its capital structure. Fitch views this as
credit-positive for the senior secured rating as it decreases the
amount of prior-ranking debt. Following the refinancing, midco debt
will mainly comprise a EUR240 million revolving credit facility
(RCF) maturing in 2028 and a close to EUR350 million second tranche
due in 2030.
Growth Strategy Unchanged: CG has an ambitious expansion plan to
add 4GW-5GW of mostly renewable capacity by 2030, which implies an
almost doubling of its current capacity. Fitch anticipates CG will
continue its rapid growth through a mix of M&A, late-stage
development partnerships, repowering, hybridisation, and
repurposing of existing portfolio assets. In 2024, CG spent USD514
million on acquisitions, exceeding its previous expectation of
about USD460 million. Fitch forecasts no material external growth
in 2025 and investment of close to USD450 million a year from 2026
onwards.
Limited Leverage Headroom: Fitch expects leverage headroom to be
exhausted by 2026, due to continued renewables expansion and lower
contribution from repurposed assets under a normalised price
environment. FFO leverage should increase to 4.4x by 2026 from an
estimated 2.2x in 2024. Fitch expects CG to moderate investments to
maintain a 'BB' category rating, given the large funding
requirements of its investment plan. More aggressive-than-expected
growth and leverage could lead to negative rating action.
Strategy Execution Risk: CG's growing focus on asset development
entails heightened execution risk, in its view, given the ambitious
target of developing a renewable platform on a global scale by the
end of the decade. Execution risk is mitigated by co-development
agreements, CG's diversified geographical footprint, with growth
mostly focused on developed countries, and a growing record of
in-house development.
Acquisitions to Enhance Asset Quality: The acquisition of a 1.5GW
portfolio of primarily solar photovoltaic plants in the US and
Chile in 2024 will increase CG's installed capacity by nearly 30%
on completion, enhancing asset quality and diversification. The
acquired assets are mainly in late-stage development or under
construction, but Fitch sees execution risk for longer-dated
projects. The contribution from newly-acquired assets to holdco's
FFO remains limited under its rating forecasts.
Robust Operating Profile: CG's business model is focused on
long-term inflation-indexed contracted assets, with cost
pass-through clauses where relevant. Its portfolio is diversified
in geography and technology, and focussed on OECD countries. Close
to 90% of 2024 EBITDA was contracted with an average residual
contract life of seven years. The average credit quality of its
offtakers was 'BBB' before political risk insurance.
Deconsolidated Approach: The main credit metric Fitch uses in its
analysis is holdco-only FFO leverage, which Fitch calculates as
recourse debt (excluding project finance debt at subsidiaries and
midco financing) divided by holdco-only FFO before interest paid
(dividends from subsidiaries, less holdco operating expenses and
taxes). A material deviation from the current financing structure,
with a much higher share of holdco debt or inclusion of
cross-default clauses at the asset level could lead to a change in
its analytical methodology.
No Impact from Parent Linkage: Fitch rates CG on a standalone basis
as its Parent and Subsidiary Linkage Rating Criteria do not apply
to CG, due to its full ownership by a financial investor. CG is
wholly owned by KKR Global Infrastructure Investors IV, which is
part of funds advised by global investment firm KKR & Co. Inc.
(KKR; A/Stable). KKR is a long-term investor in CG, with the
company part of its infrastructure investments.
Derivation Summary
Fitch rates CG using a deconsolidated approach as the company's
operating assets are largely financed with non-recourse project
debt. CG's operating scale is comparable with that of TerraForm
Power Operating, LLC (TERPO; BB-/Stable), NextEra Energy Partners,
LP (NEP; BB+/Stable) and Atlantica Sustainable Infrastructure Plc
(BB-/Stable).
TERPO's and NEP's US dollar-dominated portfolios of renewable
assets are superior to that of CG. The latter is only 30%
renewables with the remaining generation mainly thermal, and
carries re-contracting risk and political and regulatory risks in
emerging markets.
Fitch also views Atlantica's portfolio of assets as superior to
that of CG, given its focus on renewables (largely solar, about 70%
of power-generation capacity), longer remaining contracted life (13
years versus CG's seven) and better geographical split (largely
North America and Europe). This is only mitigated by the larger
size of CG's portfolio. CG consequently has a lower debt capacity
than these peers, while TERPO and Atlantica have higher leverage.
Key Assumptions
Fitch's Key Assumptions within Its Rating Case for the Issuer
- Operational distributions from existing assets averaging USD260
million and from new assets averaging USD33 million over 2024-2027
- Distributions from asset sales averaging USD50 million over
2024-2027
- Cash extraction from refinancing at operating company level
averaging USD80 million a year during 2024-2026
- Midco debt service averaging close to USD45 million a year, with
holdco costs increasing towards USD50 million in 2026, from USD30
million in 2024, to support growth ambitions
- Interest rates on new debt averaging 6.5%, with holdco debt
increasing towards USD1.5 billion in 2027, due to business
expansion
- Investments averaging close to USD380 million a year
- No dividends
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Holdco-only FFO leverage above 4.5x on a sustained basis and FFO
interest coverage lower than 3x
- Major power purchase agreements experiencing unexpected and
material price reduction or termination
- Material deterioration of the business profile, due to materially
worse re-contracting terms, major political interference,
significant investment overruns or financial stress at the asset
level, or more speculative investments leading to the share of
contracted revenues falling below 70%
- A material increase in the super senior RCF and equally ranking
letters of credit facilities, or a material increase in
consolidated leverage could be negative for the senior secured
rating
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Holdco-only FFO leverage below 3.5x on a sustained basis and FFO
interest coverage higher than 5x
- Reduced reliance on top five projects/contributors to cash flows
to holdco, leading to greater diversification
Liquidity and Debt Structure
Following the refinancing of the 2026 holdco maturity and repayment
of the first tranche of midco debt, CG has no maturities until
2028. Fitch forecasts cumulative negative FCF of USD200 million
over 2025-2027, due mostly to discretionary expansion investments,
which can be partially covered by the upsized USD120 million RCF at
the holdco level.
Project-finance debt maturities at operating subsidiaries,
comprising the majority of consolidated debt, are evenly balanced,
due to debt amortisation.
Issuer Profile
CG operates 5.6GW of gross generation capacity with about 130
thermal and renewable power generation assets across 20 countries,
through subsidiaries and affiliates.
Date of Relevant Committee
09 January 2025
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
----------- ------ --------
ContourGlobal
Power Holdings S.A.
senior secured LT BB+(EXP) Publish RR2
INEOS GROUP: Fitch Alters Outlook on 'BB' LongTerm IDR to Negative
------------------------------------------------------------------
Fitch Ratings has revised INEOS Group Holdings S.A.'s (IGH) Outlook
to Negative from Stable, while affirming its Long-Term Issuer
Default Rating (IDR) at 'BB'. Fitch also affirmed the senior
secured rating of debt issued by Ineos Finance Plc and Ineos US
Finance LLC at 'BB+'. The Recovery Ratings are 'RR2'.
The Negative Outlook reflects exhausted rating headroom and delays
in deleveraging. Fitch forecasts IGH's high EBITDA net leverage to
only return to about 4.0x, its negative sensitivity, in 2027, one
year later than Fitch previously expected. This is due to cash
outflows from M&A and related-party loans, prolonged weak chemical
markets, and large growth capex until 2025.
IGH's rating continues to reflect its position as one of the
world's largest petrochemical producers, with leading market shares
in Europe and the US and a growing presence in Asia.
Key Rating Drivers
Deleveraging Delayed: Fitch now expects IGH's EBITDA net leverage
to return to its negative sensitivity of 4.0x by end-2027, one year
later than its previous forecast, from 6x in 2023. This is driven
by uncertainty of repayments of EUR0.8 billion related-party loans
and their timing, lower dividends from joint ventures (JVs), and
modestly higher capex for Project One (P1).
Fitch previously assumed related-party loans made by IGH in 2023 of
EUR0.8 billion would be repaid starting from 2025. As Fitch
understands from management, the repayment will be delayed and
Fitch therefore does not incorporate it in its forecast.
Additionally, Fitch has revised its assumptions of dividends from
the SECCO and Tianjin JVs to zero, due to continued weakness in the
APAC market.
High Leverage: Fitch estimates EBITDA net leverage to have remained
high at 5.9x in 2024, due to prolonged weak chemical markets, high
growth capex and M&A. This is despite a Fitch-defined EBITDA
recovery of about 25% in 2024 to EUR1.8 billion and a dividend cut
by management. Fitch forecasts Fitch-defined EBITDA to further
increase to EUR2.1 billion in 2025, boosted by acquisitions and
further recovery of demand as interest cuts feed through to
end-markets. Meanwhile, Fitch forecasts net debt to peak at EUR11.7
billion in 2025, due to spending on P1.
Deleveraging will be faster from 2026-2027 as growth capex
declines, EBITDA further improves towards mid-cycle levels, and P1
contributes to cash flows. However, IGH's leverage headroom has
been exhausted at the current rating.
P1 Supports Costs Position: IGH is building a new 1.45 million
tonne per year ethane cracker in Belgium, which will supplement its
ethylene requirements in Europe, contributing up to EUR600 million
of EBITDA. P1 will receive ethane feedstock from the US, resulting
in a cost advantage over most EU naphtha crackers. This will
increase IGH's exposure to US ethane feedstock, in addition to its
US assets. P1's expected low emissions will position IGH well for
possible future regulation in Europe. Its permit issue, now
resolved, highlights the execution risks of such projects, on top
of possible cost overruns.
P1 Debt Consolidated: Fitch includes P1 project finance debt in its
calculation of financial debt, due to the strategic nature of the
investment for IGH and its expectation of its financial support,
despite the lack of recourse to IGH. Excluding P1 debt, Fitch
estimates that IGH's EBITDA net leverage will average 4.4x in
2024-2026 and fall below 4x from 2026, while its free cash flow
(FCF) will be positive. The over EUR4 billion project is funded by
a EUR3.5 billion facility, which will start amortising once P1 is
completed, over 10 years.
Sustained M&A: IGH spent about EUR1 billion to acquire
Lyondellbasell's US ethylene oxide business and INEOS Group
affiliate's and TotalEnergies' cracker and derivative assets in
Lavéra in 2024. This follows USD1.8 billion spent in 2022-2023 on
Mitsui Phenols Singapore Ltd and a 50% stake in Shanghai SECCO
Petrochemical Company Limited. These acquisitions increase IGH's
exposure to Asia, reinforce its oxide business, and expand its
scale. They also highlight IGH's opportunistic approach to
acquisitions to take advantage of attractive asset valuation, which
may be more cost-efficient than greenfield investments.
Notching for Instrument Ratings: About 75%-77% of IGH's debt at
end-September 2024 consisted of senior secured notes and term
loans, which rank equally among themselves. The remaining debt
mainly consists of debt facilities used to fund the acquisition of
assets and capex. The senior secured debt contains no financial
maintenance covenant and is rated one notch above the IDR to
reflect its security package.
Rated on Standalone Basis: IGH is the largest subsidiary of INEOS
Limited, accounting for almost half its EBITDA, but Fitch rates it
on a standalone basis as it operates as a restricted group with no
guarantees or cross-default provisions with INEOS Limited or other
entities within the wider group.
Corporate Governance: IGH's corporate governance limitations are a
lack of independent directors, a three-person private shareholding
structure and key-person risk at INEOS Limited, as well as limited
transparency on IGH's strategy around related-party transactions
and dividends. These are incorporated into IGH's ratings and are
mitigated by strong systemic governance in the countries in which
INEOS Limited operates, its record of adherence to internal
financial policies, historically manageable ordinary dividends,
related-party transactions at arm's length, and solid financial
reporting.
Derivation Summary
IGH's large, multiple manufacturing facilities across North
America, Europe and Asia, and exposure to volatile end-markets are
consistent with that of sector peers, such as Celanese Corp.
(BBB-/Negative), Huntsman Corp. (BBB/Negative) and sister company
INEOS Quattro Holdings Limited (INEOS Quattro; BB-/Stable).
IGH has stronger market-leading positions, larger scale and greater
diversification and production flexibility than Celanese, which is
focused on acetyls. However, Celanese has stronger EBITDA margins
in the 20% range and lower projected EBITDA net leverage over
2024-2027. Similarly to IGH, Fitch expects Celanese to maintain
leverage metrics that are high for its rating, as reflected in the
Negative Outlook.
Huntsman, while a specialty chemicals producer, is similarly
exposed to volatile end-markets such as construction, auto and
general industry. Both are market leaders in their respective
markets and widely diversified by end-customer industries and
geographies. The difference in the ratings is broadly explained by
Huntsman's lower leverage. Similarly to IGH, the Negative Outlook
reflects Fitch's view that leverage will remain above its negative
sensitivity through 2025.
IGH's scale and diversification is comparable with INEOS Quattro's.
The rating difference is explained by IGH's scale and stronger cost
position, due to its ability to use ethane feedstocks at its US and
Norway cracker, which provides a sustainable cost advantage in
olefins and polymers. IGH's and INEOS Quattro's EBITDA net leverage
has risen significantly above their negative rating sensitivities
in 2023-2024, and Fitch expects INEOS Quattro's to return below the
negative sensitivity around end-2025, compared with end-2027 for
IGH.
Key Assumptions
- Revenue to grow on average 2.5% in 2025-2028, after growing 16%
in 2024
- Fitch-defined EBITDA growing gradually to EUR2.8 billion by 2028
from EUR1.8 billion in 2024
- Capex of EUR2.4 billion in 2025, EUR1.2 billion in 2026 and
EUR0.8 billion a year in 2027-2028
- P1 completed in 2026 with EBITDA contribution from 2027
- Dividends of EUR250 million resuming from 2027
- No dividends received from SECCO JV and Tianjin JV until 2028
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA net leverage remaining above 4x beyond 2027 due to, among
other things, acquisitions, operational underperformance, higher
dividends, JV outflows or capex overruns
- Significant deterioration in the business profile, such as cost
position, scale, diversification or product leadership, or
prolonged market pressure, translating into EBITDA margins well
below 10% on a sustained basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The Negative Outlook makes positive rating action unlikely in the
short term, but forecast EBITDA net leverage recovering sooner to
4x versus Fitch's rating case would support a revision of the
Outlook to Stable
- EBITDA net leverage maintained at or under 3x through the cycle
would be positive for the rating
- Corporate-governance improvements, in particular, better
transparency on decisions regarding dividends and related-party
loans, and independent directors on the board
Liquidity and Debt Structure
At 30 September 2024, IGH had unrestricted cash of EUR2.3 billion,
which easily covers EUR0.5 billion of debt due within the next 12
months. Its rating case forecasts IGH to be well-funded from
existing sources until at least 2027. Fitch expects negative FCF
and debt maturities in 2025 to be funded from cash on its balance
sheet and existing committed debt facilities, including a USD3.5
billion project finance capex facility for P1. For 2026-2027
liquidity is further supported by positive FCF.
Issuer Profile
IGH is an intermediate holding company within INEOS Limited, one of
the largest chemical companies in the world, operating in the
commoditised petrochemical segment of olefins and polymers.
Summary of Financial Adjustments
- Interest on lease liabilities of EUR59 million and right-of-use
asset depreciation of EUR184 million reducing EBITDA by EUR242
million. Lease liabilities are not included in debt
- Cash used for collateral against bank guarantees and letters of
credit amounting to EUR160 million treated as restricted
- Debt issue costs of EUR318 million added back to debt
- Capitalised borrowing costs of EUR70 million and EUR2 million of
dividends from affiliates reclassified as cash flow from
operations. Exceptional costs of EUR6.1 million added back to
EBITDA
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
IGH has an ESG Relevance Score of '4' for Governance Structure, due
to ownership concentration and a lack of board independence, in
light of opportunistic decision-making despite weak chemical market
conditions. IGH has an ESG Relevance Score of '4' for Group
Structure, due to the complex group structure of the wider INEOS
Limited group and of IGH, and related-party transactions. These
scores have a negative impact on the credit profile, and are
relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
INEOS Group
Holdings S.A. LT IDR BB Affirmed BB
Ineos US
Finance LLC
senior secured LT BB+ Affirmed RR2 BB+
Ineos Finance plc
senior secured LT BB+ Affirmed RR2 BB+
VENGA HOLDINGS: S&P Affirms 'B' LongTerm ICR, Outlook Stable
------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer rating on
satellite services provider Venga Holdings S.a.r.l. (Marlink), and
its 'B' issue rating on its outstanding term loan.
The stable outlook reflects S&P's anticipation of moderate EBITDA
growth driven by an expanding number of vessels equipped and
limited capital expenditure (capex) needs will lead to sound FOCF
and adjusted debt to EBITDA below 5.0x in 2025 and 2026.
S&P said, "We revised down our business risk assessment on Marlink
to weak from fair. The reassessment mainly reflects the
fast-changing market dynamics following the entry of LEO service
providers like Starlink, its limited scale, and its strong focus on
maritime compared with vertically integrated satellite network
operators. Despite the company's leading market position in
maritime, the market is still fragmented and underpenetrated, which
could present opportunities for LEO service providers to enter the
market, particularly in the segments which the managed services are
not critical. LEO service providers could be more incentivized to
compete in this market considering most of their capacity is
stranded over the sea. In our view, the growing competition, the
company's narrow focus on maritime with about 70% revenue generated
from the segment, its reliance on the satellite operators who are
also at times direct competitors in certain markets, the increasing
number of LEO operators; and the fast-evolving technologies, could
pose challenges for the company in the long term."
Managed services and the technologically agnostic oriented business
model should continue to ringfence the company's market position.
The company's connectivity is offered to customers as a managed
solution, together with value-added services, such as cyber
security, IT and network management, and smart-edge and
software-defined wide area network (SD-WAN). This bundling is a key
value proposition for customers, together with Marlink's ability to
guarantee high levels of service level guarantee and provide ground
level installation and maintenance services across relatively small
unit size contracts. Additionally, the company is technologically
agnostic and able to offer customers buddled solutions including
geostationary earth orbit (GEO), medium earth orbit (MEO), LEO, and
mobile satellite services (MSS), which could make it more
attractive to certain customers. It also benefits from relatively
long customer contracts averaging between three-five years and
customer switching costs. S&P thinks that these factors should
protect against increasing competitive risks, including
disintermediation, and help the company's growth in the near term.
Sound credit metrics support the rating but long-term deleveraging
is constrained by its sponsor ownership. S&P said, "We think that
the company's adjusted leverage is relatively low at about 5.0x
compared with other 'B' rated sponsor-owned issuers. Furthermore,
the company's asset-light business model requires very limited
capex compared with vertically integrated satellite network
operators, leading to sound and sustained FOCF of more than $40
million annually. In our view, this could help the company navigate
the changing market conditions and support the rating." That said,
the company's long term deleveraging prospect could be constrained
by its financial sponsor ownership considering the potential debt
upsizing of up to $50 million to fund a dividend distribution or
future acquisitions.
S&P said, "The stable outlook reflects our anticipation of moderate
EBITDA growth driven by an expanding number of vessels equipped.
Limited capex needs will lead to sound FOCF of more than $40
million annually and adjusted debt to EBITDA below 5.0x in 2025 and
2026.
"In our view, rating downside would emerge if reported FOCF to debt
is sustainably and materially below 5%, or if the S&P Global
Ratings-adjusted leverage rises consistently to above 6.0x. This
could be driven by insufficient growth traction or fiercer
competition than we expect."
Rating upside would emerge if the S&P Global Ratings-adjusted
leverage drops and is sustained at less than 5.0x and reported FOCF
to adjusted debt strengthens toward 10%.
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N E T H E R L A N D S
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FLORA FOOD: Fitch Assigns 'B+(EXP)' Rating on EUR250MM Sec. Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Sigma Holdco's (Flora Food Group)
planned EUR250 million senior secured notes, to be issued by Flora
Food Management B.V., an expected 'B+(EXP)' rating with a Recovery
Rating of 'RR3'. A final rating is subject to the completion of the
transaction and final documentation conforming to the information
already received.
The debt rating is one notch above Flora Food Group's Issuer
Default Rating (IDR) of 'B' to reflect above average recovery
prospects.
Flora Food Group's rating reflects its high leverage and execution
risks related to operating in a sector with continued consumption
decline of plant-based spreads, including margarine, in many
developed markets, which is partly offset by still growing demand
in emerging markets. The constraints are balanced by a moderately
strong business profile with geographic diversification, a strong
brand portfolio and high EBITDA margins.
The Stable Outlook reflects gradual deleveraging with rating
headroom to below 7.5x over 2025-2027.
Key Rating Drivers
New Notes Neutral to Rating: Proceeds from the planned EUR250
million secured notes will be used to redeem a portion of the
outstanding senior unsecured US dollar notes and euro notes, which
makes the transaction neutral to leverage. Fitch's waterfall
analysis still results in a ranked recovery for Flora Food Group's
term loan B (TLB) and senior secured notes creditors in the 'RR3'
band, indicating a 'B+' instrument rating, one notch above the
IDR.
Delayed Deleveraging: Fitch projects EBITDA gross leverage will
remain above 6.0x over 2024-2027, due to higher-than-expected
Fitch-calculated EBITDA gross leverage at end-2023. The metric also
declined by a smaller amount than expected to 7.2x at end-2023,
from 7.9x at end-2022, as a result of an additional revolving
credit facility (RCF) drawdown and lower EBITDA than its
projections. The company is committed to deleveraging toward more
sustainable levels, which Fitch views at below 6.0x.
EBITDA Margin Improvement: Fitch forecasts strong Fitch-adjusted
EBITDA margins at 24.5% over 2024-2027, supported by savings from
efficiency and value-creation initiatives, as well as high price
increases, which drove the margin to 24.3% in 2023 from 21.1% in
2022. Fitch assumes a further decline in some key raw material
costs is likely to be partly offset by higher marketing and
promotion spending. Flora Food Group reported a material gross
profit margin increase in 1Q24 of nearly 600bp, due to modest
commodity deflation and further efficiency savings, despite a
continuing decline in organic revenue.
Robust Free Cash Flow: Fitch projects Flora Food Group will
generate strong free cash flow (FCF) of around EUR130
million-EUR250 million annually in 2024-2027, or FCF margins in the
mid-to-high single digits. This allows it higher leverage capacity
than peers. Despite increased interest charges, strong FCF will be
supported by high operating profitability and limited capex needs
in 2024-2027, as well as lower non-underlying cash costs to EUR45
million in 2023 from around EUR300 million over 2019-2020. Fitch
treats EUR30 million of this as ongoing business reorganisation
costs.
Modest Revenue Growth: Fitch estimates sales volumes to have
stabilised in 2024, due to slowing inflation, which should support
consumer spending. Flora Food Group has accelerated innovation,
promotion and marketing activities. Fitch expects only modest
growth in 2025-2027, given the maturity of the spreads category and
the still moderate share of faster-growing nascent categories of
plant-based butter, creams and cheese. Efforts to turn around the
perception of products, and leveraging on trends favouring
consumption of plant-based foods and sustainable packaging remain
key.
Global Spreads Category Leader: Flora Food Group's rating is
supported by its leading position in the global plant-based spread
market, with major market shares in countries that widely consume
the product. Sales are more than 3x higher than that of the
second-leading company in Flora Food Group's broader reference
market of butter and spreads. The rating also considers Flora Food
Group's leading market shares in other high-growth plant-based food
categories, but Fitch estimates that these only account for 25% of
sales.
Derivation Summary
Flora Food Group generates significantly higher FCF than most
packaged-food companies with comparable revenue, due to
higher-than-average EBITDA margins and low capex needs.
Nomad Foods Limited (BB/Stable) has a higher rating than Flora Food
Group, despite its more limited geographical diversification and
smaller business scale. The rating differential is due to Nomad's
lower leverage, and less challenging demand fundamentals for frozen
food than for spreads.
Ulker Biskuvi Sanayi A.S. (BB/Stable), a Turkish confectionary
producer, also has a higher rating than Flora Food Group, which is
due to significantly lower EBITDA gross leverage (2023: 3.1x). This
is balanced by Ulker's smaller scale and less geographical
diversification and lower EBITDA margin.
Key Assumptions
- Organic sales growth of 2% in 2024, driven by increased
promotions with sales volume recovery, followed by low single-digit
annual revenue growth over 2025-2027
- EBITDA margin above 24% in 2024-2027
- Annual capex at around EUR100 million in 2024, reducing to around
EUR80 million a year to 2027
- No M&A or dividends
Recovery Analysis
The recovery analysis assumes that Flora Food Group would remain a
going concern (GC) in restructuring and that it would be
reorganised rather than liquidated. Fitch assumes a 10%
administrative claim in the recovery analysis.
Fitch estimates a sustainable, post-reorganisation EBITDA of EUR560
million, on which Fitch bases the enterprise value.
Fitch also assumes a distressed multiple of 6.0x, reflecting Flora
Food Group's large size, leading market position and high inherent
profitability compared with sector peers. Fitch assumes Flora Food
Group's EUR700 million RCF would be fully drawn in a
restructuring.
Its waterfall analysis generates a ranked recovery for the TLB and
senior secured notes creditors in the 'RR3' band, indicating a 'B+'
instrument rating, one notch above the IDR. The new EUR250 million
senior secured debt issued for the partial redemption of the
outstanding senior unsecured instruments will result in the
waterfall analysis output percentage declining to 51% from 53% for
the senior secured instruments.
Conversely, its analysis generates a ranked recovery in the 'RR6'
band, indicating a 'CCC+' rating for the senior unsecured notes,
with 0% recovery expectations based on current metrics and
assumptions, and no impact from the planned EUR250 million secured
debt issuance.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Failure to implement Flora Food Group's product development
strategy, resulting in a continued organic decline in sales and
structural deterioration of EBITDA margins to below 20%
- EBITDA leverage above 7.5x for a sustained period
- Inability to generate positive FCF margins in the mid-single
digits, due to higher-than-expected restructuring charges or
unfavourable changes in working capital
- EBITDA interest coverage below 2.0x
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Successful execution of the corporate strategy, resulting in
growing EBITDA towards EUR900 million
- Steady profitability, with FCF in the mid-single digits, on a
sustained basis
- Refinancing of 2026 debt maturities, resulting in falling EBITDA
leverage towards 6.0x
Liquidity and Debt Structure
Flora Food Group had cash of EUR204 million at end-March 2024 as
well as access to an RCF of EUR700 million, of which EUR133 million
was drawn. Liquidity is also supported by its projection of strong
positive FCF. The company also has access to a factoring line, of
which EUR110 million was utilised at end-2023.
Flora Food Group successfully refinanced its TLB in 2024, extending
maturities to 2028. After its planned EUR250 million issuance with
partial repayment of its senior unsecured notes, it will have
addressed part of the maturities in 2026, when its remaining euro
and dollar bonds are due.
Issuer Profile
Flora Food Group is the world's largest plant-based food producer,
including spreads and butter.
Date of Relevant Committee
24 June 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Flora Food Group has an ESG Relevance Score of '4' for Exposure to
Social Impacts, due to declining revenue stemming from consumer
concerns in some markets about the healthiness of its products.
This has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery
----------- ------ --------
Flora Food
Management B.V.
senior secured LT B+(EXP) Expected Rating RR3
VDK GROEP: S&P Assigns Prelim. 'B+' ICR, Outlook Stable
-------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B+' long-term issuer
credit rating to Dutch installation and service provider VDK Groep
B.V. and its 'B+' issue rating and '3' recovery rating to the
company's proposed EUR610 million term loan B (including EUR100
million fungible delayed draw facility).
The stable outlook reflects S&P's view that VDK Groep will see
strong revenue and EBITDA growth on the back of sound market
conditions in the Netherlands led by energy efficiency in
buildings, alongside further bolt-on M&A activity and full-year
contributions from its previous acquisitions. This will support
strong FOCF, while leverage is expected to stay below 4.5x as
material deleveraging will be offset by a financial policy that
tolerates debt-funded acquisitions.
VDK Groep has refinanced its existing capital structure. The group
is issuing a EUR510 million seven-year term loan B, the proceeds of
which will be used to refinance the existing EUR425 million debt.
This accompanies the issuance of a new 6.5-year EUR155 million
senior secured RCF and a fungible EUR100 million delayed draw term
loan, all of which will remain undrawn at the close of the
transaction. EMK Capital will retain its controlling stake with no
change to the equity component. S&P said, "The existing equity also
contains preference shares, which we treat as equity and exclude
from our leverage and coverage calculations because we see an
alignment of interest between noncommon and common equity
holders."
VDK Groep's revenue stability and good profitability, coupled with
an asset-light business model support cash generation and interest
coverage. S&P said, "Our forecasts for organic growth are supported
by high capacity use in the group's order book and significant
recurring revenue, which contributes roughly two-thirds of total
revenue. This has supported management's focus on smaller contracts
that have greater profitability. The average contract size in 2023
was just EUR200,000 with over 50% of the group's revenue coming
from short-term projects lasting three to six months. The business
has focused on lower scale projects avoiding open tenders, which
accounted for just 14% of 2023 revenue due to less competitive
pricing dynamics. Privately negotiated contracts are priced on a
cost-plus basis that supports margin stability while existing
maintenance and framework agreements (roughly 40% pro-forma 2023
revenue) allow for cost inflation pass through. The strict
management focus on higher margin projects over the last three
years, coupled with improving scale that supports procurement
gains, as well as margin accretive small bolt-on acquisitions, are
leading to an S&P Global Ratings-adjusted EBITDA margin of around
14% at year-end 2024, up from 9.2% in fiscal (year ending December
31) 2022 and 11.7% in fiscal 2023. This compares with other
industry rated peers, such as Assemblin Caverion Group AB, Apleona
Group GmbH, and Spie S.A., with forecasted levels of 7.9%, 8.1%,
and 8.8%, respectively. Strong profitability paired with low
capital expenditure (capex) and working capital requirements have
resulted in a strong cash flow profile with FOCF of EUR27.1 million
and EUR59.2 million in fiscal 2022 and 2023, respectively. As such,
we forecast positive FOCF generation of EUR79 million-EUR120
million annually in 2025 and 2026, while funds from operations
(FFO) cash interest coverage will remain comfortably around
3.4x-3.6x over the next three years."
Attractive and expanding markets, backed by regulatory and
environmental considerations, support revenue growth. VDK is a
provider of multi technical installation services that support the
energy transition through greater electrification and more
efficient climate technology in buildings. Throughout our forecast
we see organic growth maintaining its previous level of 5% compound
annual growth rate. Government regulation attempting to decarbonize
Dutch real estate and reduce the national housing shortage supports
our forecast. The bulk of this growth is expected in the
residential sector, with new build properties expected to rebound
from a higher interest rate environment, during which building
permit applications decreased, significantly increasing the
national housing shortage. This recovery is already presenting
itself with residential permits up in first and second quarter (Q1
and Q2) 2024 by 15% and 19%, respectively. The business is further
supported by rental regulation, which allows the liberalization of
chargeable rent, removing caps if properties are kept to the
highest energy efficiency standards, providing incentives for
landlords to continue renovation work. Supportive market dynamics
in the technical installation space with reductions in funding for
new builds typically leading to higher renovation demand and
vice-versa support VDK's revenue stability, which roughly generated
two-thirds of pro forma 2023 revenue through renovation and
maintenance work, with the remainer being new build activity.
S&P said, "VDK Groep operates in a very fragmented and competitive
market with modest barriers to entry, in our view. The group has
built a solid reputation in recent years becoming the
second-largest provider by revenue in the Netherlands. The growing
scale of geographical coverage and deepening of services
capabilities have allowed the group to capture a larger market
share in recent years. We recognize the group's ability to increase
both scale and capacity through bolt-on acquisitions and
investments to increase full-time employees as a strength. However,
the top 10 players account for just 36% of the market, leaving
risks that larger scale competitors could capture substantial
volumes of market share.
"We believe the company's M&A track record and disciplined
integration processes should sustain its growth going forward. As
of the end of 2024, the group had acquired 73 companies since its
inception, with 60 of these companies being acquired between
2020-2024 following EMK Capital's investment. VDK Groep focuses its
M&A efforts on profitable companies with strong recurring business
lines and has demonstrated its ability to successfully integrate
these acquisitions. Integration has been supported by the former
owners' reinvestment in the group and maintaining an element of
control over their company, ensuring maintenance of performance
standards. The group achieve this through a decentralized model,
which gives acquired businesses certain autonomy to run their
businesses within the group, while allowing greater profitability
performance through centralized support functions and realizing
procurement benefits. This has supported the business' growth from
a base of just EUR7 million in revenue in 2013 to expected 2024
revenue of about EUR960 million. If executed with the same
discipline, including limited spend for integration costs, we
believe that future M&A integrations will support further strong
revenue growth without damaging the business' profitability.
"Despite rapid growth and ongoing expansion, we see VDK Groep's
small scale and geographical concentration as a key constraint to
its business risk profile. Its reported revenue of EUR792.9 million
and EBITDA of less than EUR100 million in fiscal 2023 places the
group at the low end of the broader rated peer group in the
business services industry. We forecast significant growth for the
business to EUR1.9 billion revenue in 2027 due to the combination
of bolt-on acquisitions and strong organic growth, and we
acknowledge that the company is already considerably larger than
numerous local competitors in the Netherlands where small and
midsize enterprises (SMEs) account for 64% of the market.
Furthermore, low customer concentration is a key strength, with the
group's top 10 customers accounting for less than 15% of 2023
revenue. The group further benefits from long-term relationships
(the top 10 customers maintain an average relationship length of 15
years), high recurring business (accounting for about two thirds of
revenue) and diversification across multiple end markets. Looking
at pro-forma 2023 results, residential work had the largest share
of revenue with 29%, retail contributed 18%, and education 9%.
However, the business is still heavily concentrated geographically
with 92 of 93 locations operating in the Netherlands, which we
currently see as a fundamental constraint to the businesses risk
profile.
"The rating is constrained by VDK Groep's financial sponsor
ownership and leverage tolerance. We forecast adjusted debt to
EBITDA at 4.2x for 2025 before falling to 4.1x in 2026 with the
business continuing to deleverage. However, our assessment of the
company's financial risk profile as aggressive reflects its
commitment to external growth, the pipeline of M&A opportunities in
a fragmented market, and the financial sponsors' leverage
tolerance. In addition, we expect ample liquidity over the forecast
period thanks to its asset-light business model, a pro forma cash
balance of EUR114 million post refinancing, a fully undrawn RCF of
EUR155 million at closing, and a EUR100 million delayed draw
facility that is expected to provide sufficient liquidity for its
acquisition activity in the near-term. We do however acknowledge
EMK Capital's commitment to a moderate financial policy and to
following an M&A strategy aligned with the assigned preliminary
rating.
"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation. Accordingly, the
preliminary ratings should not be construed as evidence of final
ratings. If S&P Global Ratings does not receive final documentation
within a reasonable time frame, or if final documentation departs
from materials reviewed, we reserve the right to withdraw or revise
our ratings. Potential changes include, but are not limited to, use
of loan proceeds, maturity, size and conditions of the loans,
financial and other covenants, security, and ranking.
"The stable outlook reflects our view that VDK Groep will see
strong revenue and EBITDA growth on the back of sound market
conditions in the Netherlands led by energy efficiency in
buildings, alongside further bolt-on M&A activity and full-year
contributions from its previous acquisitions. This will support
strong FOCF, while leverage is expected to stay below 4.5x as
material deleveraging will be offset by a financial policy that
tolerates debt-funded acquisitions."
S&P could lower the rating on VDK Groep in the next 12 months if we
expect its S&P Global Ratings-adjusted leverage to rise and remain
above 5x or its FOCF to weaken, likely because of:
-- A more aggressive financial policy through shareholder returns
or significant debt-funded acquisitions that increases leverage
beyond our projections; or
-- Weaker operating performance due to a slowdown of the Dutch
installation market and higher exceptional costs to integrate
bolt-on acquisitions.
Although unlikely, S&P could consider taking a positive rating
action if the financial sponsor commits to a clear financial policy
that targets maintaining leverage below 4.5x, and the company
enhances its scale and geographical diversification, while
maintaining its strong cash flow generation.
=========
S P A I N
=========
CAIXABANK PYMES 13: Moody's Ups Rating on EUR390MM B Notes to B3
----------------------------------------------------------------
Moody's Ratings has upgraded the ratings of Class A and Class B
Notes in CAIXABANK PYMES 13, FONDO DE TITULIZACION. The rating
action reflects the increased levels of credit enhancement for the
affected notes.
-- EUR2610 million (Current outstanding balance EUR2330.2M) Class
A Notes, Upgraded to Aa1 (sf); previously on Nov 15, 2023
Definitive Rating Assigned Aa3 (sf)
-- EUR390 million Class B Notes, Upgraded to B3 (sf); previously
on Nov 15, 2023 Definitive Rating Assigned Caa1 (sf)
CAIXABANK PYMES 13, FONDO DE TITULIZACION is a static
securitization of loans granted by CaixaBank, S.A. ("Caixabank", LT
Deposit Rating: A2/ ST Deposit Rating: P-1) to corporates, small
and medium-sized enterprises (SMEs) and self-employed individuals
located in Spain.
Maximum achievable rating is Aa1(sf) for structured finance
transactions in Spain, driven by the corresponding local currency
country ceiling of the country.
RATINGS RATIONALE
The rating action is prompted by an increase in credit enhancement
for the affected tranches.
Revision of Key Collateral Assumptions:
As part of the rating action, Moody's reassessed Moody's default
probability and recovery rate assumptions for the portfolio
reflecting the collateral performance to date.
The performance of the transaction has continued to be stable since
closing. Total delinquencies stand at 0.91%, with 90 days plus
arrears currently standing at 0.73% of current pool balance.
Cumulative defaults stand at 0.06% of original pool balance.
For CAIXABANK PYMES 13, FONDO DE TITULIZACION the current default
probability is 9% of the current portfolio balance and the
assumption for the stochastic recovery rate is 35%. Moody's have
decreased the CoV to 46.3% from 46.9%, which, combined with the
revised key collateral assumptions, corresponds to a portfolio
credit enhancement of 21.0%.
Moody's have also assessed loan-by-loan information as a part of
Moody's detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future
losses. As a result, Moody's have maintained portfolio credit
enhancement assumption at 21.0%.
Increase in Available Credit Enhancement
Sequential amortization led to the increase in the credit
enhancement available in this transaction.
For instance, the credit enhancement for the most senior tranche
affected by the rating action increased to 22.99% from 18.0% since
closing. Credit enhancement for Class B has also increased to 6.38%
from 5.0% during the same period.
Counterparty Exposure
The rating actions took into consideration the notes' exposure to
relevant counterparties, such as servicer or account bank.
The principal methodology used in these ratings was "SME
Asset-backed Securitizations" published in July 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.
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S W E D E N
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AQUEDUCT EUROPEAN 9: Fitch Assigns B-(EXP)sf Rating on Cl. F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Aqueduct European CLO 9 DAC expected
ratings. The assignment of final ratings is contingent on the
receipt of final documents conforming to information already
reviewed.
Entity/Debt Rating
----------- ------
Aqueduct European
CLO 9 DAC
Class A Notes LT AAA(EXP)sf Expected Rating
Class B Notes LT AA(EXP)sf Expected Rating
Class C Notes LT A(EXP)sf Expected Rating
Class D Notes LT BBB-(EXP)sf Expected Rating
Class E Notes LT BB-(EXP)sf Expected Rating
Class F Notes LT B-(EXP)sf Expected Rating
Class Z-1 Notes LT NR(EXP)sf Expected Rating
Class Z-2 Notes LT NR(EXP)sf Expected Rating
Class Z-3 Notes LT NR(EXP)sf Expected Rating
Sub Notes LT NR(EXP)sf Expected Rating
Transaction Summary
Aqueduct European CLO 9 DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds will be used to purchase a portfolio with a target par of
EUR400 million. The portfolio is actively managed by HPS Investment
Partners CLO (UK) LLP. The collateralised loan obligation (CLO)
will have a 4.5-year reinvestment period and an 8.5-year weighted
average life test (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 25.5.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate (WARR) of the identified portfolio
is 62.9%.
Diversified Portfolio (Positive): The transaction will include
various concentration limits, including a maximum 40% to the
three-largest Fitch-defined industries and a top 10 obligor
concentration at 20%. These covenants ensure the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction will have an
approximately 4.5-year reinvestment period and include reinvestment
criteria similar to those of other European transactions. Fitch's
analysis is based on a stressed case portfolio with the aim of
testing the robustness of the transaction structure against its
covenants and portfolio guidelines.
Cash Flow Modelling (Positive): The WAL for the transaction's
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant. This is to account for the strict reinvestment conditions
envisaged by the transaction after its reinvestment period. These
conditions include passing the coverage tests and the Fitch 'CCC'
bucket limitation test after reinvestment, as well as a WAL
covenant that gradually steps down, before and after the end of the
reinvestment period. Fitch believes these conditions would reduce
the effective risk horizon of the portfolio during 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 notes, but would lead
to a downgrade of one notch each to the class B to E notes, and to
below 'B-sf' for the class F notes.
Downgrades, which are based on the identified portfolio, may occur
if the loss expectation is larger than initially assumed, due to
unexpectedly high levels of default and portfolio deterioration.
Due to the better metrics and shorter life of the identified
portfolio than the Fitch-stressed portfolio, the class B to E notes
each display a rating cushion of two notches, and the class F notes
have a cushion of four notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to a downgrade of up to four
notches for the class A to D notes and to below 'B-sf' for the
class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to
upgrades of up to five notches for the rated 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 a stable portfolio
credit quality and deleveraging, leading to higher credit
enhancement and excess spread available to cover losses in the
remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Aqueduct European
CLO 9 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.
HEIMSTADEN AB: Fitch Affirms 'B-' LongTerm IDR, Outlook Negative
----------------------------------------------------------------
Fitch Ratings has affirmed Heimstaden AB's Long-Term Issuer Default
Rating (IDR) at 'B-' and its senior unsecured debt at 'B'. These
ratings have been removed from Rating Watch Negative (RWN). A
Negative Outlook has been assigned to the IDR.
The rating actions follow Heimstaden AB's successful SEK5.7 billion
bond issuance with proceeds being used to prepay tendered and bonds
maturing in 2025 and 2026. The completion of the 1Q25 bond issuance
extends these debt maturities to mid-2028 and 2030, while providing
Heimstaden AB with sufficient liquidity until its next bond
maturity risk in March 2027.
The Negative Outlook reflects Heimstaden AB's reliance on its
existing finite cash resources to service its unsecured debt until
its main investment Heimstaden Bostad AB (BBB-/Stable) restores
cash dividends. Without these cash dividends, Heimstaden AB's
management income is insufficient to cover its annual interest
costs, heightening its refinancing risk.
Key Rating Drivers
Near-Term Debt Maturities Addressed: The new two bonds issued,
totaling SEK5.7 billion, have coupons of 8.375% and floating rates
plus 600bp for the euro and Swedish krona bonds, respectively. The
proceeds will be used to repay at par Heimstaden AB's remaining
existing April 2025, October 2025 and March 2026 bond maturities,
totalling SEK5.3 billion, and extend these debt maturities to
mid-2028 and 2030.
On a standalone basis, Heimstaden AB will rely on cash (end-3Q24:
SEK0.9 billion) and management fee profit, net of costs, of about
SEK0.3 billion a year to service SEK0.65 billion-SEK0.70 billion
annual cash interest on its unsecured bonds.
Disposal Receipts Enhance Liquidity: With the disposal of the
near-completed Danish residential developments, including net
proceeds of SEK0.6 billion, which are being advanced upfront by
Fredensborg 32 AS (related to Heimstaden AB's parent Fredensborg
AS) and expected to be received in 1Q25, alongside the refinanced
2025 and 2026 bond maturities and continued hybrids' coupon
deferrals, Fitch calculates that Heimstaden AB's cash is sufficient
to service debt until its next bond maturity in March 2027.
Unsecured creditors are ultimately reliant on monetisation (in full
or in part) of Heimstaden AB's 35.7% (end-3Q24) equity stake in
Heimstaden Bostad and resumption of dividends. Fitch estimates that
the existing and new unsecured bonds' quarterly covenant ratio of
'available liquidity reserves' (as defined in bond documents)
relative to 12 months of non-hybrid cash interest expense is above
1.5x until end-2026.
Distant Resumption of Dividend: Shareholders' decision to not
declare Heimstaden Bostad's 2023 dividend payable in 2024 serves to
preserve its investment-grade rating. Heimstaden Bostad may not
resume dividends until 2027. If cash dividends are resumed, the
accrued dividends on Heimstaden AB-held preference A shares of
around SEK0.66 billion a year will be paid first, then any declared
dividends on its preference B and common shares. Remuneration is
determined by the shareholders' agreement, which Heimstaden
Bostad's second-largest shareholder, Alecta, has highlighted that
it wants to re-visit.
Ultimate Recourse to Equity Investment: The end-3Q24 attributed
value of Heimstaden Bostad's net asset value, after its hybrids,
was SEK125.3 billion, of which Heimstaden AB's portion was SEK44.9
billion. Heimstaden AB's corresponding unsecured debt is SEK10.5
billion.
Preserving Heimstaden Bostad's Rating: Heimstaden Bostad instigated
the non-payment of dividends and a sizeable privatisation disposal
plan to help protect its investment-grade rating. Heimstaden
Bostad's financial profile is hampered by regulated residential
rent with inflation-linked rent increases phased over multiple
years relative to more immediate interest expense increases. Lower
leverage, due primarily to privatisation disposal receipts used to
prepay debt, and measured interest rate cost increases, has,
however, alleviated pressure from its tight interest cover.
Enhancing Heimstaden AB's Profile: Similarly, as the group's
founding holding company, the suspension of dividends from
Heimstaden Bostad helps protect Heimstaden AB's equity investment
in the subsidiary. Correspondingly, Heimstaden AB has deferred
coupon payments under its hybrids, its preference shares and its
own dividends, and sold assets.
IHC Criteria Approach: Fitch rates Heimstaden AB using its
Investment Holding Companies (IHC) Rating Criteria, reflecting
reliance on its main subsidiary's dividends, its own finite
liquidity and its key asset (the equity stake in Heimstaden Bostad)
to help mitigate refinancing risk.
No Notching Impact from Shareholder: Fitch has not factored any
financial support from Heimstaden AB's main shareholder,
Fredensborg AS, into the rating. Fredensborg has added certainty to
Heimstaden AB's liquidity by Fredensborg 32 AS bringing forward the
Danish developments' disposal receipts (this transaction's arms'
length considerations were assessed by third parties), as it did
for the sale of the Iceland residential assets in 2023.
Derivation Summary
There are no relevant publicly rated real estate holding company
peers to compare Heimstaden AB with.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- No further cash dividends from Heimstaden Bostad, until possibly
2027. Management fees, not routed through dividends, continue,
which net of Heimstaden AB's operational expenses, results in
EBITDA of SEK0.3 billion in 2025
- Heimstaden AB defers interest under its Swedish krona- and
euro-denominated hybrids, and its preference shares
- Net disposal proceeds of SEK0.6 billion from the Danish property
developments received in 1Q25
- New 1Q25 bonds, EUR5.7 billion in total, with 8.375% and floating
plus 600bp coupons for the euro and Swedish krona bonds,
respectively
- In the Recovery Rating calculations Fitch uses end-3Q24's
Heimstaden Bostad's adjusted net asset value (from the published
accounts) of SEK44.9 billion, representing Heimstaden AB's 35.7%
equity stake in Heimstaden Bostad (before any form of dilution)
Recovery Analysis
Under its Recovery Ratings, senior unsecured debt is rated the same
as the IDR with a Recovery Rating capped at 'RR4' to reflect the
lower predictability of recovery prospects. Given the high recovery
estimate detailed above and the predictability and stability of
residential-for-rent (some regulated) rents and values, Fitch has
applied a criteria variation to rate Heimstaden AB's senior
unsecured rating one notch above the IDR at 'B' with a 'RR3'.
Under Fitch's hybrid criteria, the activated deferral of interest
makes the Swedish krona- and euro-denominated hybrids
non-performing. Fitch rates the hybrids 'CCC', reflecting that loss
absorption has been triggered although the instrument is expected
to return to performing status with only very low economic losses.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Twelve-month liquidity score below 1.0x and failing to address
the March 2027 bond maturity 12 months in advance
- Actions pointing to a potential renegotiation of debt's terms and
conditions, including any material reduction in lenders' terms
sought to avoid a default, pointing to a distressed debt exchange
- Cessation of asset management fee (0.2% of Heimstaden Bostad's
gross asset value) that is not routed through dividends
- Use of existing cash for non-debt service purposes
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Restoration of dividends on cash-pay preference A, preference B
and common shares
- Heimstaden AB's standalone EBITDA, including restored cash
dividends/cash interest expense (including hybrids), coverage above
1.0x
Liquidity and Debt Structure
Heimstaden AB's liquidity in 1Q25 will be boosted by SEK1 billion,
compared with SEK0.9 billion cash at end-3Q24. This includes a
prospective SEK0.6 billion from the disposal of the near-completed
Danish residential developments (net proceeds advanced up-front by
Fredensborg 32 AS) to be received in 1Q25, and SEK0.4 billion net
receipts received from its 1Q25 bond issuance and tenders. These
cash resources are sufficient to cover its senior cash-paid
interest costs for more than two years, assuming continued hybrid
coupon deferrals.
Heimstaden AB's next key debt maturity will be in March 2027 when
its SEK4.6 billion unsecured bond matures, if not refinanced in
advance. The maturities thereafter are its 1Q25 issued unsecured
bonds, EUR430 million and SEK0.75 billion, maturing in July 2028
and January 2030, respectively.
With little net profit from management fees and minimal recurrent
rental income, Heimstaden AB is reliant on finite cash to service
2025 and 2026 interest expense of SEK0.65 billion-SEK0.70 billion a
year.
Criteria Variation
The Recovery Criteria guide senior debt to be the same as the IDR,
with a Recovery Rating capped at 'RR4' to reflect the lower
predictability of recovery prospects. Given the high recovery
estimate detailed above and the predictability and stability of
residential-for-rent (some regulated) rents and values, Fitch has
applied a criteria variation to rate Heimstaden AB's senior
unsecured debt one notch above the IDR at 'B' with a 'RR3' recovery
estimate.
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
Heimstaden AB has an ESG Relevance Score of '4' for Governance
Structure due to its approximate 94% ownership (96% of votes) by
Fredensborg AS, itself owned by family interests, 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.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Heimstaden AB LT IDR B- Affirmed B-
senior unsecured LT B Affirmed RR3 B
subordinated LT CCC Affirmed RR6 CCC
=====================
S W I T Z E R L A N D
=====================
PEACH PROPERTY: Fitch Affirms 'CCC+' LongTerm Issuer Default Rating
-------------------------------------------------------------------
Fitch Ratings has affirmed Peach Property Group AG's Long-Term
Issuer Default Rating (IDR) at 'CCC+' and its senior unsecured
rating at 'B-'. Fitch has removed the senior unsecured rating from
Rating Watch Negative (RWN). The unsecured rating continues to have
a Recovery Rating of 'RR3'.
Using cash received from supportive shareholders (EUR120 million),
portfolio disposal receipts (EUR120 million), and after the
announcement of the EUR127 million bond tender offer results on 20
January 2024, EUR173 million of the November 2025 bond remains
outstanding. Fitch believes that Peach still has options to repay
in part, or in full, this remaining 2025 debt maturity by incurring
additional secured and/or unsecured debt using unencumbered
investment property assets totalling EUR340 million (as at
end-2024), or through disposals.
Key Rating Drivers
Addressing Unsecured Debt: Fitch expects Peach's unsecured debt to
decrease to approximately EUR224 million by end-1Q25 (end-2024:
EUR406 million), having used end-2024 cash to repay the EUR55
million promissory notes (maturing March 2025) and part-repay the
eurobond through January's tender offer. After this, the remaining
EUR173 million eurobond (due November 2025) and a EUR51 million
convertible bond (May 2026) remain.
Fitch assumes that maturing secured debt will be refinanced by
banks, possibly re-leveraged to raise more proceeds relative to the
collateral granted.
Liquidity Deployment: Peach will prioritise using available
liquidity to repay unsecured debt after receiving EUR240 million
from the December 2024 equity increase and portfolio disposal.
Further options to raise liquidity include selling assets,
re-leveraging secured debt, elongating the existing unsecured bond
and replacing it with other unsecured debt funding. New secured
and/or unsecured debt could be supported by the EUR340 million of
unencumbered investment property assets, as at end-2024.
January Tender Offer Not a DDE: Fitch does not classify Peach's
January 2025 tender offer as a distressed debt exchange (DDE), as
there was no material reduction in terms of the bonds, bondholders'
tendering of their bonds was voluntary, and rejecting the offer
would not have led the issuer into default. The tender offer's
minimum purchase price, close to par (100% to the maximum 96.5%),
does not signal a DDE either, but an orderly prepayment of
unsecured funding.
Deleverage Path Affirmed: Fitch expects Peach's net debt/EBITDA
ratio will improve to approximately 18x by end-2025 (end-2023:
22.6x) because recent cash proceeds are predominantly allocated to
debt repayment, as demonstrated by the January 2025 tender offer.
Fitch anticipates that EBITDA interest coverage will stabilise at
around 1.5x by end-2025, supported by lower interest rates and
reduced debt.
Post-Disposal Portfolio: Peach's 2024 figures will show the effect
of the EUR448 million portfolio sale in 4Q24, reduced rent, EBITDA,
attached secured debt and lower group debt through the EUR120
million net proceeds received. The disposal enables Peach to
concentrate on its core clusters, supporting the implementation of
capex to improve free cashflow and occupancy rates. Peach is now
strongly focused on assets in North Rhine-Westphalia, where nearly
all of its top 10 locations are situated. By retaining the sold
portfolio's asset-management functions, Peach is ensuring
operational continuity for the purchaser, while also generating
additional income for itself.
Recreating Financial Headroom: Peach's management has emphasised
that, after retaining the post-disposal 'strategic portfolio', some
cash proceeds should be allocated to reducing pockets of stubborn
vacancies, enhancing asset quality, and meeting remunerative ESG
requirements. This would increase Peach's rents over time and
reduce remaining void costs, but would need re-investment and take
two to three years to show results.
Derivation Summary
Peach's portfolio, which Fitch expects to amount to around EUR1.9
billion at end-2024, is materially smaller than Fitch-rated German
residential-for-rent peers Vonovia SE's (IDR: BBB+/Stable) EUR81
billion and Heimstaden Bostad AB's (BBB-/Stable) EUR28.8 billion.
Peach's portfolio is more comparable to D.V.I. Deutsche Vermogens-
und Immobilienverwaltungs GmbH's (DVI, BBB-/Stable) all-German
(Berlin-weighted) EUR2.9 billion at end-2023.
The Peach portfolio's average end-2023 in-place rent was EUR6.2 per
sqm per month, indicating lower-quality assets and locations than
Vonovia's German portfolio, which had rent of EUR7.74 per sqm, and
DVI's Berlin-weighted portfolio rent of EUR8.9 per sqm. The
difference in these portfolios' qualities is also reflected in
their respective vacancy rates, at a reported 7.4% for Peach at
end-2023, above 1.6% at DVI and 1.5% at Vonovia at end-2023.
Peach's interest cover, forecast at around 1.2x in 2024, is lower
than Heimstaden Bostad's 1.4x, which will increase thereafter. The
interest cover for both DVI and Vonovia is forecast to remain at or
above 2.3x over the next three years. Peach's end-2023 remaining
average debt maturity was low at 2.9 years, compared with Vonovia's
6.9 years, and at or above eight years for Heimstaden Bostad and
DVI, putting Peach's liquidity and rating under significant
pressure.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Annual rental growth around 3.5%, comprising 1.5% for phased
indexation/re-lettings and 2% for reletting of refurbished units
- Hybrid bond interest not deferred but paid at 9.25% margin plus
policy rate
- Dividends at 50% of cash from operations (CFO) from 2026
- Fitch assumes around EUR20 million of renovation and development
capex per year during 2024-2027 (2023: EUR13 million). This should
help keep vacancies stable at around 7%-8%
- Completion of Peach's Swiss residential-for-sale development in
2025 with net sale proceeds of EUR30 million
- Interest costs on euro-denominated variable-rate debt to rise
based on Fitch's Global Economic Outlook policy rate assumptions
(2024: 3.25%; 2025: 2.5%; from 2026: 2.0%)
Recovery Analysis
Its recovery analysis assumes that Peach would be liquidated rather
than restructured as a going concern (GC) in a default.
Fitch uses the EUR340 million of unencumbered assets as of
end-December 2024, to which it applies a standard 20% discount.
Fitch assumes no cash is available for recoveries and that the
EUR75 million revolving credit facility (RCF) is fully drawn
(end-December 2024: undrawn, which expires in April 2025).
Additionally, a standard 10% deduction is made for administrative
claims.
The resulting amount is compared against unsecured debt, which
comprises its equally ranking EUR55 million promissory notes, a
remaining EUR173 million bond following the January 2025 tender
offer, a recovery rating-assumed fully drawn RCF and a EUR51
million convertible bond.
Fitch's principal waterfall analysis generates a ranked recovery
for the senior unsecured debt at 'RR3' (a waterfall generated
recovery computation output percentage of 51%-70%). However, the
'RR3' may change if further unencumbered assets are sold or
pledged.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A material likelihood of a debt restructuring on terms that would
constitute a distressed debt exchange
- Senior unsecured rating: reductions in the unencumbered property
portfolio relative to unsecured debt, adversely affecting recovery
estimates
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Execution of a plan to address 2025's remaining refinance risk
that is not viewed by Fitch as a distressed debt exchange
- Twelve-month liquidity score above 1.0x, combined with a
sustainable capital structure with limited funding risks
Liquidity and Debt Structure
By end-2024, Peach had received a EUR120 million equity injection
from supportive shareholders, and EUR120 million net proceeds from
a portfolio disposal to Globe Trade Centre (BB+/Negative). Much of
this cash is to reduce Peach's debt, with EUR13 million spent on
transaction costs and EUR17 million on secured debt maturing in
4Q24. Fitch expects Peach to have used its recently received
liquidity after allocating around EUR20 million for non-committed
asset-improvement capex and EUR10 million to repay drawn amounts
under the RCF, and following the EUR125 million January 2025 tender
offer (at an average 1.6% discount to par) for the unsecured
eurobond.
Fitch continues to exclude any drawdown under Peach's EUR75 million
RCF, expiring in April 2025. Peach could raise additional debt
through refinancing sub-optimal loan-to-values in secured
financings, pledge unencumbered assets to potentially add necessary
liquidity for 2025 unsecured debt maturities, or issue a
non-benchmark-size bond with longer maturity and higher coupon.
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
----------- ------ -------- -----
Peach Property Group AG LT IDR CCC+ Affirmed CCC+
senior unsecured LT B- Affirmed RR3 B-
Peach Property
Finance GmbH
senior unsecured LT B- Affirmed RR3 B-
===========================
U N I T E D K I N G D O M
===========================
ANNINGTON LIMITED: Fitch Lowers LongTerm IDR to 'BB-', Outlook Neg.
-------------------------------------------------------------------
Fitch Ratings has downgraded Annington Limited's Long-Term Issuer
Default Rating (IDR) to 'BB-'/Negative from 'BBB'/Rating Watch
Negative. Fitch also downgraded Annington's and Annington Funding
Plc's bonds' senior unsecured ratings to 'BB-' from 'BBB'/ Rating
Watch Negative, with a Recovery Rating of 'RR4'.
The downgrade reflects Annington's reduced GBP0.4 billion
investment portfolio (GBP7.4 billion at end-March 2024) following
the sale of the married quarters estate (MQE) to the Ministry of
Defence (MoD) and the time required to amass a larger one. The
ratings consider Fitch's income yield assumption for Annington's
future UK residential-for-rent investments and anticipated higher
maintenance costs.
The Negative Outlook reflects the execution risk of Annington's
growth strategy. Fitch expects Annington to increase its portfolio
to a target size of GBP1.3 billion within two years, with gross
debt/EBITDA of around 20x and EBITDA interest cover of 1.6x.
Fitch has withdrawn the ratings subsequent to the downgrade for
commercial reasons. Fitch will no longer provide ratings and
analytical coverage for Annington.
Key Rating Drivers
Change in Business Profile: The MoD is no longer Annington's key
tenant following the MQE sale. About 92% of Annington's FY24 (March
year-end) rental income was derived from the MoD. The company now
has a remaining portfolio of 1,777 units (some former MoD-renovated
housing) valued at GBP357.4 million at end-March 2024 and expects
to receive another GBP55 million of surplus housing from the MoD.
The retained non-MQE portfolio had an occupancy rate of 98% and
generated GBP20 million of annual market rental income in FY24.
Void Risk and Operating Expenses: Annington's retained portfolio
will increase void risk and maintenance cost to the company. It
previously benefitted from a full repairing and insuring lease with
the MoD and had no void risk. It will also have to expand its
operating platform to manage a larger and more granular tenanted
portfolio. Annington has experience of managing an existing, albeit
small, non-MQE portfolio. Fitch expects Annington's EBITDA margin
to reduce to around 50% from 89% in FY24.
Bond Tender and Redemption: Annington used part of the GBP5,994.5
million MQE sale proceeds to reduce its debt to GBP742.8 million in
January 2025. The company redeemed and repaid GBP969 million of
debt and purchased around GBP2 billion of its bonds at about a 13%
discount. Its debt was GBP3.8 billion at end-July 2024 after the
redemption of its euro-denominated bond in July 2024.
Growing the Portfolio: Fitch expects Annington to reinvest part of
the MQE sale proceeds into UK residential-for-rent assets and
increase its portfolio to GBP1.3 billion over time. There is
uncertainty about the timing of the deployment and quality of
assets to be acquired. Target sectors include single-family and
multi-family homes, co-living and build-to-rent sectors. This will
take time to procure, through market purchases, forward-funding or
self-development. Fitch believes there is limited available private
rented sector assets to acquire and competition due to high
investor interest.
One-Off Dividend Payment: Annington expects to pay GBP1.8 billion-2
billion of special dividends to its private equity owner from the
MQE sale proceeds. To continue with dividend payments, it will have
to maintain minimum 1.3x EBITDA net interest cover under its bond
covenants, which can be achieved through interest income earned
from re-investing cash proceeds.
Fitch expects FY25 EBITDA net interest cover to be around 1.5x with
nine months' of MQE rents during the year. Other bond financial
covenants are a minimum unencumbered assets/unsecured net debt of
125% and a maximum net loan-to-value of 65%.
Higher Leverage Expected: Fitch expects Annington's gross
debt/EBITDA and EBITDA interest cover to reach a stabilised 20x and
1.6x, respectively, based on an expected income yield of around
5.5%. This leverage is commensurate with a 'BB-' IDR, also based on
the change in tenant credit risk. Fitch's approach uses gross
leverage and interest cover as Annington will be in a net cash
position until it fully deploys the MQE proceeds into its intended
real estate investments.
Event of Default Legal Advice: Annington has cited legal advice
that the MQE sale does not trigger the "cessation of business"
event of default clause in its bond documentation. Annington states
that it has not ceased "the whole or substantially the whole of its
business", which must also be "materially prejudicial" to the
interests of bondholders.
Undersupplied Residential Rental Sector: Fitch sees strong demand
for UK residential-for-rent properties, given the shortage of
housing in the UK. Shifts in regulations and taxation have resulted
in private buy-to-let landlords exiting the market. The Renters'
Rights Bill and the introduction of minimum energy efficiency
standards will further hit supply. Professional private rented
sector operators such as Annington are more likely to be able to
meet the demand for modern rented homes. Its record of refurbishing
and selling former MQE properties and long-dated low-cost debt
support its investment.
Derivation Summary
Annington's portfolio of UK residential properties after the MQE
lease surrender - valued at GBP357 million at FYE24 - is much
smaller than UK residential-for-rent peer, Grainger plc
(BBB-/Stable). Grainger has a portfolio of 9,597 private rented
sector units and 1,472 regulated tenancies, with a market value of
GBP3.4 billion at end-September 2024. Annington's portfolio is
spread across the UK but often in secondary or tertiary locations,
while about 40% of Grainger's rental income is from London.
Annington's European residential peers, SCI LAMARTINE (BBB+/Stable;
EUR2.1 billion portfolio), Vonovia SE (BBB+/Stable; EUR81 billion
portfolio), Heimstaden Bostad AB (BBB-/Stable; EUR28.8 billion
portfolio) and D.V.I. Deutsche Vermogens- und Immobilienverwaltungs
GmbH (BBB-/Stable; EUR2.3 billion portfolio) have assets in heavily
regulated jurisdictions in France, Germany and Sweden.
Residential landlords' net debt/EBITDA ratios are generally higher
than their EMEA commercial property peers for the same rating,
reflecting the inherent lower income yield of a residential
portfolio, supported by stable demand and the necessity-based asset
class, low vacancy rates, historical stability in rents, and high
rent collection rates. Grainger has a net income yield of 4.1% for
its private rented sector portfolio. Fitch expects Annington's
non-MQE portfolio to have a net income yield similar to or higher
than Grainger's, given its secondary or tertiary locations.
The expected gross debt/EBITDA for Annington at its 'BB-' IDR is
around 20.0x. Fitch focuses on net debt/rental-derived EBITDA for
Grainger, excluding its trading property profits. The downgrade
threshold (to 'BB+') for Grainger is a net debt/rental-derived
EBITDA of 18x.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Nine months' of MQE rent from MoD in FY25
- Investment of around GBP900 million spread over FY26 to FY28 into
UK residential-for-rent
- Gross income yield on acquisition of 5.5%
- EBITDA margin of 50%
- Special dividend of GBP1.8 billion-2 billion in FY25
RATING SENSITIVITIES
Rating sensitivities are no longer relevant as the ratings have
been withdrawn.
Liquidity and Debt Structure
Annington will still have ample cash after its early GBP969 million
debt repayment, GBP1.8 billion bond purchase and GBP1.8 billion-2
billion special dividend payment. The company had GBP196 million of
cash at FYE24 and Fitch expects its FYE25 cash to be around GBP1.4
billion.
Annington is left with long-dated debt with an average debt
maturity of about 21 years and a low average cost of debt of around
3% after the early debt redemption and bond purchase. Its next
material debt maturity will be in October 2032, when GBP178 million
of bonds are due. The company no longer has a committed revolving
credit facility.
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
----------- ------ -------- -----
Annington Limited LT IDR BB- Downgrade BBB
LT IDR WD Withdrawn
senior unsecured LT BB- Downgrade RR4 BBB
senior unsecured LT WD Withdrawn
Annington Funding Plc
senior unsecured LT BB- Downgrade RR4 BBB
senior unsecured LT WD Withdrawn
CAMBRIDGE SOLAR: Begbies Traynor Named as Administrators
--------------------------------------------------------
Cambridge Solar Ltd was placed into administration proceedings in
the The High Court of Justice Business & Property Courts of England
and Wales, Court Number: CR-2024-006979, and Jeremy Karr and Simon
John Killick of Begbies Traynor (Central) LLP were appointed as
administrators on Dec. 12, 2024.
Cambridge Solar engages in electrical installation. Its registered
office is at Future Business Centre, Kings Hedges Road, Cambridge,
CB4 2HY.
The joint administrators can be reached at:
Jeremy Karr
Simon John Killick
Begbies Traynor (Central) LLP
31st Floor, 40 Bank Street
London, E14 5NR
Any person who requires further information may contact:
Tom Huxley
Begbies Traynor (London) LLP
Email: Tom.Huxley@btguk.com
Tel No: 020-7516-1500
IMMERSIVE GROUP: Begbies Traynor Named as Administrators
--------------------------------------------------------
Immersive Group Gaming Ltd was placed into administration
proceedings in the High Court of Justice Business and Property
Courts of England and Wales, Insolvency & Companies List (ChD),
Court Number: CR-2024-007522, and Julie Anne Palmer and Andrew Hook
(IP No. 26150) of Begbies Traynor (Central) LLP were appointed as
administrators on Dec. 10, 2024.
Immersive Group is a location-based entertainment/technology
platform.
Its registered office is at 63/66 Hatton Garden, Fifth Floor, Suite
23, London, EC1N 8LE.
The joint administrators can be reached at:
Julie Anne Palmer
Andrew Hook
Begbies Traynor (Central) LLP
Units 1-3 Hilltop Business Park
Devizes Road, Salisbury,
Wiltshire SP3 4UF
Any person who requires further information may contact
Ryan Cullinane
Begbies Traynor (Central) LLP
Email: ryan.cullinane@btguk.com
Tel No: 01722 435 190
IN PRACTICE: Crowe U.K. Named as Administrators
-----------------------------------------------
In Practice Systems Limited was placed into administration
proceedings in the High Court of Justice, Court Number: 7520 of
2024, and Vincent John Green and Mark Holborow of Crowe U.K. LLP
were appointed as administrators on January 17, 2025.
In Practice engages in software publishing.
Its registered office is at Studio F5, Battersea Studios 1, 80-82
Silverthorne Road, London, SW8 3HE.
Its principal trading address is at Studio F5, Battersea Studios 1,
80-82 Silverthorne Road, London, SW8 3HE
The joint administrators can be reached at:
Steven Edwards
Vincent John Green
Mark Holborow
Crowe U.K. LLP
4 Mount Ephraim Road
Tunbridge Wells, Kent
TN1 1EE
Tel No: 01892 700200.
For further information, contact:
Laura Macukat
Crowe U.K. LLP
Tel No: 01892 700 200
Email: recoverysolutions@crowe.co.uk
4 Mount Ephraim Road, Tunbridge Wells
Kent, TN1 1EE
KINGSWOOD COLOMENDY: Teneo Financial Named as Administrators
------------------------------------------------------------
Kingswood Colomendy Limited was placed into administration
proceedings in the High Court of Justice Business and Property
Courts of England and Wales, Insolvency & Companies List (ChD),
Court Number: CR-2025-000292, and Daniel James Mark Smith (IP No.
012792) and Julian Heathcote (IP No. 029130), both of Teneo
Financial Advisory Limited, were appointed as administrators on
Jan. 17, 2025.
Kingswood Colomendy is into education.
Its registered office is at c/o Teneo Financial Advisory Limited,
The Colmore Building, 20 Colmore Circus Queensway, Birmingham B4
6AT.
Its principal trading address is at 1 Jubilee Street, 2nd Floor,
Brighton, BN1 1GE.
The joint administrators can be reached at:
Daniel James Mark Smith
Julian Heathcote
Teneo Financial Advisory Limited
The Colmore Building
20 Colmore Circus Queensway
Birmingham, B4 6AT
Further details, contact:
The Joint Administrators
Tel No: 0121 619 0158
Email: KLLGCreditors@teneo.com
Alternative contact: Jack Crutchley
KINGSWOOD LEARNING: Teneo Financial Named as Administrators
-----------------------------------------------------------
Kingswood Learning and Leisure Group Limited was placed into
administration proceedings in the High Court of Justice Business
and Property Courts of England and Wales, Insolvency & Companies
List, Court Number: CR-2025-000289, and Daniel James Mark Smith and
Julian Heathcote of Teneo Financial Advisory Limited were appointed
as administrators on Jan. 17, 2025.
Kingswood Learning is into education.
Its registered office is at c/o Teneo Financial Advisory Limited,
The Colmore Building, 20 Colmore Circus Queensway, Birmingham, B4
6AT
Its Principal trading address is at 1 Jubilee Street, 2nd Floor,
Brighton, BN1 1GE
The joint administrators can be reached at:
Daniel James Mark Smith
Julian Heathcote
Teneo Financial Advisory Limited
The Colmore Building
20 Colmore Circus Queensway
Birmingham, B4 6AT
Further details contact:
The Joint Administrators
Tel: 0121 619 0158
Email: KLLGCreditors@teneo.com
Alternative contact: Jack Crutchley
LIBERTY GLOBAL: S&P Assigns 'BB-' ICR Amid Sunrise Spin-Off
-----------------------------------------------------------
S&P Global Ratings assigned a 'BB-' credit rating to the group's
topco, Liberty Global Ltd., which is in line with its rating on
Liberty Global Holdings Ltd.
The stable outlook reflects that S&P expects Liberty Global to
maintain adjusted debt to EBITDA around 5x, supported by the
company's financial policy of keeping net leverage at the higher
end of 4x-5x and maintaining headroom under the rating.
The spin-off of Sunrise reduced Liberty Global's scale and cash
flow generation, which has been somewhat offset by a growing
ventures portfolio and upgraded fixed networks adding future value
prospects. The spin-off of Sunrise lowered the scale and
geographic diversity of Liberty Global's business. It removed its
telecom asset in the wealthy Swiss market, which generated material
cash flows of about $350 million annually. S&P said, "We believe
the transaction was marginally negative for the business as it
weakened its scale, scope, and diversity. Nevertheless, we consider
Liberty Global's business risk favorably compared with various
single-market players, including some of the group's subsidiaries,
and we think the current investments in full fiber in a number of
its assets should strengthen the group's ability to tackle
competition and create a path to generate additional wholesale
revenue."
S&P said, "The financial policy and longer-term earning growth
supports headroom within our rating parameters. Our 5.5x leverage
downside trigger takes into account the liquid investments in the
ventures portfolio that Liberty Global could use to repay debt, as
evidenced by the recent reduction in debt at Sunrise using proceeds
of the All3media sale. Within this threshold, we also somewhat
account for the negative effect of Liberty Global's 50% stake in
the higher leveraged VFZiggo. We expect credit measures will
continue to stay comfortably within our rating triggers, supported
by earnings growth in VMED O2 (which we pro-rata consolidate) and
Telenet, and higher dividends from VFZiggo. We expect
company-adjusted debt to EBITDA will remain at about 5x over the
next several years. Our expectation is also supported by
management's commitment to maintain adjusted debt to EBITDA at
around 5x at all Liberty Global operating companies.
"The spin-off helped improve the credit measures marginally given
we deconsolidated the higher leveraged Sunrise business for 2024.
The deleveraging at Liberty Global is driven by the deconsolidation
of Sunrise, which carries higher leverage (adjusted debt to EBITDA
at Sunrise was around 6.5x in 2023 compared with around 5.5x for
Liberty Global).
"Liberty Global completed the spinoff of Sunrise by listing it on
the Swiss stock exchange. Before listing, Liberty Global injected
cash in Sunrise of around $1.55 billion, which was funded using
proceeds from the sale of All3Media (about $400 million), free cash
flow at Sunrise (about $350 million-$400 million), and cash at
Liberty Global. Pro forma the transaction, we expect Liberty
Global's adjusted debt to EBITDA to be approximately 5.0x in 2024,
down from just under 5.5x in 2023.
"We expect broadly stable revenue and earnings over the next two
years, but free operating cash flow (FOCF) is likely to be subdued.
We anticipate broadly stable revenue and earnings for Liberty
Global (excluding Sunrise) over the next 12-24 months. During this
time, we expect growth in Ireland and the Netherlands, and broadly
stable earnings in the U.K. and Belgium. We expect adjusted debt to
remain broadly stable in this period as we expect the company's
FOCF to be distributed to shareholders. However, we anticipate no
dividend recapitalization in the next 12 months as adjusted debt to
EBITDA is close to or above the group's target of 5x in most of the
operating companies. We anticipate adjusted debt to EBITDA will
stay around 5x over the next two years.
"In our view, Liberty Global's capital intensity will remain
elevated over the next few years as most subsidiaries are rolling
out fiber network and widening their 5G coverage. Capital
expenditure (capex; calculated as additions to property and
equipment) as a percentage of sales was around 18% in 2023 and we
expect this to increase to around 22% for the next two years
(excluding Sunrise). The increase in capex is mainly due to higher
capex in Belgium (Telenet), where capex to sales is expected to be
about 35% as the network company (Wyre) begins to invest in fiber
to the home (FTTH). We acknowledge the sizable cash on Telenet's
balance sheet, which would be used to fund the higher capex
requirement over the next few years. We also expect annual FOCF at
Liberty Global to remain largely subdued over the next two years
due to the high capital intensity. We expect annual FOCF of around
$700 million-$900 million.
"Liberty Global's business risk profile continues to be underpinned
by its significant scale and market diversification, and entrenched
market positions in their markets. Our view of Liberty Global's
business risk profile is underpinned by its significant size and
market diversification through operations in several European
markets. Furthermore, most of Liberty Global's operations have
entrenched positions as the second- or third-largest integrated
player behind the national telecommunications incumbent. We view
the group's fixed network investments, including upgrades to FTTH
in the U.K., Ireland, and Belgium, as highly strategic and
defensive moves that should help VMED O2 and Telenet preserve their
competitive advantage, especially in the context of increasing FTTH
coverage by the respective incumbents, as well as competition from
alternative network players. In addition, we think the move to FTTH
paves the road to revenue growth from wholesale customers, as well
as the more attractive business-to-business proposition.
Furthermore, Liberty Global's focus on convergent fixed and mobile
networks across most of its footprint enables it to compete on a
fair playing field against the incumbent, reduces the cost of
offering converged fixed and mobile packages, and limits churn
within the client base that takes up convergent packages. These
strengths are partially offset by stiff competition for broadband,
telephony, and TV services from large incumbents and other telecoms
operators. Competition for broadband subscribers is particularly
fierce where telecom incumbents such as BT Group, Swisscom, KPN,
and Eir are making sizable investments in fiber networks to defend
their market positions.
"In addition, Liberty Global is facing a structural decline in
fixed telephony as well as pay-TV, especially in English-speaking
markets. This means that customers are shifting away from
previous demand for triple-play services to broadband-only offers,
while utilizing other products via their wireless devices and
over-the-top video platforms, such as Netflix, Hulu, or Amazon
Prime. Although we expect these trends to continue, the group can
make up for the revenue loss by customers switching to
higher-tiered broadband speeds, as well as ongoing price increases.
We also note that the margin on the pay-TV revenue is relatively
low and hence the video decline should have limited effects on
EBITDA.
"The stable outlook reflects that we expect Liberty Global to
report stable revenue and EBITDA in 2024-2025. The outlook also
reflects our view that Liberty will maintain adjusted debt to
EBITDA at around 5.0x and generate annual FOCF of above $700
million
"We could lower the rating if we expect that the group's adjusted
debt to EBITDA will increase to substantially above 5.5x, on a
sustained basis, due to larger-than-anticipated shareholder returns
or on the back of leveraged transactions that do not materially
enhance our view of the business.
"Increasing competition that resulted in declining EBITDA margins
or a significant increase in capex and adjusted FOCF to debt
falling materially below 3% on a sustained basis could also lead us
to consider a downgrade.
"We do not expect to take a positive rating action on Liberty
Global in the near term, primarily because of the group's high
capex and aggressive financial policy, which we expect will
maintain net debt to EBITDA at 4x-5x over the longer term, which at
the upper end means just over 5x on an S&P Global Ratings-adjusted
basis.
"Moreover, a positive rating action is also unlikely due to Liberty
Global's relatively limited FOCF over the next few years. However,
if management adopted a deleveraging policy, we could raise the
rating if leverage reduced and remained less than 4.5x, while
adjusted FOCF to debt (excluding vendor financing) increased to
sustainably above 5%."
LUXURY LOCKSTITCH: CG&Co Named as Administrators
------------------------------------------------
Luxury Lockstitch UK Limited was placed into administration
proceedings in the High Court of Justice Business and Property
Courts of England and Wales Insolvency and Companies (ChD), Court
Number: CR-2024-MAN-001645, and Edward M Avery-Gee and Nick
Brierley of CG&Co were appointed as administrators on Dec. 16,
2024.
Luxury Lockstitch is into manufacturing. Its registered office and
principal trading address is at Unit 19 Brock Lane Mall, The
Nicholson Centre, Maidenhead, SL6 1LB.
The joint administrators can be reached at:
Edward M Avery-Gee
Nick Brierley
CG&Co
27 Byrom Street
Manchester, M3 4PF
For further details, contact:
Bill Brandon
Tel No: 0161-358-0210
MAN COED: Leonard Curtis Named as Administrators
------------------------------------------------
Man Coed VM Limited was placed into administration proceedings in
the High Court of Justice Business and Property Courts in
Liverpool, Company and Insolvency List (ChD) Court Number:
CR-2024-LIV-000375, and Andrew Knowles and Mike Dillon of Leonard
Curtis were appointed as administrators on Dec. 12, 2024.
Man Coed VM is into silviculture and other forestry activities.
Its registered office and principal address is at Unit B, Reigan
Industrial Estate, Sandycroft, Deeside, Clwyd, CH5 2QJ.
The joint administrators can be reached at:
Andrew Knowles
Mike Dillon
Leonard Curtis
Riverside House
Irwell Street
Manchester, M3 5EN
Further details contact:
The Joint Administrators
Tel: 0161 831 9999
Email: recovery@leonardcurtis.co.uk
Alternative contact: Helen Hales
TILON (HOLDINGS): Begbies Traynor Named as Administrators
---------------------------------------------------------
Tilon (Holdings) Ltd was placed into administration proceedings in
The High Court of Justice, The Business & Property Courts of
England and Wales, Court Number: CR-2024-007472, and Huw Powell and
Katrina Orum of Begbies Traynor (Central) LLP were appointed as
administrators on Dec. 12, 2024.
Tilon (Holdings) Ltd is a manufacturer of plastic products.
Its registered office is at Suite I Windrush Court, Abingdon
Business Park, Abingdon, Oxfordshire, OX14 1SY.
The joint administrators can be reached at:
Huw Powell
Katrina Orum
Begbies Traynor (Central) LLP
Ground Floor, 16 Columbus Walk
Brigantine Place, Cardiff
CF10 4BY
Any person who requires further information :
Nadine Romanick
Begbies Traynor (Central) LLP
Email: nadine.romanick@btguk
Tel No: 029 2089 4270
WAGAMAMA (HOLDINGS): S&P Assigns Prelim. 'B' ICR, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating to Wagamama (Holdings) Ltd. and its preliminary 'B'
level issue rating and '3' recovery rating to the proposed GBP330
million senior secured notes with rounded recovery prospects of
55%.
S&P said, "The stable outlook reflects our view that Wagamama will
likely post top-line growth thanks to positive underlying demand
and new site expansion over 2024-2025. Under our base case, in 2025
the group should successfully manage wage inflation, resulting in
an adjusted EBITDA margin of approximately 18.5%-19.0%, which would
lead to adjusted debt to EBITDA of 5.3x-5.8x.
"We have assigned a preliminary 'B' rating based on the planned
refinancing and expected separation of Wagamama from TRG.
Wagamama, through Waga BondCo Ltd., proposes to issue GBP330
million in senior secured notes, alongside a multi-currency GBP55
million-equivalent super senior RCF, as part of the refinancing
transaction. The new debt will be used to repay Wagamama's
intragroup loans, which will ultimately refinance TRG's existing
unitranche debt facility, pay down the outstanding RCF, and support
general corporate purposes. Apollo Global Management acquired TRG
in 2023 for a total enterprise value of about GBP700 million and is
now planning to split the group in to three different businesses.
Post separation, the ultimate parent company, Rock Bidco Ltd, will
operate three businesses on a standalone basis, including Wagamama,
TRG (concessions and Barburrito banner) and the Pubs operations. We
understand TRG Holdings has agreed to provide Wagamama with certain
services, for example, group executive, finance, payroll, risk
management, IT, and legal by the concessions/head office division.
Our rating assessment underpins our view that Wagamama will sit
separately from the other entities in the TRG structure, with no
cash pooling and no cross-default or guarantees in the capital
structure across the entities. Private equity sponsor Apollo will
drive financial policy and strategic decisions, which underpins our
financial sponsor ownership assessment."
Wagamama is a leading U.K. brand in the fast-growing pan-Asian
casual dining segment of the full-service restaurant market.
According to Euromonitor, chained Asian full-service restaurants in
U.K. are expected to grow total units by 2.3% from 2023-2028,
higher than the 0.2% growth expected for the entire full-service
restaurant sector in the country. Wagamama is a well-established
brand in the U.K., with a leading 10.7% market share by value in
the chained full-service restaurants segment, according to
Euromonitor. S&P said, "We think this position offers the group the
opportunity to selectively expand its operations in the U.K. It
currently operates 165 sites, alongside eight sites in the U.S.,
previously through a joint venture and now fully owned, and 54
franchised sites globally. It is one of the few chains that has
been able to significantly expand site presence since pre-pandemic
levels, by 11%, with 28 sites opened in the last three years. We
expect this prudent expansion to continue at a rate of five to
eight sites per year in the U.K."
Innovation, a focus on health-conscious consumers, and affordable
and accessible pricing enable the group to partly mitigate
pressures on discretionary spending. The full-restaurant market is
subject to discretionary spending, and as a result, in a relatively
high inflationary environment, consumers often reduce their number
of restaurant visits. Despite the recent macroeconomic challenges,
the group managed to achieve resilient performance, posting a 9.5%
increase in revenues in 2023 and an 8% increase in the nine months
leading to 2024, mainly driven by prices and some new site
openings. S&P said, "We think this is attributable to the group's
focus on innovation and menu refreshes as it tries to appeal to a
diverse range of consumer preferences, such as vegetarian and vegan
options, as well as a diverse demographic, from low-income students
to more affluent consumers. We also understand innovating its menu
allows the group to quickly adapt prices in response to higher cost
inflation. However, we acknowledge the group aims to retain
affordable and accessible pricing, meaning there is a limit to
further price increases."
Wagamama operates with a single brand, predominantly in the highly
competitive U.K. market. Despite expectations of robust growth
for the pan-Asian casual dining market in the U.K. over the next
few years, about 90%-95% of Wagamama's revenues are generated
solely in that country, making it vulnerable to potential
headwinds. For example, a weaker consumer sentiment, lower
discretionary spending, and shifts in demand and preference
patterns in the U.K. could quickly negatively impact Wagamama's
operational performance. Positively, the group is well-diversified
across locations, including shopping centers, central London, and
towns throughout the country. Its offerings are complemented by a
partnership with Deliveroo, its exclusive delivery provider, which
ensures Deliveroo promotes Wagamama's brand. This tends to account
for about 18%-20% of revenues. Further, Wagamama is constrained by
its relatively limited size. Although it is the largest pan-Asian
full-service casual dining chain in the U.K., Wagamama is much
smaller than some competitors in the broader sector, such as
Nando's and Pizza Express, which have 486 and 363 sites in the
U.K., respectively. Additionally, being a single brand has
limitations--any disruptions, such as supply chains for ingredients
or health and safety violations, could have a materially adverse
effect on the group. Substitution risk is prevalent, since many
options in the restaurant sector operate at a similar average spend
per cover as Wagamama.
Wagamama's top line should grow through its planned site expansion
strategy, as well as continuing pricing actions. S&P said, "Given
the positive underlying market trends for pan-Asian restaurants, we
think the group has some organic growth potential over the next few
years, while price adjustments should also compensate for
inflationary impacts in the U.K. Our base case also considers
Wagamama's ongoing cautious approach on site openings, which should
lead to 15 new openings by the end of 2025, from 2023 levels,
broadly balanced between 2024 and 2025. Site expansion is likely to
focus on shopping centers and commuter towns in the U.K. since
these locations operate at higher margins relative to major towns
or in Central London. We estimate contributions from new sites will
account for 2.0%-3.5% of the group's annual growth rate, totaling
about 6.0% in 2024. By 2025, the group should post about GBP540
million-GBP550 million in revenues, a marked increase compared with
2024's growth rate. This will be driven by organic growth and site
expansion, along with a 4%-5% contribution from the acquired joint
venture business in the U.S."
Challenges on profitability will persist due to rising costs,
though Wagamama's profitability is forecast to remain steady. In
2025, labor costs are expected to rise by 15% compared with 2024,
influenced by new site openings as well as the expected
implementation of recent U.K. budget announcements. These include
an increase in the National Living Wage by 6.7% for employees aged
21 and over, and by 16% for 18–20-year-olds. S&P said, "The
government also announced a higher rate of employer Class 1
National Insurance contributions, to 15.0% from 13.8%, along with a
lower employer payment threshold, which we expect will weigh on the
group's profitability. Furthermore, we anticipate the costs of
operating the business on a standalone basis will be included in
our profitability measure from 2025, leading to an adjusted EBITDA
margin decline to about 19% in 2024, with similar levels expected
in 2025 compared to 20.4% in 2023. We think cost pressures in 2025
will be partly mitigated as Wagamama's value creation program is
implemented, which has identified areas for cost reduction.
Positively, we understand there is no requirement for significant
restructuring activities in the business because the majority of
its sites are profitable in the U.K., with the ramp-up period for
new sites to become profitable being usually less than one year."
Expansion plans will weigh on Wagamama's FOCF generation after
lease payments. S&P said, "As a result of the planned growth
strategy, we expect to see lease payments increase gradually.
However, we do expect Wagamama will be able to generate positive
adjusted FOCF after lease payments of about GBP10 million-GBP20
million in 2025. Alongside the higher lease impact, we expect free
cash flow generation will be constrained by continued capital
expenditure (capex) requirements to enact the expansion plans,
estimated at about 5%-6% of sales, split fairly evenly between
growth capex and maintenance capex." Working capital impacts may
slightly support free cash flow, with inflows in the range of GBP5
million-GBP10 million expected in 2025. Wagamama operates a
structurally negative working capital profile characterized by high
inventory turnover, which supports our forecast. S&P said, "In
2022-2023, adjusted working capital saw outflows of GBP10
million-GBP27 million, though we note these figures are influenced
by intercompany payables and receivables with TRG, with cash sweeps
occurring daily back to the group. As a result of the separation
and refinancing, we anticipate these balances will be eliminated."
EBITDA expansion supports a gradual deleveraging to 5.3x-5.8x in
2025. S&P said, "Post-transaction, we expect adjusted gross debt
to be about GBP570 million, comprising the proposed GBP330 million
senior secured notes and lease liabilities of about GBP240 million
from GBP220 million in 2024. By the end of 2025, we assume the
proposed GBP55 million RCF will remain undrawn and that,
post-separation, there will be no debt at Rock Bidco Ltd, and no
shareholder loans or other preferred equity instruments at or above
Wagamama's parent company. We also consider our adjusted EBITDAR
interest coverage ratio, projected to be about 1.5x-1.8x in 2025,
to be consistent with our preliminary 'B' rating assessment."
S&P said, "The final ratings will depend on our receipt and
satisfactory review of all final documentation and the final terms
of the separation transaction. The preliminary ratings should
therefore not be construed as evidence of final ratings. If we do
not receive the final documentation within a reasonable timeframe,
or if the final documentation and final terms of the separation
transaction depart from the materials and terms reviewed, we
reserve the right to withdraw or revise the ratings. Potential
changes include, but are not limited to, the utilization of
proceeds, maturity, size and conditions of the facilities,
financial and other covenants, security, and ranking.
"The stable outlook reflects our view that Wagamama will likely
post top-line growth thanks to positive underlying demand and new
site expansion over 2024-2025. Under our base case, in 2025 the
group should successfully manage wage inflation, resulting in an
adjusted EBITDA margin of approximately 18.5%-19.0%, which would
lead to adjusted debt to EBITDA of 5.3x-5.8x.
"We could lower the ratings if we observe a deterioration in
operating performance due to an adverse shift in consumer demand in
U.K., if the group is unable to successfully pass through cost
increases, or if we view ineffective working capital management. A
negative rating action could also occur if we observe S&P Global
Ratings-adjusted leverage increasing due to a significant
acceleration in the expansion plan or a more aggressive financial
policy regarding shareholder remuneration." Under these scenarios
we would see deteriorations in credit metrics, such as:
-- Adjusted debt to EBITDA increasing above 6.5x;
-- FOCF after lease payments becomes sustainably negative; and
-- Pressures on the liquidity profile.
S&P could raise the ratings on Wagamama if improved operating
performance leads to adjusted debt to EBITDA consistently falling
well below 5x, with FOCF after leases being sustainably and
materially positive. It would also depend on the group's financial
policy aligning with a higher rating level, without expectations of
significant spikes in leverage, possibly to fund expansion or
shareholder distributions.
*********
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-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2025. All rights reserved. ISSN 1529-2754.
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