/raid1/www/Hosts/bankrupt/TCREUR_Public/250205.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
Wednesday, February 5, 2025, Vol. 26, No. 26
Headlines
A R M E N I A
ARDSHINBANK CJSC: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
B E L G I U M
UNITED PETFOOD: Fitch Gives 'BB-' LongTerm IDR, Outlook Stable
C R O A T I A
HRVATSKA POSTANSKA: Fitch Affirms & Then Withdraws BB LongTerm IDR
G E O R G I A
SILKNET JSC: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
I R E L A N D
BLACKROCK EUROPEAN XV: Fitch Assigns 'B-' Rating on Class F Notes
NASSAU EURO II: Fitch Assigns 'B-(EXP)sf' Rating on Class F-R Notes
PURPLE FINANCE 2: S&P Affirms 'B-(sf)' Rating on Class F Notes
WATERSTOWN PARK: S&P Assigns B-(sf) Rating on Class F Notes
I T A L Y
EFESTO BIDCO: Fitch Assigns 'B(EXP)' LongTerm IDR, Outlook Stable
ENGINEERING INGEGNERIA: Fitch Assigns 'B' IDR, Outlook Stable
FEDRIGONI SPA: Fitch Assigns 'B+' LongTerm IDR, Outlook Negative
R U S S I A
TURKMENISTAN STATE INSURANCE: Fitch Assigns 'B' LongTerm IDR
S W I T Z E R L A N D
CONSOLIDATED ENERGY: Fitch Cuts LongTerm IDR to B+, Outlook Stable
T U R K E Y
ALBARAKA TURK: Fitch Affirms 'B' LongTerm IDRs, Outlook Stable
KUVEYT TURK: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
TURKIYE FINANS: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
U N I T E D K I N G D O M
CLARA.NET HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
DYNAMIC MEDICAL: Path Business Named as Administrators
EVANS GRAPHICS: KRE Corporate Named as Administrators
FROST & CO: Voscap Limited Named as Administrators
HORIZONWORKS MARKETING: KBL Advisory Named as Administrators
HWSI LIMITED: Interpath Ltd Named as Administrators
MINT REALISATIONS: Xeinadin Corporate Named as Administrators
NORTHERN POWER: Begbies Traynor Named as Administrators
PHR (NORTHERN EUROPE): Interpath Ltd Named as Administrators
SLATER HARRISON: Evelyn Partners Named as Administrators
- - - - -
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A R M E N I A
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ARDSHINBANK CJSC: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Ardshinbank CJSC's Long-Term Issuer
Default Rating (IDR) at 'BB-' with a Stable Outlook, and the bank's
Viability Rating (VR) at 'bb-'.
Key Rating Drivers
Ardshinbank's IDR is driven by the bank's standalone credit
profile, as captured by its VR. The ratings reflect the bank's
large domestic franchise, albeit with limited pricing power in a
rather granular banking sector; strong profitability, which
underpins its high capital ratios; and ample liquidity. These
factors are balanced by its assessment of the cyclical operating
environment in Armenia and resulting credit risks from a highly
dollarised and concentrated economy.
Solid Economic Growth: The operating environment for Armenian banks
is supported by the country's strong economic growth. Fitch
estimates the country's GDP grew a strong 6% in 2024 (2023: 8.3%)
and forecasts further robust growth of 5% in 2025. Fitch believes
increased business activity will continue to support the sector's
performance above its historical average, providing a reasonable
buffer against asset-quality risks.
Strengthened Business Profile: Ardshinbank has become the largest
beneficiary among local peers of an extraordinary inflow of
migrants and their money transfers to Armenia since 2022. The bank
has leveraged its leading franchise and built up solid capital and
liquidity buffers through exceptional profits and gaining new
clientele. Revenue generation in 2022-2024 was considerably above
previous averages. The acquisition of a local HSBC subsidiary
increased Ardshinbank's market share to about 22% of system assets
at end-2024 (end-3Q24: 19%).
High Dollarisation; Improved Loan Quality: High loan dollarisation
(end-3Q24: 45% of gross loans, versus the 34% sector average) and
concentration remain key weaknesses of the bank's risk profile.
Asset-quality metrics have moderately improved with impaired loans
at a low 2.5% of gross loans at end-3Q24, from 5.2% at end-2023.
Stage 2 loans, which Fitch views as high-risk, added another 2.2%
(end-2023: 3.4%).
Very Strong Performance: Ardshinbank reported a record operating
profit, at 9%-11% of risk-weighted assets (RWAs), in 2022-2024.
This was sharply higher than the 2.2% average in 2018-2021. The
extremely strong performance was mainly driven by additional income
from money transfers, currency-conversion operations, and wider
margins due to higher interest rates. Fitch expects Ardshinbank's
profitability to remain significantly stronger than its historical
average.
Capitalisation Materially Above Target: The bank's Fitch Core
Capital (FCC) ratio strengthened to a solid 25% at end-2024
(end-2023: 20%) on its very strong operating performance. Fitch
expects the ratio to remain high over 2025-2026, even after
scheduled sizeable dividend pay-outs. In the long term, Fitch
believes the current FCC ratio may moderate, as it is significantly
above the bank's target, but to remain strong.
Abundant Liquidity: The bank's loans/deposits ratio remained a
healthy 77% at end-2024 (end-2023: 71%). Liquid assets equalled a
large 66% of customer deposits or 49% of liabilities at end-2024.
Wholesale funding due within the next 12 months was moderate, with
the bank planning to roll over most of it.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A sovereign downgrade would trigger a downgrade of Ardshinbank's
ratings.
A downgrade could also result from a material deterioration in the
operating environment, leading to a sharp increase in problem
assets, which would significantly weigh on profitability and
capital. In particular, the ratings could be downgraded if higher
loan impairment charges consume most of the profits for several
consecutive quarterly reporting periods.
A reduction of the FCC ratio to below 15% on a sustained basis, due
to a combination of weaker earnings, faster growth, including that
related to M&A activity, and higher dividend pay-outs, could be
credit-negative.
Material funding disruptions could also result in a downgrade if
they translate into serious refinancing issues for the bank, which
it is unable to mitigate with available local- and foreign-currency
liquidity.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade would require a sovereign upgrade, a more diversified
business model that would strengthen the bank's earning capacity
and reduce volatility in performance, and lower balance-sheet
dollarisation.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The bank's senior unsecured eurobonds, which were issued by a
special-purpose vehicle, Netherlands-incorporated Dilijan Finance
B.V., are rated at the same level as the bank's Long-Term IDR, as
they represent its unsecured and unsubordinated obligations.
Ardshin's Government Support Rating (GSR) of 'no support' reflects
Fitch's view that the Armenian authorities have limited financial
flexibility to provide extraordinary support to the bank, given the
banking sector's large foreign-currency liabilities relative to the
country's international reserves.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's senior debt ratings are likely to move in tandem with
the IDR.
Upside for the GSR is currently limited and would require a
substantial improvement of sovereign financial flexibility as well
as an extended record of timely and sufficient capital support
being provided to local banks.
VR ADJUSTMENTS
The earnings & profitability score of 'bb' is below the 'bbb'
category implied score, due to the following adjustment reason:
revenue diversification (negative).
The capitalisation & leverage score of 'bb-' is below the 'bbb'
category implied score, due to the following adjustment reason:
risk profile and business model (negative).
ESG Considerations
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Ardshinbank CJSC LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Viability bb- Affirmed bb-
Government Support ns Affirmed ns
Dilijan
Finance B.V.
senior
unsecured LT BB- Affirmed BB-
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B E L G I U M
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UNITED PETFOOD: Fitch Gives 'BB-' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has published United Petfood Group's Long-Term Issuer
Default Rating (IDR) of 'BB-' with a Stable Outlook. Fitch has also
published an expected senior secured rating of 'BB+(EXP)' with a
Recovery Rating of 'RR2' for the planned EUR1,225 million term loan
B (TLB).
The rating reflects the company's solid position as one of the
leading producers of private label products and third-party brands
in the European pet food industry, with a broad manufacturing
network and strong innovation capabilities, ensuring resilient
relationships with customers. Fitch estimates that following the
planned TLB issuance, the group's leverage metrics will suggest
limited headroom in 2025, albeit commensurate with the rating.
The Stable Outlook reflects its expectations of the company's
ability to maintain resilient EBITDA and a healthy free cash flow
(FCF) margin over the rating horizon, driven by growing scale and
meaningful earnings expansion stemming from organic and acquisitive
growth.
Key Rating Drivers
Adequate Leverage: Fitch estimates that after the transaction, the
company's EBITDA gross leverage will increase to 4.2x at end-2025
from 1.8x estimated at end-2024. Fitch projects that United Petfood
will deleverage toward 3.5x over the forecast horizon, building
sufficient headroom under the rating, which is reflected in the
Stable Outlook. The expected deleveraging will be mainly driven by
EBITDA growth, supported by the ramp up of recent acquisitions,
healthy organic revenue growth and its assumption of continuing
bolt-on M&A, mostly financed from internally-generated cash flows.
Strong Profitability Drives Cash Generation: Fitch estimates EBITDA
and FCF margins at 23.8% and 8.9%, respectively, in 2024, which are
strong for the 'bb' rating category for the packaged food sector.
The EBITDA margin was supported by the company's growing scale and
increasing share of more profitable wet food and snacks, stabilised
cost inflation, favourable pricing agreements and operational
improvements from recent acquisitions, despite rising labour costs.
Robust profitability is also underpinned by the company's premium
strategy and low demand elasticity within the pet food industry.
Fitch expects the EBITDA margin to normalise at around 21% in 2025-
2027 due the narrowing price gap between suppliers and customers
and potential margin-dilutive M&A transactions.
Continued Strong Growth Prospects: Fitch projects revenue to
increase by 14% in 2025 due to ramp-up at recently-acquired
facilities, including in the US, planned launch of new capacity in
Poland and Romania, new wet petfood production site in Turkiye, and
expanded production lines at existing plants in Spain, France and
Belgium. Fitch estimates revenue CAGR of 10% in 2025-2027,
supported by solid organic growth, due to growing cross-selling,
improved price mix, as well as continued premiumisation trends.
Growth is likely to be aided by bolt-on acquisitions, which are
part of the group's strategy.
Moderate Diversification: Fitch considers the product offering as
limited to dry pet food, which accounted for 84% in 2024 sales. In
terms of geographic diversification, the group remains highly
reliant on Western Europe (75% of sales in 2024). This is offset by
a well-balanced offering across premium, mainstream and economic
price points. Fitch expects diversification to improve due to
ongoing investment in wet and snack production capacity as well as
a growing presence in the Turkish and US markets. The company
intends to increase diversification to APAC and the Middle East in
the long term.
Balanced Customer Base: United Petfood has a balanced client
portfolio of co-manufacturing contracts from brand owners and
private label orders from retailers, and exposure to specialty
customers. Solid exposure to brand owners and premium price segment
underpins strong profitability and high growth potential. The
retail segment ensures resilient sales volumes, while also
benefiting from growing premiumisation and innovations in the
private label goods category. The rating reflects moderate customer
concentration risks and a record of long-lasting relationships,
with a low churn rate of below 2% of revenue per year.
Leading European Pet Food Producer: United Petfood is one of
Europe's largest third-party manufacturers of pet food for retail
chains, small to medium brand owners and specialty retailers. The
company has been growing quickly via M&A and expansion projects in
addition to healthy organic sales growth, increasing its revenue to
an estimated EUR1.4 billion at end-2024 from EUR138 million in
2017.
Derivation Summary
United Petfood is smaller in size than Nomad Foods Limited
(BB/Stable), a frozen food producer, which also benefits from wider
product diversification and stronger market position. The companies
have comparable profitability and leverage, but Nomad Foods has a
stronger FCF margin at above 5%.
United Petfood is rated one notch below Ulker Biskuvi Sanayi A.S.
(BB/Stable), Turkiye's largest confectionary producer, whose rating
is constrained by the Country Ceiling. Ulker has a comparable
business profile, but significantly lower net leverage of below 2x
compared with the post-transaction leverage that Fitch projects for
United Petfood.
United Petfood is larger in size and has wider geographical
diversification than Sammontana Italia S.p.A. (B+/Stable). The
rating differential is supported by United Petfood's stronger
profitability and lower exposure to commodity price volatility, as
well as lower leverage post-transaction.
United Petfood is larger in scale and more profitable than La Doria
S.p.A. (B/Positive), an Italian manufacturer of private-label
tomato, vegetable and fruit derivatives. La Doria's Positive
Outlook is driven by its expectations of its EBITDA leverage
reduction to below 5x in 2025, still higher than its estimates of
below 4.5x for United Petfood after the transaction.
United Petfood is rated two notches above Sigma Holdco BV (Flora
Food; B/Stable) whose rating is weighed down by significantly
higher EBITDA leverage that Fitch projects at around 7x in
2024-2025. Flora Food's rating benefits from a stronger business
profile as a global market leader in plant-based spreads, bigger
size, solid brand portfolio and wider geographical
diversification.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth by 14% in 2025, remaining at high single digits
over the rating horizon; annual organic revenue growth at
mid-single digits over 2025-2027
- EBITDA margin at around 21% over the rating horizon
- Working capital-related cash outflows in the range of EUR20
million to EUR40 million per year through to 2027
- Capex at around 6.5% of sales in 2025-2026 before normalising
toward 4% in 2027
- Bolt-on acquisitions of about EUR50 million per year from 2025
- No dividend payments
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA margin falling below 15% and FCF below 5% of sales due to
weakening in operating performance
- Financial policy changes leading to EBITDA leverage sustained
above 4.5x
- EBITDA interest coverage below 4.5x
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Strong operating performance with continuing growth in scale, and
increased product diversification while maintaining solid
profitability, combined with increasing EBITDA above EUR400
million
- Maintenance of EBITDA margin above 20%, translating into an FCF
margin in the mid-single digits
- Maintenance of conservative financial policy reflected in EBITDA
leverage consistently below 3.5x
- Sufficient level of financial reporting disclosure, providing a
full set of financial statements and supplementary information
Liquidity and Debt Structure
Following completion of the transaction, Fitch estimates United
Petfood's freely available cash balance at end-2025 to be about
EUR20 million after restricting EUR15 million for daily operational
purposes. This is complemented by access to a EUR200 million
undrawn committed revolving credit facility (RCF). Fitch estimates
this should be sufficient for operations and debt servicing in
light of positive FCF and no significant debt maturing before
2032.
The two-notch uplift to the rating of the planned senior secured
EUR1,225 million TLB to 'BB+'(EXP) reflects its view of above
average recovery prospects. These are supported by moderate
leverage and the lack of material subordinated, or first loss, debt
tranche in the capital structure. The TLB and the RCF share the
same collateral and rank equally among themselves. The TLB will be
issued by the group's financing subsidiary United Petfood Finance.
Issuer Profile
United Petfood is the European leader in the sector of private
label pet food manufacturing. Product offering primarily includes
dry pet food, which accounts for 84% of sales, followed by wet pet
food and biscuits and snacks.
Date of Relevant Committee
21 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
----------- ------ --------
United Petfood
Group LT IDR BB- Publish
United Petfood
Finance
senior secured LT BB+(EXP) Publish RR2
=============
C R O A T I A
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HRVATSKA POSTANSKA: Fitch Affirms & Then Withdraws BB LongTerm IDR
------------------------------------------------------------------
Fitch Ratings has affirmed Croatia-based Hrvatska Postanska Banka,
dionicko drustvo's (HPB) Long-Term Issuer Default Rating (IDR) at
'BB' with a Positive Outlook and Viability Rating (VR) at 'bb'.
Fitch has simultaneously withdrawn all of the bank's ratings.
Fitch has chosen to withdraw HPB's ratings for commercial reasons.
Fitch will no longer provide ratings or analytical coverage of the
issuer.
Key Rating Drivers
Prior to their withdrawal, HPB's IDRs were driven by its standalone
strength, as captured by its VR. The ratings considered HPB's
moderate franchise in Croatia's small and highly concentrated
banking sector, and asset quality that was weaker than peers but
stabilising, with adequate reserve coverage. This was balanced by
improved profitability and stable capitalisation, funding and
liquidity. The Positive Outlook reflected Fitch's expectations of a
gradual improvement in HPB's asset quality, helped by favourable
operating conditions for Croatian banks, which should also benefit
HPB's risk and financial profiles.
Prior to withdrawal, the bank's Government Support Rating of 'no
support' reflected Fitch's view that support from the authorities
could not be relied on, given that Croatia has adopted resolution
legislation that required senior creditors to participate in
losses.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Not applicable as the ratings have been withdrawn.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Not applicable as the ratings have been withdrawn.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Prior to their withdrawal, HPB's 'BB' long-term deposits were rated
in line with its Long-Term IDR, as Fitch viewed the likelihood of
default on deposits as the same as that of the bank. This view
considered the absence of full depositor preference in Croatia, and
HPB's small buffer of junior and senior non-preferred debt
available to protect depositors in a resolution. At the same time,
Fitch expected HPB to meet its MREL with senior preferred debt and
equity, without using deposits. The short-term deposit rating of
'B' mapped to a 'BB' long-term deposit rating.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Not applicable as the ratings have been withdrawn.
VR ADJUSTMENTS
Prior to the withdrawal, the following adjustments were made to the
VR:
The asset quality score of 'bb-' is above the implied category
score of 'b' due to the following adjustment: historical and future
metrics (positive).
The earnings and profitability score of 'bb+' is below the 'bbb'
implied category score due to the following adjustment reason:
earnings stability (negative).
The capitalisation and leverage score of 'bb+' is below the implied
category score of 'a' due to the following adjustment: risk profile
and business model (negative).
ESG Considerations
Before the rating withdrawal, HPB's highest level of ESG credit
relevance score was '3'. This means ESG issues are credit-neutral
or have only a minimal credit impact on the entity, either due to
their nature or the way in which they are being managed by the
entity. Fitch's ESG 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
----------- ------ -----
Hrvatska postanska
banka, dionicko
drustvo LT IDR BB Affirmed BB
LT IDR WD Withdrawn
ST IDR B Affirmed B
ST IDR WD Withdrawn
Viability bb Affirmed bb
Viability WD Withdrawn
Government Support ns Affirmed ns
Government Support WD Withdrawn
long-term
deposits LT BB Affirmed BB
long-term
deposits LT WD Withdrawn
short-term
deposits ST B Affirmed B
short-term
deposits ST WD Withdrawn
=============
G E O R G I A
=============
SILKNET JSC: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed Silknet JSC's Long-Term Issuer Default
Rating (IDR) at 'B+' with a Stable Outlook. Fitch has also affirmed
rating on Silknet's senior unsecured debt, including the USD300
million senior unsecured notes at 'BB-' with a Recovery Rating of
'RR3'.
The ratings reflect Silknet's stable market position as a strong
number two telecoms operator in Georgia, low leverage and positive
free cash flow (FCF) generation. They also reflect longer-term 5G
strategic uncertainty in a less stable macroeconomic environment.
The company's small absolute size and high FX exposure is a
weakness, while a record of related-party transactions entails
higher credit risk than suggested by the company's comfortable
operating and financial profile.
Key Rating Drivers
Entrenched Market Positions: Fitch expects Silknet to broadly
sustain its competitive positions in a highly consolidated but also
relatively small market of 5.7 million mobile and 1.1 million
internet retail customers. Georgia is predominantly serviced by two
large operators, Magticom and Silknet, with the third largest,
Celffie, significantly behind, and other smaller players holding
just a fraction of the market. Silknet's revenue market shares were
36% in mobile and 34% in fixed-line broadband segments in 3Q24.
Stable Market: The overall market is likely to remain stable as
Cellfie has become less aggressive. Cellfie's subscriber base was
almost unchanged in 2023-2024, while its average revenue per user
(ARPU) significantly caught up with peers, and was equal to 65% of
the highest market ARPU in 3Q24, compared with 55% in 3Q22,
reducing pricing competition.
No New 5G Spectrum Auctions: Silknet is lacking dedicated 5G
spectrum following its decision to not participate in the 5G
spectrum auctions in August 2023, and later in October 2024 as it
viewed the conditions as onerous. Although sufficient spectrum
remains available in Georgia, the regulator may refrain from
holding any additional spectrum auctions in the medium term as
other operators recently secured their 5G spectrum portfolio, and
the second auction was to accommodate the request of empty-handed
operators.
5G Strategic Vulnerability: Silknet has limited 5G options with
potentially negative implications for its competitive position in
the long term. Fitch believes any resolution of its current 5G
conundrum is likely to be more expensive than earlier available
solutions and it may never reach full 5G parity with its key rival
Magticom. The only currently available option is to repurpose some
of the available spectrum for 5G use, and potentially apply for a
wholesaling agreement with other operators.
5G Spectrum Price Tag: Magticom paid GEL149 million for its 5G
spectrum portfolio in October 2024, and Fitch believes Silknet may
face an investment of at least equal size if there is an
opportunity to acquire a similar 5G spectrum portfolio. This is
equal to 0.4x of its 2024 EBITDA, and could be accompanied by
additional infrastructure investments.
Limited Wholesaling Options: Accessing the 5G network of other
operators on a wholesale basis may not be easy. Only Cellfie, the
smallest operator with the least developed infrastructure, has a
mandatory obligation to share its 5G network with mobile virtual
network operators. Magticom effectively paid a 20% premium to avoid
this obligation, and while Magticom is deemed to have significant
market power and has to share its network, 5G spectrum may be
outside this arrangement.
Macroeconomic Uncertainty: Fitch revised its Outlook on Georgia
sovereign's 'BB' rating to Negative, reflecting weaker
international reserve cover and sharply increased political risk
that could affect investor and domestic confidence, exert pressure
on external liquidity and the exchange rate. Fitch expects economic
growth to remain robust but projects GDP growth moderation to 5.3%
in 2025 and 5.0% in 2026 from an estimated 8.7% in 2024.
High FX Mismatch: Silknet has high FX exposure, with leverage
sensitive to changes in the lari exchange rate. All of its debt and
close to 70% of its capex are FX-denominated, while nearly all
revenue is in local currency. The company hedged its expected FX
outflows until end-2025 which reduces its short-term exposure.
Substantial FX risk is reflected in tighter leverage thresholds
relative to peers.
Strong Cash Flow: Fitch projects Silknet will maintain strong cash
flow generation supported by high, EBITDA margins of above 55% and
moderate capex requirements of below 20% of revenues, propelling
its pre-dividend FCF margin to close to 30%. With a renegotiated
Eurobond covenant that allows higher dividend distributions until
leverage reaches 1.75x, Fitch expects most of its free cash to be
returned to shareholders but capped by domestic net income
regulation.
Low Leverage: Silknet has low leverage (Fitch expects 1.2x net
debt/EBITDA at end-2024), which Fitch expects to be sustained well
below its 3x negative leverage sensitivity trigger, even with
higher shareholder distributions, assuming no dramatic FX
movements.
Dominant Shareholder Influence: Silknet's ultimate parent, Silk
Road Group, can exercise significant influence on the company as
demonstrated by a number of related party transactions over the
last 10 years. This is reflected in an elevated ESG Relevance score
for Governance Structure. Its Eurobond documentation has some
restrictions on both shareholder distributions and access to cash
flows, which Fitch believes offer some creditor protection.
Overall, Fitch views Silknet's governance as commensurate with the
'B' rating category.
Derivation Summary
Silknet's peer group includes emerging-markets telecom operators
Kazakhtelecom JSC (BBB-/Stable), Kcell JSC (BB+/Stable), Turkcell
Iletisim Hizmetleri A.S. (BB-/Stable) and Turk Telekomunikasyon
A.S. (BB-/Stable) and also Telekom Srbija a.d. Beograd
(B+/Positive)
Silknet benefits from its established customer franchise and the
wide network of a fixed-line telecoms incumbent, combined with a
strong mobile business similar to Kazakhtelecom's and Turk
Telecomunikasyon. However, Silknet is smaller in size, faces high
FX risks and is only the second-largest telecoms operator in
Georgia. Its corporate governance is shaped by dominant shareholder
influence.
Similar to Turkcell and Turk Telecomunikasyon, Silknet's FX risk
also results in tighter leverage thresholds for any given rating
compared with other rated companies in the sector. Its leverage is
low and broadly comparable with its emerging-markets peers.
Key Assumptions
- Mid-single digit revenue growth on average in 2024-2027, with
mobile revenues growing ahead of broadband revenues
- Fitch-defined EBITDA margin of 57% in 2024, declining to 53% in
2026-2027, with content-cost amortisation and subscriber
acquisition cost amortisation treated as operating cash expenses,
reducing EBITDA and capex
- Cash capex of below 20% in 2024-2027
- FCF returned to shareholders subject to domestic regulatory and
Eurobond covenant restrictions
- GEL/USD rate weakening by 5% per year
Recovery Analysis
Key Recovery Rating Assumptions
- The recovery analysis assumes that Silknet would be considered a
going concern (GC) in bankruptcy and that it would be reorganised
rather than liquidated.
- Fitch assumes USD200 million of unsecured debt outstanding at
end-2024 following buying back USD100 million of the USD300 million
bond.
- The GC EBITDA estimate of GEL200 million reflects Fitch's view of
a sustainable, post-reorganisation EBITDA upon which it bases the
valuation of the company.
- An enterprise value/EBITDA multiple of 4.0x is used to calculate
a post-reorganisation valuation, reflecting a conservative
post-distressed valuation.
- A 10% fee for administrative claims.
- The Recovery Rating for Georgian issuers is capped at 'RR3' and
therefore the rating of Silknet's senior unsecured instrument is
rated one notch above the Long-Term IDR of 'B+', at 'BB-' with
expected recoveries capped at 70%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA net leverage rising above 3x on a sustained basis without
a clear path for deleveraging in the presence of significant FX
risks
- A significant reduction in pre-dividend FCF generation driven by
competitive or regulatory challenges
- A rise in corporate-governance risks due to, among other things,
related-party transactions or up-streaming excessive distributions
to shareholders
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Strong market leadership in key segments in Georgia while
maintaining positive FCF generation, comfortable liquidity and a
record of improved corporate governance
Liquidity and Debt Structure
Silknet had a comfortable liquidity position at end-September 2024,
with GEL232 million of cash and cash equivalents (of which GEL54
million was slated for an October 2024 coupon payment and the rest
predominantly invested into FX instruments). The company does not
have a revolving credit facility. Silknet is heavily exposed to
bullet refinancing risk as its principal debt instrument is a
USD300 million Eurobond (USD200 million outstanding at
end-September 2024) maturing in January 2027.
Issuer Profile
Silknet is the second-largest telecoms operator in Georgia with
over 30% market shares in key mobile, broadband and Pay-TV segments
supported by its incumbent fixed-line infrastructure across the
country, with the exception of capital Tbilisi.
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
Silknet JSC has an ESG Relevance Score of '4' for Group Structure
due to the dominate majority shareholder's influence over the
company and related-party transactions, which has a negative impact
on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
Silknet JSC has an ESG Relevance Score of '4' for Governance
Structure due to the dominate majority shareholder's influence over
the company and related-party transactions, which has a negative
impact on the credit profile, and is relevant to the rating[s] 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
----------- ------ -------- -----
Silknet JSC LT IDR B+ Affirmed B+
senior unsecured LT BB- Affirmed RR3 BB-
=============
I R E L A N D
=============
BLACKROCK EUROPEAN XV: Fitch Assigns 'B-' Rating on Class F Notes
-----------------------------------------------------------------
Fitch Ratings has assigned BlackRock European CLO XV DAC final
ratings.
Entity/Debt Rating
----------- ------
Blackrock European
CLO XV DAC
A XS2952453012 LT AAAsf New Rating
B-1 XS2952453285 LT AAsf New Rating
B-2 XS2952453442 LT AAsf New Rating
C XS2952453798 LT Asf New Rating
D XS2952453954 LT BBB-sf New Rating
E XS2952454176 LT BB-sf New Rating
F XS2952454333 LT B-sf New Rating
Subordinated
Notes XS2952454507 LT NRsf New Rating
Transaction Summary
BlackRock European CLO XV DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds have been used to purchase a portfolio with a target par
of EUR400 million. The portfolio is actively managed by BlackRock
Investment Management (UK) Limited (BlackRock) and the CLO has a
reinvestment period of five years and an eight-year weighted
average life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 24.5.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 63.4%.
Diversified Portfolio (Positive): The transaction includes two
matrices covenanted by a top 10 obligor concentration limit at 20%
and fixed-rate asset limits of 5% and 12.5%; both are effective at
closing. It has various concentration limits, including a maximum
exposure to the three largest Fitch-defined industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year on the step-up date, which is one year after closing.
The WAL extension is subject to conditions, including passing the
collateral-quality tests, portfolio profile tests, coverage tests,
and meeting the reinvestment target par, with defaulted assets
considered at their collateral value.
Portfolio Management (Neutral): The transaction has a reinvestment
period of about five years and includes reinvestment criteria
similar to those of other European transactions. Fitch's analysis
is based on a stressed case portfolio with the aim of testing the
robustness of the transaction structure against its covenants and
portfolio guidelines.
Cash Flow Modelling (Positive): The WAL for the transaction's
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, which
include passing the coverage tests, the Fitch WARF test and the
Fitch 'CCC' bucket limit test after reinvestment, as well as a WAL
covenant that progressively 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 lead to downgrades of no more than one notch each
for the class B-1, B-2, C and D notes and have no impact on the
class A, E and F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B-1, B-2, C, D and E notes
each display a rating cushion of two notches, the class F notes
have a cushion of three notches, while the class A notes have no
rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to four
notches.
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 four notches, 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
transaction's remaining life. After the end of the reinvestment
period, upgrades may result from stable portfolio credit quality
and deleveraging, leading to higher credit enhancement and excess
spread to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
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 Blackrock European
CLO XV 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.
NASSAU EURO II: Fitch Assigns 'B-(EXP)sf' Rating on Class F-R Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Nassau Euro CLO II DAC reset notes
expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
Entity/Debt Rating
----------- ------
Nassau Euro
CLO II DAC
A-R LT AAA(EXP)sf Expected Rating
B-R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
Transaction Summary
Nassau Euro CLO II DAC is a securitisation of mainly senior secured
obligations with a component of senior unsecured, mezzanine,
second-lien loans and high-yield bonds. Note proceeds will be used
to redeem the existing notes (except the subordinated notes) and to
fund the existing portfolio. The portfolio is actively managed by
Nassau Global Credit (UK) LLP (Nassau). The collateralised loan
obligation (CLO) will have a reinvestment period of 4.7 years and
an 8.7-year weighted average life test (WAL test).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B' /'B-'. The Fitch weighted
average rating factor of the identified portfolio is 25.3.
High Recovery Expectations (Positive): At least 92.5% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 63.2%.
Diversified Portfolio (Positive): The transaction will include
various portfolio concentration limits, including a fixed-rate
obligation limit at 10%, a top 10 obligor concentration limit of
20%, and a maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction will have a
reinvestment period of 4.7 years 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 used for the Fitch-stressed
portfolio analysis is 12 months less than the WAL covenant. This
reduction to the risk horizon accounts for the strict reinvestment
conditions envisaged by the transaction after its reinvestment
period. They include passing both the coverage tests and the Fitch
'CCC' bucket limitation test post reinvestment, as well as a WAL
covenant that progressively steps down over time, both before and
after the end of the reinvestment period.
This reduces the maximum possible risk horizon of the portfolio,
when combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase in the mean default rate (RDR) and a 25% decrease in
the recovery rate (RRR) across all ratings of the identified
portfolio would have no impact on the class A and F notes but would
lead to downgrades of one notch each for the class B, C, D and E
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, C, D, and
E notes each display a rating cushion of two notches, while the
class F notes have a cushion of five notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to three
notches each for the class A and D notes, up to four notches each
for the class B and C 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 two notches each for the class B, C and D notes,
and up to three notches each for the class E and F notes. The class
A notes are rated 'AAAsf' and cannot be upgraded further.
During the reinvestment period, upgrades, based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, allowing
the notes to withstand larger-than-expected losses for the
remaining life of the transaction. After the end of the
reinvestment period, upgrades, except for the 'AAAsf' notes, may
result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
thirdparty assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Nassau Euro CLO II
DAC.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose any ESG factor that is a
key rating driver in the key rating drivers section of the relevant
rating action commentary.
PURPLE FINANCE 2: S&P Affirms 'B-(sf)' Rating on Class F Notes
--------------------------------------------------------------
S&P Global Ratings raised its credit ratings on Purple Finance CLO
2 DAC's class B notes to 'AA+ (sf)' from 'AA (sf)', class C-1 and
C-2 notes to 'AA (sf)' from 'A (sf)', and class D notes to 'A-
(sf)' from 'BBB (sf)'. At the same time, S&P affirmed its 'AAA
(sf)' rating on the class A notes, 'BB (sf)' rating on the class E
notes, and 'B- (sf)' rating on the class F notes.
The rating actions follow the application of S&P's global corporate
CLO criteria and our credit and cash flow analysis of the
transaction based on the December 2024 trustee report.
Since the closing date in October 2019:
-- The weighted-average rating of the portfolio remains unchanged
at 'B'.
-- The portfolio has become more concentrated, as the number of
performing obligors has decreased to 102 from 116.
-- The portfolio's weighted-average life has decreased to 3.52
years from 6.12 years.
-- The percentage of 'CCC' rated assets has increased to 3.38%
from 0.00% of the performing balance.
-- The liabilities decreased by EUR76.88m, while the assets
declined by 84.46m, resulting in a EUR7.57m loss, equivalent to
--1.89% of the aggregate collateral balance since closing.
-- Following the deleveraging of the senior notes, the class A to
E notes benefit from higher levels of credit enhancement compared
with S&P's previous review.
Credit enhancement
Current amount At closing
Class (mil. EUR) Current (%) in 2019 (%)
A 171.12 45.77 38.00
B 40.70 32.87 27.83
C-1 8.90 25.30 21.85
C-2 15.00 25.30 21.85
D 24.00 17.69 15.85
E 23.80 10.15 9.90
F 11.60 6.47 7.00
Sub Notes 34.45 N/A N/A
N/A--Not applicable.
The scenario default rates (SDRs) have decreased for all rating
scenarios primarily due to a reduction in the weighted-average life
since the closing date (3.52 years from 6.12 years).
Portfolio benchmarks
SPWARF 2,989.45
Default rate dispersion 450.23
Weighted-average life (years) 3.52
Obligor diversity measure 87.09
Industry diversity measure 16.12
Regional diversity measure 1.15
SPWARF--S&P Global Ratings' weighted-average rating factor.
On the cash flow side:
-- The reinvestment period for the transaction ended in October
2023.
-- The class A notes have deleveraged by EUR76.88 million since
closing, equivalent to an outstanding note factor of 69%.
-- No class of notes is currently deferring interest.
-- All coverage tests are passing as of the December 2024 report.
Transaction key metrics
Total collateral amount (mil. EUR)* 315.54
Defaulted assets (mil. EUR) 0.00
Number of performing obligors 102
Portfolio weighted-average rating B
'AAA' SDR (%) 62.22
'AAA' WARR (%) 36.32
*Performing assets plus cash and expected recoveries on defaulted
assets.
SDR--Scenario default rate.
WARR--Weighted-average recovery rate.
In S&P's view, the portfolio is diversified across obligors,
industries, and asset characteristics.
S&P said, "In our credit and cash flow analysis, we considered the
transaction's available current cash balance of approximately EUR45
million, per the December 2024 trustee report. Although the manager
actively traded assets in 2024, no assets were purchased since
August 2024 following the failure of the weighted-average life test
for this transaction. Additionally, proceeds not reinvested post
the reinvestment period shall be disbursed in accordance with the
principal proceeds priority of payments on the following payment
date, as per the transaction documentation.
"While a portion of the proceeds might have been allocated in the
January 2025 payment date (from which information is not yet
available), we took into consideration the weighted-average life
test failure and the repayment of the notes on the last two payment
dates. Therefore, while potential reinvestments may prolong the
note repayment profile for the most senior class, we have
considered as a base case, the possibility for the structure to
amortize most of its proceeds in the following payment date.
Additionally, we considered other scenarios with the full amount of
principal cash to be reinvested.
"Our base case credit and cash flow analysis indicates that the
available credit enhancement for the class A notes is sufficient to
withstand the credit and cash flow stresses that we apply at the
'AAA' rating level. We therefore affirmed our 'AAA (sf)' rating.
"Our cash flow analysis indicates that the available credit
enhancement for the class B, C-1, C-2, D, and E notes is
commensurate with higher ratings than those assigned. For these
classes, we considered the manager may still reinvest all or a part
of unscheduled redemption proceeds and sale proceeds from
credit-impaired and credit-improved assets. We also considered the
level of cushion between our break-even default rates and SDRs for
these notes at their passing rating levels, as well as current
macroeconomic conditions and these tranches' relative seniority. We
therefore limited our upgrades to the class C-1, C-2, D, and E
notes."
For the class F notes, S&P's credit and cash flow analysis indicate
that the available credit enhancement could withstand stresses
commensurate with a lower rating. S&P therefore applied its 'CCC'
rating criteria, and considered the following key factors:
-- The tranche's available credit enhancement, which is in the
same range as that of other CLOs S&P has rated and that has
recently been issued in Europe.
-- The portfolio's average credit quality, which is similar to
other recent CLOs.
-- Assuming full reinvestment of current cash proceeds, our model
generated break-even default rate at the 'B-' rating level of
20.88% (for a portfolio with a weighted-average life of 3.52
years), versus if S&P was to consider a long-term sustainable
default rate of 3.1% for 3.25 years, which would result in a target
default rate of 10.91%.
-- S&P does not believe that there is a one-in-two chance of this
tranche defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
-- Having considered the above, S&P affirmed its 'B- (sf)' rating
on the class F notes.
S&P considers the transaction's exposure to country risk to be
limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our structured finance sovereign risk criteria.
Counterparty, operational, and legal risks are adequately mitigated
in line with S&P's criteria.
Purple Finance CLO 2 DAC is a European cash flow CLO transaction
that securitizes loans granted to primarily speculative-grade
corporate firms. The transaction is managed by MV Credit Partners
LLP.
WATERSTOWN PARK: S&P Assigns B-(sf) Rating on Class F Notes
-----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Waterstown Park
CLO DAC's class A-1, A-2, B, C, D, E, and F notes. The issuer also
issued unrated subordinated notes.
The reinvestment period will be approximately 4.50 years, while the
non-call period will end 1.50 years after closing.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The ratings assigned to the notes reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings weighted-average rating factor 2,834.94
Default rate dispersion 543.77
Weighted-average life (years) 4.06
Weighted-average life (years) extended
to cover the length of the reinvestment period 4.49
Obligor diversity measure 133.33
Industry diversity measure 21.61
Regional diversity measure 1.21
Transaction key metrics
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0.00
Number of performing obligors 152
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.85
Target 'AAA' weighted-average recovery (%) 36.93
Actual weighted-average spread (net of floors; %) 3.73
Actual weighted-average coupon (%) N/A
N/A--Not applicable.
S&P's ratings reflect its assessment of the collateral portfolio's
credit quality, which has a weighted-average rating of 'B'.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, S&P conducted its credit and cash flow
analysis by applying its criteria for corporate cash flow CDOs.
The transaction includes an amortizing reinvestment target par
amount, which is a predetermined reduction in the value of the
transaction's target par amount unrelated to the principal payments
on the notes. This may allow for the principal proceeds to be
characterized as interest proceeds when the collateral par exceeds
this amount, subject to a limit, and affect the reinvestment
criteria, among others. This feature allows some excess par to be
released to equity during benign times, which may lead to a
reduction in the amount of losses that the transaction can sustain
during an economic downturn. Hence, in our cash flow analysis, S&P
assumed a starting collateral size of less than target par (i.e.,
the EUR400 million target par minus the EUR7.5 million maximum
reinvestment target par adjustment amount).
S&P said, "In our cash flow analysis, we also modeled the
covenanted weighted-average spread of 3.68%, the covenanted
weighted-average coupon of 4.00%, and the targeted weighted-average
recovery rates at each rating level. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Under our structured finance sovereign risk criteria, the
transaction's exposure to country risk is sufficiently mitigated at
the assigned ratings.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"The issuer has purchased approximately 50% of the portfolio from a
secured special-purpose vehicle (SPV) grantor via participations;
we consider this purchase to comply with our legal criteria. The
transaction documents also require that the issuer and secured SPV
grantor use commercially reasonable efforts to elevate the
participations by transferring to the issuer the legal and
beneficial interests as soon as reasonably practicable following
the closing date.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B, C, D and E notes could
withstand stresses commensurate with higher ratings than those
assigned. However, as the CLO will be in its reinvestment phase
starting from the effective date, during which the transaction's
credit risk profile could deteriorate, we have capped our ratings
assigned to the notes."
The class A-1 and A-2 notes can withstand stresses commensurate
with the assigned ratings.
For the class F notes, S&P's credit and cash flow analysis indicate
that the available credit enhancement could withstand stresses
commensurate with a lower rating.
However, S&P has applied its 'CCC' rating criteria, resulting in a
'B- (sf)' rating on this class of notes.
The ratings uplift for the class F notes reflects several key
factors, including:
-- The class F notes' available credit enhancement, which is in
the same range as that of other CLOs S&P has rated and that have
recently been issued in Europe.
-- The portfolio's average credit quality, which is similar to
other recent CLOs.
-- S&P's model generated break-even default rate at the 'B-'
rating level of 25.28% (for a portfolio with a weighted-average
life of 4.49 years), versus if it was to consider a long-term
sustainable default rate of 3.1% for 4.49 years, which would result
in a target default rate of 13.92%.
-- S&P does not believe that there is a one-in-two chance of this
tranche defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with the
assigned 'B- (sf)' rating.
-- Following S&P's analysis of the credit, cash flow,
counterparty, operational, and legal risks, it believes that its
ratings are commensurate with the available credit enhancement for
the class A-1, A-2, B, C, D, E, and F notes.
S&P said, "In addition to our standard analysis, we have also
included the sensitivity of the ratings on the class A-1 to E
notes, based on four hypothetical scenarios
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. For this transaction,
the documents prohibit assets from being related to the following
industries: controversial weapons, animal welfare, firearms,
thermal coal, oil and gas, palm oil, displacement, projects,
hazardous chemicals, payday lending, tobacco, opioids, pornography
or prostitution, and cannabis.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities."
Waterstown Park CLO is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Blackstone
Ireland Ltd. manages the transaction.
Ratings list
Amount Credit
Class Rating* (mil. EUR) enhancement (%) Interest rate§
A-1 AAA (sf) 244.00 39.00 Three/six-month EURIBOR
plus 1.28%
A-2 AAA (sf) 4.00 38.00 Three/six-month EURIBOR
plus 1.65%
B AA (sf) 46.00 26.50 Three/six-month EURIBOR
plus 2.00%
C A (sf) 22.00 21.00 Three/six-month EURIBOR
plus 2.30%
D BBB- (sf) 28.00 14.00 Three/six-month EURIBOR
plus 3.20%
E BB- (sf) 18.00 9.50 Three/six-month EURIBOR
plus 5.70%
F B- (sf) 12.00 6.50 Three/six-month EURIBOR
plus 8.35%
Sub notes NR 31.30 N/A N/A
*The ratings assigned to the class A-1, A-2, and B notes address
timely interest and ultimate principal payments. The ratings
assigned to the class C, D, E, and F notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
EFESTO BIDCO: Fitch Assigns 'B(EXP)' LongTerm IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has assigned Efesto Bidco S.p.A. (Forgital Group) a
first-time Long-Term Issuer Default Rating (IDR) of 'B(EXP)'. The
Outlook is Stable. Fitch has also assigned the proposed senior
secured notes co-issued by Efesto Bidco S.p.A. and Efesto US, LLC
an expected rating of 'B(EXP)' with a Recovery Rating of 'RR4'.
The IDR is constrained by Forgital's small scale, concentrated
customer base, material exposure to cyclical end-markets and high
leverage. The rating is supported by a strong position in a niche
market, sustainably healthy EBITDA margins, neutral to positive
free cash flow (FCF) generation, and long-term relationships with
its key customers, including Rolls-Royce plc (BBB-/Positive).
Fitch expects ongoing strong EBITDA generation on solid demand in
aerospace to drive a material improvement in EBITDA leverage from
2026, which will bring the leverage metric within the rating
sensitivity and supports the Stable Outlook.
Key Rating Drivers
Planned Transaction: Stonepeak announced that it has agreed to
acquire Forgital Group from its main shareholder, Carlyle, for
EUR1.5 billion. As part of the transaction, Forgital Group plans to
issue EUR760 million bond (equivalent) which will be used to repay
its current bond of USD505 million. The assignment of final ratings
is contingent on completion of the transaction and acquisition
expected in 1H25, in line with the terms already presented.
High Leverage to Improve: Following the transaction and increased
debt, Fitch expects the group's EBITDA leverage to weaken to 6.8x
by end-2025, compared with 4.6x expected at end-2024. However, due
to expected solid EBITDA generation Fitch forecasts a significant
improvement in leverage metrics in the absence of material working
capital swings with normalised capex. Fitch forecasts EBITDA
leverage to improve to 5.6x by end-2026, within the negative rating
sensitivity. A delay in leverage reduction would lead to negative
rating action.
Healthy Margins, Upward Trend: Despite the drop during and
post-pandemic, the group's EBITDA margins have historically been
solid, similar to some supplier peers in the sector. The
Fitch-defined EBITDA margin was 17% in 2023 and Fitch expects it to
increase to 21% in 2024. This will be supported by growing exposure
to the aerospace segment, which has higher margins, and improved
operating leverage accompanied by cost-saving initiatives,
primarily reflecting reduced energy expenses. Fitch forecasts
EBITDA margins to remain comfortably above 20% during 2025-2028.
Neutral to Positive FCF: Despite the healthy EBITDA margin, Fitch
expects the group to generate only neutral to marginally positive
FCF generation due to high interest following the transaction and
assuming capex of about EUR35 million annually. Fitch forecasts the
FCF margin at around 1% in 2025 and to remain only marginally
positive thereafter, due to expected higher working capital outflow
following expected volume growth.
Evolving End-Market Diversification: The group's end-market
exposure has changed over the last four years, with the aerospace
segment share increasing (about 70% of total revenue for 9M24)
compared with the industrials segment, which is currently affected
by sluggish demand. Fitch expects a solid aerospace order book to
support 70%-80% of revenues during 2025-2028 and thus strong
profitability. Nevertheless, commercial aerospace exposure (50% of
the group's revenue for 9M24) may affect the group's performance
due to its highly cyclical nature.
Concentrated Customer Base: Forgital's key customer is Rolls-Royce,
from which it derives about 40% of total revenue. This presents
high customer concentration risk, although it is offset by the
strong, long-term relationship, robust recovery of Rolls-Royce's
operating performance and the difficulty of replacing Forgital in
the short term on most programmes, taking into account
certification requirements and other barriers to entry in the
industry.
Solid Backlog: As of end-September 2024, the group's estimated
order backlog with contracts until 2035 in the aerospace segment
was EUR3.9 billion, exceeding 10x expected aerospace revenue in
2025. The solid backlog provides the group with strong revenue
visibility in the aerospace segment where the group is primarily
operating under long-term contracts. The majority of this backlog
relates to wide-body aircraft.
Small Scale, Good Market Position: The group is one of the leading
producers of metallic forgings and large rings for aerospace and
industrial end-markets. Nevertheless, Fitch considers Forgital's
small size and scale limit its credit profile as they restrict its
ability to absorb cost overruns in times of crisis. Mitigating
factors are long-term relationships with key customers and the
group's solid role in the engine supply chain.
Industry Tailwinds Support Growth: Forgital's growing exposure to
the aerospace segment is driven by a rebound in the industry and
the ongoing rise of air traffic and growing production rates at
original equipment manufacturers. The narrow-body segment (about
14% of the group's total revenue in 9m24) is bouncing back more
rapidly than the wide-body segment (about 36%), but both are
currently contributing to Forgital's improving operational results.
The favourable demand dynamics support Fitch's forecast of a high
single-digit revenue growth during 2025-2028.
Derivation Summary
Forgital operates as a tier 2 supplier in the aerospace and defence
(A&D) industry and has some exposure to general industrials.
Forgital is currently a similar size as Aernnova Aerospace S.A.U.
(B/Stable) and Ovation Parent, Inc. (B+/Stable), but is much
smaller than higher rated peers such as MTU Aero Engines AG
(BBB/Stable) and Howmet Aerospace Inc. (BBB/Positive).
Forgital and Aernnova are reliant on one key customer for a
material share of their revenue and backlog (Rolls-Royce for
Forgital and Airbus SE (A-/Positive) for Aernnova).
Forgital's financial profile is characterised by a healthy EBITDA
margin that is similar to Ovation and some industrials peers like
EVOCA S.p.A. (B/Stable) and Ammega Group B.V. (B-/Stable). The
group's profitability margins are stronger than Aernnova and The
NORDAM Group LLC (B-/Stable). Similar to Ovation, the company
exhibits sustainably positive FCF margins, albeit at a lower
level.
Expected high EBITDA leverage of over 6.0x by end-2025 is
commensurate with that of The NORDAM Group and Ammega, but expected
improvement of leverage to 5.6x by end-2026 compares well with the
leverage metrics of 'B' rated issuers like Ovation and EVOCA.
Key Assumptions
- Revenue rises in 2024 by 18.6% year-on-year; mid-single digit
revenue growth in 2025 followed by mid-teens growth during
2026-2028, supported by expected ramp-up under certain programmes
and new orders intake
- EBITDA margin to increase to about 21% in 2024 and 21%-23%
thereafter supported by higher volumes and cost savings
- Capex of about EUR35 million annually in 2024-2028
- Equity issuance of EUR795 million in 2025
- Fitch assumes a new bond issue of EUR760 million equivalent in
2025 with a fixed interest rate above that of the company's
assumption
- Repayment of the existing USD505 million bond
- No M&As or dividend payments
Recovery Analysis
- The recovery analysis assumes that Forgital would be reorganised
as a going concern (GC) in bankruptcy rather than liquidated.
- A 10% administrative claim.
- Fitch estimates Forgital's GC EBITDA at EUR90 million. The GC
EBITDA reflects its view of a sustainable, post-reorganisation
EBITDA on which Fitch bases the valuation of the group.
- An enterprise value (EV) multiple of 5.5x is applied to GC EBITDA
to calculate a post-reorganisation valuation, which is comparable
with multiples applied to aerospace and defense peers. It reflects
Forgital's leading market position in a niche industry, long-term
and successful cooperation with its main customer, Rolls-Royce,
high barriers to entry and healthy profitability margins. At the
same time, the EV multiple reflects the group's limited
geographical diversification and constrained scale.
- Fitch deducts about EUR35 million from the EV attributed to usage
of factoring in line with its criteria.
- Fitch estimates the total amount of senior debt claims at EUR888
million, which includes a proposed EUR125 million super senior
secured revolving credit facility (RCF), EUR760 million equivalent
senior secured notes and an additional EUR2.5 million unsecured
debt.
- Its waterfall analysis generates a ranked recovery for Forgital's
notes equivalent to 'RR4', leading to a 'B(EXP)' rating. The
waterfall generated recovery computation output score is 38%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage above 6.0x on a sustained basis
- Neutral to negative FCF
- EBITDA interest coverage sustained below 2.0x
- Loss of main customer or pricing pressure leading to structural
deterioration of the EBITDA margin
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Increased customer and end-market diversification while
maintaining heathy profitability
- EBITDA leverage below 5.0x on a sustained basis
- FCF margin above 3%
- EBITDA interest coverage sustained above 3.0x
Liquidity and Debt Structure
At end-2024, readily available cash was expected to be EUR15
million (net of Fitch-restricted cash of about EUR10 million).
Following the proposed transaction, the group will have a EUR125
million undrawn RCF with 6.5 years maturity. Fitch-defined
short-term debt at end-2024 comprised drawn non-recourse and
recourse factoring utilisation of about EUR31 million.
The debt structure post-transaction will consist primarily of
approximately EUR760 million equivalent of senior secured notes.
The planned maturity of these notes is seven years meaning the
company will have no material scheduled debt repayments until
2032.
Issuer Profile
Forgital Group is a leading manufacturer of advanced metallic
forgings and large rolled rings for aerospace and industrial end
markets.
Date of Relevant Committee
24 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
----------- ------ --------
Efesto Bidco S.p.A. LT IDR B(EXP) Expected Rating
senior secured LT B(EXP) Expected Rating RR4
Efesto US, LLC
senior secured LT B(EXP) Expected Rating RR4
ENGINEERING INGEGNERIA: Fitch Assigns 'B' IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has assigned Engineering Ingegneria Informatica
S.p.A.'s (EII) new notes a 'B' expected rating, with a Recovery
Rating of 'RR4'. Fitch has also affirmed EII's Long-Term Issuer
Default Rating (IDR) at 'B' with a Stable Outlook.
EII intends to issue EUR650 million five-year senior secured notes
to refinance their EUR605 million senior secured notes and repay a
EUR38.4 million term loan B (TLB), both due in September 2026. The
transaction is neutral to its leverage. The company's revolving
credit facility (RCF) has also been upsized by EUR10 million to
EUR205 million, and extended to 2028. The final rating is
contingent on the terms being in line with current expectations and
on the extension of its payment-in kind (PIK) notes to beyond the
company's debt maturities.
The IDR reflects EII's high leverage, weak coverage ratios and
limited free cash flow (FCF) for 2025-2027, which is balanced by
its strong market position in Italy and supportive industry
trends.
Key Rating Drivers
High Leverage: Fitch estimates EII's Fitch-defined EBITDA leverage
was stable at 6.3x at end-2024, and at the higher end of its
sensitivities for the 'B' rating. While Fitch-defined EBITDA in
2024 grew 6.3% compared with 2023, leverage remained neutral, due
to increases in debt. Fitch expects EBITDA leverage to decline by
0.2x-0.3x a year in 2025-2027 as growing EBITDA is slightly offset
by higher factoring utilisation. This will allow EII to build some
rating headroom while remaining comfortably within its thresholds
for a 'B' rating.
Low Interest Coverage: EBITDA interest coverage will fall below its
negative sensitivity of 2.0x in 2026, due to the full impact of
higher-coupon debt raised in the last three years, as well as the
full-year effect of the higher-cost refinancing. This metric will
remain under pressure, until after 2028 when it is expected to
benefit from gradual increases in EBITDA.
Moderate Organic Growth: Fitch expects EII's organic revenue growth
to average 3% for 2025-2028. It trades mainly in Italy, where Fitch
expects slow GDP growth of 0.9% in 2025. However, trends and
incentives for digitalisation under the Italian National Recovery
and Resilience Plan should facilitate new contract wins. Fitch
expects the finance and energy and utilities segments to be key
contributors to growth in 2025, while health care normalises
following a large one-off spike in 2023, due to a telemedicine
contract.
Some Increase in Profitability: Fitch estimates Fitch-defined
EBITDA margin to have increased to 14% in 2024 from 13.5% in 2023,
following cost restructuring and the realisation of synergies.
Fitch expects margins will remain at around the same level to 2028,
with growth of 0.1%-0.2% each year. EII's revenues are driven by
mission- critical IT services and consultancy in digital
transformation, where personnel and outsourced technical support
make up the majority of the cost base. Margins are lower than at
pure software providers.
Proprietary Software and Digitech: EII has invested heavily in
their proprietary software technology and Digitech service
offerings and expects to see its revenues grow in these two
services lines. Capex in 2023 and 2024 was aimed at increasing
EII's competitive advantage to capture more profitable growth from
these two segments. Revenues from proprietary technologies have
higher profitability, and growth in this segment should allow for
EBITDA margin increases.
Labour Costs Constrain Margin Growth: Fitch expects contract
profitability to only marginally increase, as specialised labour
cost inflation is compensated by relocations of part of the
workforce to lower labour-cost areas in the country. However,
overall profitability could see higher-than-expected increases, as
investments in proprietary technologies increase the segment's
share of total revenue.
Poor FCF Generation: FCF margins were negative in 2023 and 2024.
Fitch forecasts FCF to remain low at 0.2%-1% in 2025 and 2026,
before recovering to above 1.5% in 2028. EII is expected to reduced
capex to EUR62 million in 2024, from its peak of EUR91 million in
2023, and further reductions to around EUR40 million-EUR45 million
in 2025-2029 are expected. Non-recurring costs will also decrease
to around EUR20 million in 2025, supporting FCF stabilisation.
Delays in the normaliation of FCF generation would put pressure on
the rating.
Strong Position in Italy: EII ranks among the top-three companies
in Italy in implementation and management of software applications,
with a market share of around 10%. Its scale and reputation have
helped it grow faster than GDP over the last 20 years, driven by
investments and acquisitions. Fitch believes that EII will be able
to capitalise on expected growth in digital investments in Italy,
which still lags the rest of western Europe. However, the domestic
market remains competitive.
Derivation Summary
EII's Fitch-rated leveraged buyout (LBO) peers include IT service
companies such as Cedacri S.p.A. (B/Stable) and AlmavivA S.p.A.
(BB/Stable). Additionally, it is comparable to employee resource
planning software-as-a-service providers, TeamSystem S.p.A.
(B/Stable) and Unit4 Group Holding B.V. (B/Stable). EII's revenue
share of internally developed software solutions of 13% is lower
than that of TeamSystem and Unit4, whose revenues are almost
exclusively from internally developed software. This is reflected
in EII's lower revenue visibility and weaker margins. However, this
is balanced by EII's strong diversification and leading market
positions in the Italian IT software and consulting services
markets.
EII has similar leverage to its LBO peers but generates lower
EBITDA and FCF margins. This is related to the lower profitability
from system-integration and Digitech services and the limited
scalability of industry-specific proprietary software solutions and
consulting services compared with other software peers, which have
either a stronger subscription model or pure software content.
Key Assumptions
- Revenue growth of 1.9% and 2.6% in 2024 and 2025, respectively,
followed by 4.2% in 2026 and 3.4% in 2027
- Fitch-defined EBITDA margin to grow to 14.1% in 2024 and then to
rise slowly to 14.6% by 2027
- Negative working-capital outflows offset by factoring utilisation
to 2027
- Capex at around 2%-2.5% of revenue in 2025-2027
- Bolt-on acquisitions of EUR10 million a year from 2025 onwards
Recovery Analysis
The recovery analysis assumes that EII would be considered a
going-concern (GC) in bankruptcy, and that it would be reorganised
rather than liquidated, given the inherent value behind its
contract portfolio, its incumbent software licenses, and strong
client relationships.
Fitch has assumed a 10% administrative claim. Fitch assesses GC
EBITDA at about EUR175 million, which, after the undertaking of
corrective measures, would generate neutral FCF.
Financial distress, leading to a restructuring, may be driven by
severe recessionary effects, shrinking the client base as customers
cut back on non-critical consulting and outsourcing. Additionally,
should the company fall technologically behind its competitors, it
may lose its clients' business-critical projects to competition.
A multiple of 5.5x is applied to the GC EBITDA to calculate a
post-reorganisation enterprise valuation. This is in line with
multiples used for other software-focused issuers rated in the 'B'
category.
Its recovery analysis includes EII's EUR485 million senior secured
notes ranking equally with the new EUR650 million notes. Fitch
assumes a fully drawn super senior RCF of EUR205 million, and
around EUR100 million of bilateral facilities and other financial
liabilities.
Fitch assumes EUR228 million of receivables factoring is not
available in a restructuring. The debt waterfall analysis results
in expected recoveries of 35% for the senior secured debt,
resulting in a 'RR4' Recovery Rating and a 'B' instrument rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage consistently above 6.5x
- EBITDA/interest paid below 2.0x
- Worsening FCF margins below 1% through the cycle, with increases
in cash outflows from working capital and higher capex
requirements
- Deterioration in the quality of revenue towards a less recurring,
contract-led revenue model
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage below 5.0x on a sustained basis
- Cash from operations less capex/total debt at mid-to-high
single-digit percentages, due to higher contract profitability and
improved working-capital management
- EBITDA/interest paid sustained above 3.0x
- Increase of subscription-based recurring sales in the revenue
mix
Liquidity and Debt Structure
Liquidity is underpinned by cash on balance sheet and by an
estimated undrawn amount available under the RCF of around EUR155
million at end-2024 and EUR165 million pro-forma for the planned
increase in the RCF.
Working capital can be volatile, as significant investments in
client receivables are key to securing contracts. In addition,
EII's quarterly working-capital volatility may lead to drawdowns on
the RCF or further increases in factoring utilisation. This will
affect Fitch-adjusted debt metrics and lead to increases in
leverage, if not accompanied by an increase in EBITDA.
Fitch has assumed EUR150 million of restricted cash for end-2024,
of which EUR80 million is guaranteed to R&D partners and the
remaining EUR70 million is an estimate of the company's
peak-to-trough cash on its balance sheet each quarter. Fitch treats
the company's PIK instrument as equity, which is contingent on its
maturity being beyond of all other debt instruments. The PIK
maturity is expected to be postponed in tandem with this
refinancing.
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
EII has an ESG Relevance Score of '4' for Governance Structure, due
to the legal and commercial risks derived from being a contractor
for the public sector in Italy, 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
----------- ------ -------- -----
Engineering
Ingegneria
Informatica S.p.A. LT IDR B Affirmed B
senior secured LT B(EXP) Expected Rating RR4
senior secured LT B Affirmed RR4 B
FEDRIGONI SPA: Fitch Assigns 'B+' LongTerm IDR, Outlook Negative
----------------------------------------------------------------
Fitch Ratings has assigned Fedrigoni S.p.A. a Long-Term Issuer
Default Ratings (IDR) of 'B+'. The Rating Outlook is Negative.
Fitch has also revised the Outlook for Fiber Bidco S.p.A.'s
Long-Term IDR to Negative from Stable and affirmed its IDR at 'B+'.
At the same time, Fitch has withdrawn Fiber Bidco S.p.A.'s rating.
The Negative Outlook mainly reflects an increase in Fitch-defined
debt in 2024 and expected continued subdued operating profitability
in 2025, thereby driving leverage sharply above its negative rating
sensitivity. Further weakening in profitability with weaker free
cash flows (FCF), and delays to deleveraging would result in a
downgrade. Fitch may change the Outlook to Stable if Fitch sees a
lower risk of key ratios remaining weak for the rating.
Fedrigoni's 'B+' IDR balances the group's high leverage with a
solid business profile and sound, but temporarily subdued,
profitability.
Fitch has withdrawn Fiber Bidco S.p.A.'s rating, following the
group's completion of a reverse merger, which resulted in Fiber
Bidco S.p.A. ceasing to exist as a standalone entity. Accordingly,
Fitch will no longer provide ratings or analytical coverage for
Fiber Bidco S.p.A.
Key Rating Drivers
Leverage Limits Rating Headroom: Fedrigoni's high leverage
currently leaves no rating headroom. However, Fitch expects
leverage to fall below 6x by end-2026 on improving margins and
solid revenue growth. Fitch estimates high EBITDA gross leverage at
7.5x at end-2024 and forecast it at 6.7x at end-2025, due to an
increase in Fitch-defined debt in 2024 and subdued operating
profitability.
The partial refinancing completed in 2024 has extended the group's
maturity profile and reduced financing costs. However, Fitch
expects total debt to increase to EUR1.9 billion-EUR2 billion in
2024-2027, from EUR1.5 billion in 2023. This is due primarily to
the EUR300 million senior holdco 'pay if you can' toggle notes (PIK
toggle notes) issued by Fiber Midco S.p.A. which, along with
additional cash proceeds, were used to repay the group's PIK vendor
loan that Fitch has viewed as equity-like.
Subdued Near-Term Profitability: Fitch expects the group's
Fitch-defined EBITDA margin to remain subdued in 2025, due mainly
to a slowing luxury end-market. Fitch forecasts the Fitch-defined
EBITDA margin to improve to 14%-14.5% in 2026-2027, from 13%-13.5%
in 2024-2025, on a gradual shift in the business mix towards more
profitable niches (eg premium fillers, luxury packaging, wine
labels) and further savings from procurement and manufacturing
initiatives. Combined with mid-single-digit annual organic revenue
growth in 2024-2027, this will support positive FCF generation,
which remains a credit strength.
Slowing Luxury End-Market: The group's exposure to the luxury
end-market exacerbates downside risk to its short-term
profitability recovery. In 2H24, the group's performance was hit by
a slowdown in demand for luxury goods. Fitch expects that consumer
confidence will likely remain low in most western European
countries in 2025, affecting spending on luxury goods.
Improving Interest Coverage: Fitch expects EBITDA interest coverage
to gradually improve to 3.8x by 2027 on a lower average cost of
financing, following partial refinancing and moderating interest
rates, as well as projected strong EBITDA growth. In 2023-2024, the
group recorded temporarily weak EBITDA interest coverage of
1.8x-2.0x, due to subdued operating profitability and higher
interest rates.
Solid Business Profile: Fedrigoni's business profile is underpinned
by its strong positions in growing premium niche markets. This is
complemented by both sound end-market and customer diversification,
with significant exposure to fairly resilient end-markets in food
and beverage, household goods, pharma and personal care. Other
strengths are the breadth and quality of its product range,
well-established relations with leading luxury brands, a sound
record of cost pass-through, a high share of tailor-made products,
and an efficient distribution network.
Acquisitive Growth Strategy: Fitch anticipates that Fedrigoni will
continue its M&A-driven growth strategy, but at lower M&A spend of
about EUR30 million in 2025, down from the previously assumed
EUR150 million. In the near term, Fitch expects it to focus on
integrating its recent acquisitions. Execution risks are mitigated
by its successful integration record and a prudent acquisition
policy that focuses on high-quality companies with strong capital
returns. The M&A pipeline, deal parameters, and post-merger
integration remain crucial rating considerations.
Derivation Summary
Fedrigoni is a specialty paper and packaging producer that is
smaller in scale than Fitch-rated peers such as Stora Enso Oyj
(BBB-/Stable) and Smurfit Westrock plc (BBB/Positive).
Fitch views Fedrigoni's business profile as slightly stronger than
that of recycled paperboard producer, Reno de Medici S.p.A. (RDM;
B+/Stable), due mainly to stronger product and geographic
diversification.
Fitch views Fedrigoni's financial profile as weaker than RDM's, due
mainly to its higher expected leverage. Both companies have sound
profitability with expected positive FCF generation and moderate
operating profitability.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue to grow organically in the mid-single digits annually in
2025-2027 from EUR1.9 billion in 2024
- Net M&A spend of around EUR30 million in 2025, and EUR100 million
annually in 2026-2027 (no guidance from the group)
- Fitch-defined EBITDA margin to improve to 14%-14.5% in 2026-2027,
from 13%-13.5% in 2024-2025 on demand recovery and cost control
- Working-capital requirement at 0.5% of revenue in in 2025-2027
- Capex at 3.5% of revenue in 2025-2027
- No dividends to 2028
Recovery Analysis
The recovery analysis assumes that Fedrigoni would be considered a
going-concern (GC) in bankruptcy, and that it would be reorganised
rather than liquidated, given its strong market position and
customer relationships. Fitch has assumed a 10% administrative
claim.
The group's GC EBITDA estimate of EUR230 million reflects Fitch's
view of a sustainable, post-reorganisation EBITDA on which Fitch
bases the group's enterprise valuation (EV). The GC EBITDA reflects
intense market competition resulting in subdued operating
profitability. The increase in GC EBITDA to EUR230 million from the
previous EUR220 million estimate reflects the structural impact of
new M&A bolt-on acquisitions.
Fitch used a 5.5x EBITDA multiple, reflecting the group's strong
position in growing premium niche markets, established customer
relationships, and a well-developed own distribution network. Its
multiple is in line with those of RDM and Ardagh Group S.A.
At 30 September 2024, the debt structure comprised its EUR665
million floating-rate notes, new EUR430 million fixed-rate notes, a
EUR180 million revolving credit facility (RCF; assumed fully
drawn), about EUR320 million factoring (mostly non-recourse),
around EUR127 million other debt (including modest debt at Tageos
on proportional consolidation), an EUR90 million unsecured
government loan, and EUR311 million PIK toggle notes.
Its waterfall analysis generates a ranked recovery for senior
secured noteholders in the 'RR3' category, leading to a 'BB-'
rating for the senior secured notes. The waterfall-generated
recovery computation output percentage is 58%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA gross leverage above 6.0x on a sustained basis
- EBITDA interest coverage below 2.0x on a sustained basis
- Inability to generate positive FCF on a sustained basis
- Problems with integration of acquisitions, or increased debt
funding
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA gross leverage below 4.5x on a sustained basis
- FCF margins above 3% on a sustained basis
Liquidity and Debt Structure
At end-September 2024, Fedrigoni's liquidity mainly consisted of
about EUR104 million of readily available cash (excluding about
EUR15 million restricted by Fitch for intra-year working-capital
swings) and access to an undrawn RCF of about EUR180 million due
2027. Fitch expects positive FCF generation in 2025-2027.
The group has no significant short-term debt maturities, apart from
an overdraft and non-recourse factoring. Its debt structure is
dominated by long-dated senior secured notes and the government
loan. The group's EUR430 million fixed-rate notes are due in 2031.
Its EUR665 million floating-rate notes are due in 2030 and its
EUR311 million PIK notes are due in 2029.
Issuer Profile
Fedrigoni is an Italian leading producer of specialty paper and
self-adhesive labels operating in over 130 countries.
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
Fedrigoni has an ESG Relevance Score of '4[+]' for Exposure to
Social Impacts, due to consumer preference shift to more
sustainable packaging solutions such as paper packaging, which has
a positive 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
----------- ------ -------- -----
Fedrigoni S.p.A. LT IDR B+ New Rating
senior secured LT BB- Affirmed RR3 BB-
Fiber Bidco S.p.A. LT IDR B+ Affirmed B+
LT IDR WD Withdrawn
===========
R U S S I A
===========
TURKMENISTAN STATE INSURANCE: Fitch Assigns 'B' LongTerm IDR
------------------------------------------------------------
Fitch Ratings has assigned The State Insurance Organization of
Turkmenistan (SIOT) an Insurer Financial Strength (IFS) Rating and
a Long-Term Issuer Default Rating (IDR) of 'B'. The Rating Outlooks
are Stable.
Key Rating Drivers
State Ownership Credit-Positive: SIOT is fully owned by the
government of Turkmenistan (BB-/Stable). Fitch expects the
government to be able and willing to support the company, given the
importance of the national insurance sector, in which SIOT holds a
dominant share and SIOT's exclusive role as a compulsory insurance
provider. These considerations result in a single-notch uplift to
SIOT's IFS Rating from Fitch's assessment of the company's
standalone credit quality of 'b-'.
Weak Operating Environment: Turkemenistan's operating environment
suffers from weak regulatory oversight and limited technical
sophistication in the underwriting practices and product offering,
as well as weak system capabilities and market use of enterprise
risk management. The government's ability to identify risks in
insurers' capital positions is hampered by a loose regulatory
framework. Minimum capital requirements are not risk-based and do
not account for accumulated losses or additional charges for
operating across multiple insurance business lines.
Leading Domestic Insurer: SIOT is the largest, state-owned
insurance company in Turkmenistan, with a leading business
franchise and a dominant market position, accounting for 90% of
sector premiums in 1H24. The company primarily offers property
insurance, which represented 61% of 2023 premiums. SIOT is also an
exclusive provider of compulsory insurance in the country and
offers motor third party liabilities and compulsory passenger,
fire, employee, and environmental insurance products as well as
manages the state military life insurance programme.
Weak Capital Position: Fitch views SIOT's capitalisation as weak,
as measured by its Prism Global model. High asset risk is the
primary contributor to the insurer's target capital requirement. It
does not pay dividends; however, unlike other insurance companies
in the country, it is subject to a 50% income tax, which consumes a
substantial part of its profits, thereby pressuring internal
capital generation. The company also has an accumulated loss of
TMT77 million at end-2023, which also pressures its capital
position.
High Investment Risk: Fitch views SIOT's investment and asset risk
as high, due to the low credit quality of local banks and the
presence of large equity investments. The insurer's portfolio
mainly comprises liquid assets such as cash (16% as of end-2023)
and local bank deposits (74%). Equity investments, equalling 43% of
SIOT's capital, are invested in local companies engaged in
financial, logistics, and other businesses.
Adequate Financial Performance: SIOT reported strong underwriting
results of TMT90 million in 2023, with a very low 24% combined
ratio, and healthy good investment income of TMT9.7 million.
Pre-tax profit was TMT99 million or 14% of total assets. According
to management reporting, the financial results for 2024 are similar
to those of 2023, with a profit before tax of TMT74.6 million for
11M24, close to TMT71.4 million for 11M23.
However, SIOT's substantial profit before tax is largely offset by
the 50% income tax and other comprehensive expenses like
maintenance of residential buildings, afforestation works, and
participation in state events, which are not reflected in the
profit or loss statement. These factors significantly constrained
SIOT's profitability, reducing net income to TMT6.4 million from
TMT44.6 million in 2023 (0.9% of total assets).
Simplistic Reserving Practices: SIOT's reserving practices are
basic and may not capture the full extent of reserving risks. It
calculates reserves as a percentage of net premiums under insurance
contracts. Fitch therefore believes that SIOT is exposed to
reserving risk, due to its limited actuarial expertise and
unsophisticated regulatory reserving methodology.
Sizeable Dependence on Reinsurance: SIOT makes significant use of
reinsurance, ceding a substantial part of its property and
liability insurance premiums on a facultative basis. SIOT's net to
gross premiums ratio was 50% in 2023 and 48% on average since 2020.
The credit quality of the reinsurance panel is mixed. While most
reinsurers are large international companies based in the UK or
Switzerland, there are also reinsurers from Kazakhstan, Russia,
China, and the UAE.
Corporate Governance Reflects Low Transparency: The insurance
sector in the country is marked by limited transparency and public
disclosure. Reporting practices are restricted, limiting public
insight into the financial position and performance of
Turkmenistan's insurance companies. Local accounting provide only
limited transparency on important financial areas such as capital
structure and expenses. The low financial transparency of SIOT
negatively affects its assessment of its company profile.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Worsening of its assessment of the insurance's operating
environment in Turkmenistan through, for example, a deterioration
in economic or business conditions
Reduction in the government's ability or willingness to support the
company
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improvement of its assessment of the insurance's operating
environment in Turkmenistan
Stronger evidence of government propensity to support the company
Date of Relevant Committee
16 January 2025
ESG Considerations
SIOT has an ESG Relevance Score of '5' for Financial Transparency,
due to restricted reporting practices, which has a negative impact
on the credit profile, and is highly relevant to the rating.
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
----------- ------
The State Insurance
Organization of
Turkmenistan LT IDR B New Rating
LT IFS B New Rating
=====================
S W I T Z E R L A N D
=====================
CONSOLIDATED ENERGY: Fitch Cuts LongTerm IDR to B+, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Rating
(IDR) for Consolidated Energy Limited (CEL) to 'B+' from 'BB-'.
Fitch has also affirmed the company's secured debt at 'BB+' with a
Recovery Rating of 'RR1', and downgraded the unsecured debt to
'B+'/'RR4' from 'BB-'/'RR4'. The Rating Outlook is Stable.
The downgrade reflects Fitch's expectation that elevated balance
sheet debt and slower than anticipated EBITDA growth will result in
EBITDA leverage above 4.5x through the ratings horizon. The 'B+'
IDR reflects CEL's position as a leading global supplier of
methanol, advantaged North American positioning and the expectation
for strong cash generation in a strong pricing environment,
methanol's sensitivity to crude and natural gas prices and China's
demand, and the potential for high capital outlays.
Key Rating Drivers
Narrowing Deleveraging Path: CEL proactively reduced debt by
repaying $160 million in unsecured notes due 2022 and $150 million
in unsecured notes due 2026. Management has articulated a 3.0x
EBITDA leverage target, and Fitch expects sufficient cash
generation for material deleveraging in the medium term. However,
recovery in Ammonia & Derivatives pricing following its sharp
decline in 2023 has been limited, and despite rising methanol
prices, margins and cash flow generation remain insufficient to
significantly advance deleveraging.
In addition, Fitch recognizes that the company's acquisition of a
majority stake in OMC demonstrates a willingness to pursue viable
alternative uses of cash to debt reduction. Although management has
indicated that they do not intend to pursue any further growth
spending, the ultimate funding mix and cash generation with respect
to any growth spending that does occur would be important in
determining the rate at which the company is able to reduce debt.
Commodity Price Exposure: CEL and other methanol producers have
benefited from historically high methanol contract prices in recent
years, with average U.S. contract prices around $700/MT in 3Q24.
Though Fitch believes that the near-term pricing environment will
soften as global fuel supply comes back online, a generally
favorable demand environment for olefins and polyolefins coupled
with ongoing strength in fuel demand should continue to drive a
strong methanol pricing environment.
In addition to a steep decline in fertilizer pricing in 2023, there
was an extended outage at the company's ammonia, urea, melamine
complex in Trinidad which had an impact of about $114m impact on
EBITDA and for which the Company has filed a valid insurance claim
of $60m. In addition, in 2024 there was a major turnaround at CEL's
Natgasoline plant followed by an outage following a pipe rupture on
September 29, which is subject to a valid insurance claim and for
which Natgasoline has already received $30 million. Fitch
anticipates both facilities will run at typical utilization rates
in 2025 and beyond. However, these outages and the generally
volatile commodity price environment highlight the structural risks
the company faces as a commodity producer with three business
lines.
Evolving Capital Structure: On Dec. 29, 2023, the company acquired
an additional stake in the Oman Methanol Company LLC (OMC),
increasing its total stake from 26.1% to 60.0% ownership for $347
million. Fitch anticipates that management will pursue modest debt
reduction in the near term with its consistently strong cash
generation. Management intends to refinance Natgasoline's 2025 TLB
maturities sometime in 1Q25.
Low Cost Producer: The pricing dynamics of natural gas continue to
drive CEL's position as a low-cost producer of methanol. Natural
gas is the company's main feedstock, which is advantaged relative
to coal and coke oven production. The company's core methanol
plants are positioned within the lower quartile of the cost curve,
and Fitch believes that modest capacity additions are unlikely to
change this dynamic. As a result, CEL is expected to maintain this
advantage over the ratings horizon.
Energy Applications Drive Profitability: Methanol prices are
volatile, while methanol's feedstock costs are linked to natural
gas and coal prices in Asia. As a result, sharp declines in the
methanol/gas price ratio can periodically pressure the credit.
Methanol demand is increasingly driven by methanol for energy
applications which includes MTO plants, gasoline blendstocks to
increase octane (MTBE), a substitute for bunker fuel, and as an
industrial boiler fuel. Energy applications for methanol are
sensitive to demand in China, particularly MTO.
Derivation Summary
CEL is smaller than methanol industry peer Methanex Corp.
(BB+/Stable) and fertilizer industry peers ICL Group Ltd.
(BBB-/Stable) and CF Industries Holdings, Inc. (BBB/Stable). Though
all issuers enjoyed strong pricing environments and robust cash
flows in recent years, methanol producers CEL and Methanex have
elected to use this period as an opportunity to pursue a more
conservative capital deployment strategy.
In contrast, CF Industries and ICL Group tend to enjoy more stable
balance sheets. Methanex is moving forward with a reduced dividend
and lower levels of share repurchases while it uses its excess cash
to self-fund a large capacity expansion in Geismar, LA, while CEL
has pursued a mix of debt reduction and inorganic growth through
the OMC transaction. Both companies benefit from a North American
orientation, which has proven especially beneficial in the methanol
industry, but CEL's slightly lower scale and reach, coupled with
higher leverage, mean that it faces more credit risk overall.
Key Assumptions
- Methanol prices moderate in the second half of 2025 and
thereafter, with cost-advantaged production driving earnings rather
than price increases;
- Ammonia - FOB Middle East $/tonne per Fitch's nitrogen fertilizer
price assumptions (published Jan. 13, 2025): 360 in 2023, 330 in
2025, and 300 in 2026 and thereafter;
- No significant capital expenditures in 2025 and beyond - Fitch
notes that the decision to move forward with a significant capacity
expansion at that time would likely be coupled with a materially
stronger pricing environment than is consistent with Fitch's
forecast;
- Excess cash used primarily for deleveraging;
- Maturing debt not repaid with cash is refinanced.
Recovery Analysis
The recovery analysis assumes CEL would be reorganized as a going
concern (GC) in bankruptcy rather than liquidated. Fitch has
assumed a 10% administrative claim.
The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganization EBITDA level upon which the valuation of the
company is based. The GC EBITDA depicts a scenario in which a
durable and structural reduction in methanol demand coupled with
durably high gas prices lead to a severe contraction in the
company's earnings and cash flow profile. The assumption also
reflects corrective measures taken in the reorganization to offset
the adverse conditions that triggered default, such as cost-cutting
efforts and industry recovery.
An enterprise value (EV) multiple of 6.0x EBITDA is applied to the
GC EBITDA for post-reorganization EV. The multiple is comparable to
the range of historical bankruptcy case study exit multiples for
peer companies, which ranged from 5.0x to 8.0x. Bankruptcies in
this space related either to litigation or to deep cyclical
troughs. The revolving credit facility is assumed 80% drawn.
Fitch's recovery assumptions lead to an 'RR1' recovery rating and
'BB+' for senior secured debt, and an 'RR4' recovery rating and
'B+' for senior unsecured debt.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Midcycle EBITDA leverage durably above 5.5x;
- Elevated capital or equity-friendly spending, representing a
departure from management's commitment to deleveraging;
- Sustained disruption in operations of major facilities.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Midcycle EBITDA leverage durably below 4.5x, potentially driven
by increased global demand for methanol as a power source and
marine fuel;
- Demonstrated commitment to a conservative capital deployment
strategy even during periods of strong earnings and cash flow
metrics;
- Increased product diversification.
Liquidity and Debt Structure
Fitch expects CEL to maintain solid liquidity throughout the
ratings horizon, with solid medium-term cash generation and
substantial availability on its new $175 million revolving credit
facility due 2029. Natgasoline faces an approximately $500 million
maturity in 2025, which the company intends to refinance in 1Q25.
Issuer Profile
CEL is a leading methanol and nitrogen producer with facilities in
Trinidad and Tobago, the U.S., and Oman, serving markets globally.
Its ammonia from Trinidad and Tobago is mainly exported to the U.S.
for fertilizers.
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
----------- ------ -------- -----
Consolidated Energy
Limited LT IDR B+ Downgrade BB-
Consolidated Energy
Finance S.A.
senior unsecured LT B+ Downgrade RR4 BB-
senior secured LT BB+ Affirmed RR1 BB+
===========
T U R K E Y
===========
ALBARAKA TURK: Fitch Affirms 'B' LongTerm IDRs, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Albaraka Turk Katilim Bankasi A.S.'s
(Albaraka Turk) Long-Term Foreign- (LTFC) and Local-Currency (LTLC)
Issuer Default Ratings (IDRs) at 'B'. The Outlooks are Stable.
Fitch has also affirmed the bank's Viability Rating (VR) at 'b'.
Fitch has upgraded Albaraka Turk's National Long-Term Rating to
'BBB+(tur)' from 'BBB(tur)'. The Outlook is Stable. The upgrade
reflects a strengthening in its creditworthiness relative to that
of other Turkish issuers in LC, following sustained improvements in
the bank's underlying profitability and stable asset-quality
metrics amid an improving operating environment.
Key Rating Drivers
VR Drives Ratings: Albaraka Turk's Long-Term IDRs are driven by its
standalone creditworthiness, as reflected in its VR. The VR
considers the bank's limited franchise and high leverage but also
the bank's adequate funding and liquidity, and niche franchise in
the participation-banking subsector.
Small Market Share: Albaraka Turk had a 1% market share of total
banking sector assets at end-3Q24. This is despite it having a 12%
share in participation banking, a niche segment accounting for 8%
of banking-sector assets.
Concentrated Financing Portfolio: Credit risks are heightened by
the bank's high FC financing (end-3Q24: 39.9% of gross financing),
as not all borrowers are fully hedged against lira depreciation,
exposure to the real estate sector (14% of financing) and
single-name concentration risk. Profit-and-loss sharing projects
accounted for 5% of the financing book at end-3Q24.
Asset Quality Risk: The bank's non-performing financing (NPF)
declined to 1.5% at end-3Q24 (end-2023: 1.7%), due primarily to
write-offs and nominal loan growth, rather than recoveries. Its
Stage 2 financing ratios decreased to 5.6% from 7% in the same
period. Macro volatility, single-name concentration, exposure to
troubled sectors, and FC financings, lead to asset-quality risks.
Fitch expects its asset quality to deteriorate moderately in 2025,
and the NPF ratio to be 2.3% at end-2025.
Reasonable Profitability: Albaraka Turk's operating profit
decreased to 2.6% of average total assets at end-3Q24 (2023: 3.2%),
due to a decline in its net financing margin on higher funding and
swap costs, rising operating expenses and lack of trading income.
Fitch expects margins to recover in 2025 as the monetary policy
eases but loan impairment charges to increase and the operating
profit/average assets ratio to be at 2.2%.
Only Adequate Capitalisation: Albaraka Turk's common equity Tier 1
(CET1) ratio declined to 10.5% (net of forbearance 9.2%) at
end-3Q24, from 11.5% at end-2023, due to a tightening of
forbearance measures and high growth. As an Islamic bank, Albaraka
Turk benefits from a 50% reduction in risk-weighting on assets
financed by profit share accounts, resulting in an uplift of about
200bp (Fitch estimate) to its end-3Q24 CET1 ratio.
Leverage is high, as reflected in an equity/assets ratio of 6.3% at
end-3Q24 (sector: 9%). NPFs are fully covered by total reserves,
while pre-impairment operating profit (end-3Q24: equal to a fairly
high 6% of gross financing) and free provisions (3.2% of
risk-weighted assets (RWAs)) provide additional buffers.
Capitalisation is sensitive to macro-economic risk, lira
depreciation and asset-quality risk. Fitch expects the CET1 ratio
to decline to around 10% at end-2025.
Adequate FC Liquidity: Albaraka Turk is largely deposit-funded
(end-3Q24: 73% of non-equity funding; 46% in FC). Wholesale funding
is high at 27% of non-equity funding, and 80% of it is in FC,
exposing it to refinancing risks, particularly if market volatility
hits investor sentiment. FC liquidity, mainly comprising FC
government securities and placements in foreign banks, is
sufficient to cover all maturing external FC debt within 12 months,
plus a moderate share of FC deposits at end-3Q24.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Albaraka Turk's Long-Term IDRs are mainly sensitive to a downgrade
of its VR.
The VR is sensitive to a weakening in the operating environment. It
is also sensitive to a sovereign downgrade. An erosion in the
bank's capitalisation buffers, likely driven by worse-than-expected
asset- quality deterioration, a sharp increase in risk appetite, or
pressure on profitability and FC liquidity could lead to a
downgrade of the VR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Albaraka Turk's IDRs could be upgraded if the bank's VR is
upgraded.
An upgrade of the bank's ratings would require an upward revision
of its assessment of the operating environment for Turkish banks,
coupled with a record of healthy financial performance, including a
reduction in leverage, plus stable asset quality and earnings
performance.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Albaraka Turk's USD1 billion trust certificate issuance programme
is housed under Albaraka MTN Ltd, a special-purpose vehicle
incorporated in the Cayman Islands solely to issue certificates
(sukuk) under the programme. The trust certificate issuance
programme's ratings are at the level of Albaraka Turk's LTFC IDR of
'B' and Short-Term FC IDR of 'B'. The Recovery Rating of these
notes is 'RR4', reflecting average recovery prospects in a
default.
The bank's 'B' Short-Term IDRs are the only possible option mapping
to the Long-Term 'B' IDR category.
The bank's Government Support Rating (GSR) of 'no support' reflects
Fitch's view that support from the Turkish authorities cannot be
relied on, given the bank's small size and limited systemic
importance. Shareholder support, while possible, cannot be relied
on.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The programme ratings are sensitive to changes in Albaraka Turk's
IDRs. The ratings may also be sensitive to changes to the role and
obligations of Albaraka Turk under the sukuk's structure and
documentation.
The National Rating is sensitive to a change in the bank's
creditworthiness in LC relative to that of other Turkish issuers.
An upgrade of the 'no support' GSR is unlikely, given Albarka
Turk's limited systemic importance and franchise.
VR ADJUSTMENTS
The operating environment score of 'b' for Turkish banks is lower
than the category implied score of 'bb', due to the following
adjustment reasons macroeconomic stability (negative). The
adjustment reflects heightened market volatility, high
dollarisation, and a high risk of foreign-exchange fluctuations in
Turkiye.
ESG Considerations
Albaraka Turk has an ESG Relevance Score of '4' for 'Management
Strategy', reflecting increased regulatory intervention in the
Turkish banking sector, which hinders the operational execution of
management's strategy, constrains management's ability to determine
strategy and price risk, and creates an additional operational
burden for the bank. This has a negative impact on the bank's
credit profile and is relevant to the ratings in conjunction with
other factors.
As an Islamic bank, Albaraka Turk needs to ensure compliance of its
entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit. This results in a 'Governance
Structure' ESG Relevance Score of '4', which has a negative impact
on the bank's credit profile, and is relevant to the ratings in
combination with other factors.
In addition, Albaraka Turk has an ESG Relevance Score of '3' for
'Exposure to Social Impact's, which reflects that Islamic banks
have certain sharia limitations embedded in their operations and
obligations, although this only has a minimal credit impact on the
entities.
Except for the matter discussed above, the highest level of ESG
credit relevance, if present, is a score of 3 - 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 of the materiality
and relevance of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Albaraka Turk
Katilim Bankasi
A.S. LT IDR B Affirmed B
ST IDR B Affirmed B
LC LT IDR B Affirmed B
LC ST IDR B Affirmed B
Natl LT BBB+(tur)Upgrade BBB(tur)
Viability b Affirmed b
Government Support ns Affirmed ns
Albaraka
MTN Ltd
senior
unsecured LT B Affirmed RR4 B
senior
unsecured ST B Affirmed B
KUVEYT TURK: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Kuveyt Turk Katilim Bankasi A.S's
(Kuveyt Turk) Long-Term Foreign-Currency (LTFC) and Local-Currency
(LTLC) Issuer Default Ratings (IDR) at 'BB-'. The Outlooks are
Stable. Fitch has also affirmed the bank's Viability Rating (VR) at
'b+'.
Key Rating Drivers
Support-Driven IDR, Country Risks: Kuveyt Turk's IDRs are driven by
potential shareholder support, as reflected by its Shareholder
Support Rating (SSR). Nonetheless, its LTFC IDR is constrained by
Turkiye's Country Ceiling of 'BB-', while its LTLC IDR also
considers Turkish country risks. The Stable Outlooks mirror those
on the sovereign.
The VR reflects its niche as a leading participation bank in
Turkiye, above sector average profitability and ordinary support
from its parent in respect to its funding profile. It also reflects
its concentrations in the challenging, albeit improving, Turkish
operating environment, high risk appetite and only adequate
capitalisation.
Shareholder Support: Kuveyt Turk's SSR considers potential support
from its ultimate parent, Kuwait Finance House (K.S.C.P.) (KFH;
A/Stable), reflecting Kuveyt Turk's strategic importance to KFH,
its role within the wider group and reputational risks for KFH.
Improving Operating Environment: The normalisation of monetary
policy has reduced near-term macro-financial stability risks and
external financing pressures, but banks remain exposed to high
inflation, potential further lira depreciation, slowing economic
growth, and multiple macroprudential regulations, despite
simplification efforts.
Leading Participation Bank: Kuveyt Turk is the largest
participation bank in Turkiye, a segment defined as strategically
important by the Turkish government. However, Kuveyt Turk has a
fairly small market share among all Turkish banks (end-3Q24: 3% of
banking sector assets).
High Risk Appetite: Kuveyt Turk's above sector average financing
growth, exposure to risky sectors such as construction and real
estate (16% of gross financing) and high share of FC financing
(end-3Q24: 46% of gross financing) weigh on its risk profile.
Asset-Quality Risks: Kuveyt Turk's Stage 3 financing ratio stood at
1.6% at end-3Q24 (end-2023: 1.2%), reflecting nominal financing
growth (9M24: 26%, 2023: 70%). However, asset quality risks remain
due to slower economic growth, high exposure to SMEs (55% at
end-3Q24) and above sector average FC financing. Fitch expects
Stage 3 financing ratio to increase moderately in 2025 reaching
2.5% by the end of the year.
Above Sector Profitability: Kuveyt Turk's operating profit was
equal to 6% of total assets in 9M24 (annualised; 2023: 6.3%),
supported by a strong net financing margin (9.7%). This was driven
by one of the lowest deposit costs in the sector and reflected
significant demand deposits and reversal of free provisions (1.8%
of total assets). Profitability remains sensitive to asset-quality
risks and macro-economic and regulatory developments. Fitch expects
operating profit/average total assets ratio to decline to 3% in
2025 due to increase in impairment charges.
Only Adequate Capitalisation: Kuveyt Turk's common equity Tier 1
(CET1) ratio (end-3Q24: 17.5%; 15.9%, net of forbearance) is only
adequate for its risk profile and growth appetite, while its
leverage compares well with the sector (equity/assets: 9.2%;
sector: 8.7%). Kuveyt Turk's capital ratios also benefits from a
50% reduction in risk weighting on assets financed by profit share
accounts, which provided a 300bp uplift at end-3Q24. Fitch expects
the CET1 ratio to be about 19% at end-2025.
Ordinary Support, Adequate FC Liquidity: Customer deposits made up
77% of total non-equity funding at end-3Q24, with 56% of them in FC
including sizeable precious metal deposits and 13% in
foreign-exchange (FX)-protected lira deposits. Wholesale funding
comprised a high 23% of total funding at end-3Q24 and 71% were in
FC. However, refinancing risks are mitigated by an adequate FC
liquidity cushion and potential ordinary support from KFH.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Turkiye's sovereign rating or an increase in its
view of government intervention risk would lead to a downgrade of
Kuveyt Turk's SSR, leading to negative rating action on its
Long-Term IDRs, although this is not its base case. The SSR is also
sensitive to Fitch's view of KFH's ability and propensity to
provide support.
Kuveyt Turk's VR is primarily sensitive to the Turkish operating
environment and a sovereign downgrade. The VR could also be
downgraded due to an erosion of its capital buffers, most likely
due to asset quality weakening, or pressure on profitability and FC
liquidity positions, if not offset by ordinary shareholder support
on a timely basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Postive action on Turkiye's LT IDRs would likely lead to similar
action on the bank's SSR and LT IDRs. An upward revision of
Turkiye's Country Ceiling could also lead to an upgrade of the
bank's SSR and LT IDRs.
A VR upgrade would require an upward revision of operating
environment score combined with the strengthening of the bank's
capital buffers commensurate with the bank's risk profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Kuveyt Turk's subordinated debt rating (issued through its
special-purpose vehicle KT21 T2 Company Limited) is one notch below
the bank's 'BB-' LTFC IDR anchor rating. Fitch uses Kuveyt Turk's
LTFC IDR as the anchor rating as shareholder support is likely to
be extended to the subordinated notes.
The notching for the subordinated notes includes one notch for loss
severity and zero notches for non-performance risk relative to the
anchor rating. The one notch for loss severity, rather than its
baseline two notches, reflects its view that shareholder support
(as reflected in the bank's LTFC IDR) could help mitigate losses.
Fitch has not applied any additional notching for non-performance
risks, as the notes do not incorporate going-concern
loss-absorption features.
The 'RR5' Recovery Rating on the notes reflects below-average
recovery prospects in a default.
The bank's National Rating is underpinned by support from its
parent KFH and is in line with foreign-owned peers.
The Short-Term IDRs of 'B' are the only possible option mapping to
LT IDRs in the 'BB' category.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The subordinated debt rating is sensitive to a change in Kuveyt
Turk's LTFC IDR anchor rating. The rating of the subordinated notes
is also sensitive to reassessment of potential loss severity and
incremental non-performance risk.
The National Ratings are sensitive to changes in Kuveyt Turk's LTLC
IDR and its creditworthiness relative to that of other Turkish
issuers.
The Short-Term IDRs are sensitive to changes in its LT IDRs.
VR ADJUSTMENTS
The operating environment score of 'b+' for Turkish banks is lower
than the category implied score of 'bb', due to the following
adjustment reasons: macro-economic stability (negative), which
reflects high inflation, high dollarisation and high risk of FX
movements in Turkiye.
The earnings and profitability score of 'b+' is below the category
implied score of 'bb', due to the following adjustment reason:
risk-weight calculation (negative).
The funding and liquidity score of 'bb-' is above the category
implied score of 'b', due to the following adjustment reason:
liquidity access and ordinary support (positive).
Public Ratings with Credit Linkage to other ratings
Kuveyt Turk's ratings are linked to KFH's.
ESG Considerations
Kuveyt Turk's ESG Relevance Score for Management Strategy of '4'
reflects an increased regulatory burden on all Turkish banks.
Management ability across the sector to determine their own
strategy and price risk is constrained by regulatory burden and
also by the operational challenges of implementing regulations at
the bank level. This has a moderately negative impact on the bank's
credit profile and is relevant to the ratings in combination with
other factors.
Kuveyt Turk's ESG Relevance Score of '4' for Governance Structure
reflects its Islamic banking nature where its operations and
activities need to comply with sharia principles and rules, which
entails additional costs, processes, disclosures, regulations,
reporting and sharia audit. This has a negative impact on the
bank's credit profile and is relevant to the ratings in conjunction
with other factors.
Kuveyt Turk has an ESG Relevance Score of '3' for Exposure to
Social Impacts, above sector guidance for an ESG Relevance Score of
'2' for comparable conventional banks, which reflects that Islamic
banks have certain sharia limitations embedded in their operations
and obligations, although this only has a minimal credit impact on
Islamic banks.
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
----------- ------ -------- -----
Kuveyt Turk
Katilim Bankasi
A.S LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(tur) Affirmed AA(tur)
Viability b+ Affirmed b+
Shareholder Support bb- Affirmed bb-
KT21 T2 Company
Limited
Subordinated LT B+ Affirmed RR5 B+
TURKIYE FINANS: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Turkiye Finans Katilim Bankasi A.S.'s
(TFKB) Long-Term Foreign-Currency (LTFC) and Long-Term
Local-Currency (LTLC) Issuer Default Ratings (IDR) at 'BB-'. The
Outlooks are Stable. Fitch has also affirmed the bank's Viability
Rating (VR) at 'b'.
Key Rating Drivers
Support-Driven IDR, Country Risks: TFKB's IDRs are driven by
potential shareholder support, as reflected in its 'bb-'
Shareholder Support Rating (SSR). Nonetheless, its LTFC IDR is
constrained by Turkiye's Country Ceiling of 'BB-', while its LTLC
IDR also reflects Turkish country risks. The Stable Outlooks mirror
those on the sovereign.
The VR reflects TFKB's overall small, but reasonable franchise in
the niche participation-banking segment, its adequate asset quality
and ordinary support from its parent for funding. It also reflects
its high risk appetite and only adequate capitalisation.
Shareholder Support: TFKB's SSR considers potential support from
its ultimate parent, The Saudi National Bank (SNB; A-/Stable),
primarily reflecting TFKB's strategic importance to SNB's
franchise, its role within the wider group, and reputational risk
for its parent.
Improving Operating Environment: TFKB operates within an improving
but challenging Turkish environment. The normalisation of monetary
policy has reduced near-term macro-financial stability risks and
external financing pressures but banks remain exposed to high
inflation, potential further lira depreciation, slowing economic
growth, and multiple macro-prudential regulations, despite
simplification efforts.
Small Franchise: TFKB made up 11% of participation-banking sector
assets, a niche segment with reasonable growth prospects. It has a
small market share among Turkish banks (end-3Q24: 1% of banking
sector assets), resulting in limited pricing power.
Asset-Quality Risks: TFKB's impaired (Stage 3) financing ratio
improved to 1% at end-3Q24 (end-2023: 1.4%), reflecting strong
financing growth (9M24: 28%; 2023: 49%), write-offs and
collections. Stage 2 financing was reasonable at 5% of gross
financing at end-3Q24. Coverage of impaired financing by specific
provisions stood at 70%.
Credit risks are heightened by high concentrations (end:3Q24: the
top 25 cash borrowers comprised 14% of gross financing or 97% of
common equity Tier 1 (CET1) capital), exposure to the SME segment
(38%), and high FC financing (40%). Fitch expects the Stage 3
financing ratio to increase slightly towards 2% by end-2025, given
still high interest rates and slower economic growth.
Weakened Profitability: TFKB's operating profit decreased to 1.8%
of average total assets in 9M24 (2023: 3.9%), as higher funding
costs eroded its net financing margin (NFM). At the same time, fee
income remained a material contributor to operating revenues at
25%. Profitability remains sensitive to asset-quality risks and
macro-economic and regulatory developments. Fitch expects operating
profit/average total assets ratio to remain at 1.8% in 2025, due to
still high operating costs despite improving NFM as monetary policy
eases.
Only Adequate Capitalisation: TFKB's CET1 ratio (end-3Q24: 13.9%;
11.1% net of regulatory forbearance) is only adequate for its risk
profile, while its leverage (equity/assets) of 8.4% is broadly in
line with the sector average of 8.7%. TFKB's capital ratios are
also supported by a favourable risk-weighting on assets financed by
profit share accounts with an uplift of about 240bp to its CET1
ratio. Fitch expects the CET1 ratio to be about 13% at end-2025.
Ordinary Support, Adequate Liquidity: Customer deposits made up 80%
of total non-equity funding at end-3Q24, with 42% of them in FC and
16% in foreign-exchange (FX)-protected lira deposits. FC wholesale
funding comprised a fairly low 7% of total funding, which, along
with support from SNB, limits refinancing risk. Available FC
liquidity fully covered maturing FC debt over the next 12 months at
end-3Q24 and a moderate proportion of FC deposits.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Turkiye's sovereign rating or an increase in its
view of government intervention risk would lead to a downgrade of
TKFB's SSR, leading to negative rating action on its Long-Term
IDRs, although this is not its base case. The SSR is also sensitive
to Fitch's view of SNB's ability and propensity to provide
support.
The bank's VR is primarily sensitive to a weakening in the
operating environment and a sovereign downgrade. The VR could also
be downgraded due to an erosion of its capital buffers, most likely
due to asset-quality weakening, or pressure on profitability and FC
liquidity, if not offset by ordinary support from shareholder on a
timely basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A positive change in Turkiye's Long-Term IDRs would likely lead to
similar action on the bank's SSR and Long-Term IDRs. An upward
revision of Turkiye's Country Ceiling could also lead to an upgrade
of the bank's SSR and Long-Term IDRs.
TFKB's VR is primarily sensitive to the strength of the bank's
financial metrics, in particular the capital buffer (including net
of forbearance), amid improving operating-environment conditions.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
TFKB's National Long-Term Rating is underpinned by support from its
parent, SNB, and is in line with those of foreign-owned peers'.
The Short-Term IDRs of 'B' are the only possible option mapping to
Long-Term IDRs in the 'BB' category.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The National Long-Term Rating is sensitive to changes in TFKB's
LTLC IDR and in its creditworthiness relative to that of other
Turkish issuers.
TKFB's Short-Term IDRs are sensitive to changes in its Long-Term
IDRs.
VR ADJUSTMENTS
The operating environment score of 'b+' for Turkish banks is below
the 'bb' category implied score, due to the following adjustment
reasons: macroeconomic volatility (negative), which reflects high
inflation, high dollarisation and high risk of FX fluctuations in
Turkiye.
TFKB's funding and liquidity score of 'bb-' is above the 'b'
category implied score, due to the following adjustment reason:
liquidity access and ordinary support (positive).
Public Ratings with Credit Linkage to other ratings
TFKB's ratings are linked to SNB's.
ESG Considerations
TFKB's ESG Relevance Score for Management Strategy of '4' reflects
an increased regulatory burden on all Turkish banks. Management
ability across the sector to determine their own strategy and price
risk is constrained by the regulatory burden and also by the
operational challenges of implementing regulations at the bank
level. This has a moderately negative impact on the banks' credit
profiles and is relevant to the banks' ratings in combination with
other factors.
TFKB's ESG Relevance Score of '4' for Governance Structure reflects
its Islamic banking nature where its operations and activities need
to comply with sharia principles and rules, which entails
additional costs, processes, disclosures, regulations, reporting
and sharia audit. This has a negative impact on the bank's credit
profile and is relevant to the ratings in conjunction with other
factors.
TFKB has an ESG Relevance Score of '3' for Exposure to Social
Impacts, above sector guidance for an ESG Relevance Score of '2'
for comparable conventional banks, which reflects that Islamic
banks have certain sharia limitations embedded in their operations
and obligations, although this only has a minimal credit impact on
Islamic banks.
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
----------- ------ -----
Turkiye Finans
Katilim Bankasi A.S. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(tur) Affirmed AA(tur)
Viability b Affirmed b
Shareholder Support bb- Affirmed bb-
===========================
U N I T E D K I N G D O M
===========================
CLARA.NET HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Clara.net Holdings Limited's (Claranet)
Long-Term Issuer Default Rating (IDR) at 'B'. The Outlook is
Stable. The group's secured loan facilities' rating is affirmed at
'B+' with a Recovery Rating at 'RR3'.
The affirmation is underpinned by its belief that the sale of its
Portuguese business, for EUR152 million, will support material
deleveraging and improve financial flexibility. The transaction is
subject to an anti-trust review by the Portuguese authorities and
expected to take up to six weeks to close.
If the deal is completed, Fitch will tighten Claranet's leverage
sensitivities to 4.5x-5.5x, due to a reduction of scale and
diversification. Should completion become uncertain or proceeds not
be allocated to materially reduce debt, Fitch may take negative
rating action, due to excessive leverage and negative free cash
flow (FCF) eroding liquidity.
Key Rating Drivers
Transaction Supports Deleveraging: Fitch expects Claranet to
utilise up to EUR100 million of disposal proceeds towards debt
reduction, across its revolving credit facility (RCF) and term loan
B's (TLB). Its Fitch-defined EBITDA leverage was 6.9x at FYE24
(year-end June), above its downgrade sensitivity of 5.7x. However,
on a pro-forma basis, Fitch expects leverage to be 5.1x in FY25 and
4.8x in FY26, within the revised sensitivities of 4.5x-5.5x.
While Fitch believes the transaction should close in a timely
manner, given no material competition issues, deleveraging will be
slower should the deal fail to complete, putting negative pressure
on the rating.
Improved Financial Flexibility: The restricted group received GBP54
million of equity during FY24 from existing and new shareholders to
support liquidity, demonstrating shareholder support. In addition,
Fitch believes net proceeds will help provide greater liquidity
headroom. Fitch also forecasts a saving on cash interest costs of
around GBP8 million, improving FY26 EBITDA interest cover to 2.5x
from a previously forecast 2.1x. Fitch expects FCF to be neutral to
slightly positive from FY26 with reduced cash interest offsetting
the loss of FCF from Portugal.
Improved Margins: Post-transaction, Fitch expects Fitch's EBITDA
margin to rise to 15% from 11% historically, aligning with the
sector's, driven by high-margin services like cloud transition,
cyber security support and digital transformation. The
decentralised model should ensure Claranet's performance remains
stable, with a multi-year service agreement in Portugal and other
regions supporting continuity. However, regions like the UK have
seen revenue volatility and restructurings in recent years,
indicating potential for profitability fluctuations.
Recent Performance Challenges: Claranet's FY24 performance was
challenged by increased costs, longer sales cycles, and the loss of
some higher-margin customers, reducing the Fitch-defined EBITDA
margin to 10.3% from 11.3% and significantly increasing EBITDA
leverage. This led the company to pause M&A activities and focus on
streamlining costs. Savings have been reinvested to enhance
commercial and technical expertise to support a stronger sales
pipeline this year. With net cost savings, Fitch forecasts revenue
growth and margin recovery to around 11%, including Portugal, but
execution risks exist.
Acquisitions Still Important: In recent years, Claranet's growth
has been underpinned by debt-financed M&A with bolt-on acquisitions
to add scale in existing regions and enhance capabilities. After
operating pressures at both Claranet and acquisition targets had
led to a pause in M&A activity, Fitch believes the disposal of the
Portuguese business and improved financial headroom under the RCF
will allow for a resumption of M&A. Fitch sees M&A as an important
and necessary tool to consolidate its position in remaining regions
under stricter financing conditions and a less favourable funding
environment.
Cloud a Growth Driver: Third-party research indicates CAGR of 9% in
private cloud, 16% for public cloud and 10% for cybersecurity for
2023-2027, with Claranet's main regions growing at high single
digits. The trend reflects a move towards global IT outsourcing
from on-premise applications, where Claranet has a proven record of
managing cloud-based and cloud-agnostic, mission-critical
applications. It has partnerships and certifications with large
public cloud providers and technology partners. Conversely,
connectivity and workplace solutions are likely to see low
single-digit growth.
SMB Focus: A focus on servicing SMB and sub-enterprise clients
shields Claranet from competition from larger IT integrators. The
target customer base values localised and personalised support and
expertise. Relationships, once established, tend to endure, which
has helped maintain churn at mid-teens percentages and provide good
revenue visibility. Over 60% of FY24 revenues, including
usage-based services, are recurring. However, the SMB segment is
also at greater risk during times of economic distress.
Leverage Thresholds Adjusted: Portugal is Claranet's largest region
by revenue and second largest by company-defined EBITDA. It is a
mature market with limited growth opportunities and weaker
profitability than that of Claranet's other mature geographies, but
also a stable market where Claranet is a leader. With the expected
loss of revenue and EBITDA, Fitch believes its business profile
will weaken due to reduced scale and geographic diversification,
although this is mitigated by a higher margin mix. Consequently,
Fitch will tighten Claranet's leverage sensitivities to 4.5x-5.5x
on successful completion.
Derivation Summary
Claranet's range of offered services has some overlap with large IT
services companies, such as Atos S.E. (B-/Stable), DXC Technology
Company (BBB/Negative), and Accenture plc (A+/Stable), but on a
much smaller scale as it caters to primarily small and medium-sized
companies, a segment that is typically underserved by larger peers.
Atos is undergoing a material financial and operational
restructuring, rendering its credit profile materially weaker
relative to its scale and service capabilities.
TeamSystem S.p.A. (B/Stable), Unit4 Group Holding B.V. (B/Stable),
and Dedalus SpA (B-/Negative) are software service providers with
loyal customer bases, as underlined by their low churn rates. This,
together with their stronger market positions and recurring
revenue, provides more debt capacity than Claranet.
Claranet and Ainavda Parentco (Advania; B/Stable) have comparable
business and financial profiles as managed services providers with
an acquisitions-driven growth strategy. This strategy has led to
high leverage and modest interest coverage for both. Advania
benefits from a larger scale but Claranet has favourable EBITDA
margins and wider geographic diversification.
Key Assumptions
Fitch's rating case assumes the sale of the Portuguese business by
3QFY25
- Organic revenue growth of 5%-7% p.a., excluding the impact of the
Portugal business disposal
- Fitch-defined EBITDA margin to improve to 15% in 2026 and remain
stable thereafter
- Capex excluding capitalised R&D costs averaging at 6.3% of sales
for FY26-FY28
- Working capital outflows at 0.8% of revenues p.a. to FY28
- Interest payments on shareholder loan treated as common
dividends
Recovery Analysis
The recovery analysis assumes that Claranet would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated, given
the technical expertise within the group and its stable customer
base.
Fitch estimates that post-restructuring EBITDA would be around
GBP50 million. An enterprise value (EV) multiple of 5.5x is applied
to the GC EBITDA to calculate a post-reorganisation EV of GBP247.5
million, after deducting 10% for administrative claims to account
for bankruptcy and associated costs. The multiple is in line with
that of other similar software and managed services companies.
Fitch would expect a default to come from higher competitive
intensity or technological risk leading to customer and revenue
losses. Post-restructuring, Claranet may be acquired by a larger
company, capable of transitioning its clients onto an existing
platform, or see the discontinuation of certain business lines or
cut back its presence in certain geographies, in turn reducing
scale.
Its waterfall analysis generated a ranked recovery in the 'RR3'
range to result in a one-notch uplift to the debt rating from the
IDR for the current senior secured debt, with expected recoveries
at 65% based on current metrics and assumptions. Fitch deems the
EUR75 million RCF equally ranking and fully drawn in a default.
Post-transaction, Fitch expects to revise its GC EBITDA to GBP40
million to calculate a post-reorganised EV of GBP198 million (after
bankruptcy costs), reflecting the loss of EBITDA from Portugal.
After adjusting for debt reduction, Fitch expects ranked recovery
in the 'RR3' range for the remaining senior secured debt with
expected recoveries at 66% based on current metrics and
assumptions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Operating and competitive pressures, poor delivery of synergies,
or additional debt-funded acquisitions resulting in Fitch-defined
EBITDA leverage above 5.7x on a sustained basis, absent the
Portuguese disposal, or above 5.5x on a sustained basis post-the
Portuguese disposal
- Failure to close the Portuguese disposal, or not using proceeds
to repay a portion of the capital structure
- Weakening FCF towards break-even or negative territory
- Fitch-defined EBITDA interest coverage below 2.0x on a sustained
basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Fitch-defined EBITDA leverage below 4.7x on a sustained basis,
absent the Portuguese disposal, with a disciplined M&A strategy and
positive operating trends including an improving share of recurring
and usage-based revenues. Fitch-defined EBITDA leverage below 4.5x
on a sustained basis, post-the Portuguese disposal
- Successful integration and delivery of synergies in line with
management's plan, leading to improvements in leverage and
profitability, including FCF margins above 5% and cash flow from
operations less capex above 5% of total debt
- Fitch-defined EBITDA interest coverage above 3.0x on a sustained
basis
Liquidity and Debt Structure
Claranet had GBP33 million cash on its balance sheet and GBP38
million undrawn on its RCF at FYE24, available for general
corporate purposes and acquisition funding. Follow the disposal,
Fitch expects the outstanding amount on the RCF to be repaid.
The group extended the maturity on EUR70 million of its EUR75
million RCF to 2028. Fitch forecasts balance-sheet cash averaging
GBP24 million in FY25-FY27. Post-transaction, with TLB and RCF
repayment, Fitch believes Claranet has sufficient available
liquidity to support operations. Claranet's other TLBs have
maturities in July 2028.
Issuer Profile
Claranet is a medium-sized provider of managed IT services
primarily focusing on cloud-related services for small and
medium-sized companies and the sub-enterprise customer segment. It
also offers cybersecurity, connectivity and workplace solutions.
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
----------- ------ -------- -----
Claranet Finance
Limited
senior secured LT B+ Affirmed RR3 B+
Clara.net Holdings
Limited LT IDR B Affirmed B
Claranet Group
Limited
senior secured LT B+ Affirmed RR3 B+
DYNAMIC MEDICAL: Path Business Named as Administrators
------------------------------------------------------
Dynamic Medical Logistics Ltd was placed into administration
proceedings in the High Court of Justice Business & Property Courts
in Manchester Insolvency and Companies List (CHD), Court Number:
CR2025MAN000023, and Gareth Howarth and Sahil Nadeem of Path
Business Recovery Limited were appointed as administrators on Jan.
22, 2025.
Dynamic Medical engages in electrical installation.
Its registered office and principal trading address is at Unit 2
Axis Court, Nepshaw Lane South, Gildersome, Leeds, LS27 7UY.
The joint administrators can be reached at:
Gareth Howarth
Path Business Recovery Limited
2nd Floor, 9 Portland Street
Manchester, M1 3BE
Tel No: 0161 413 0999
For further information, contact:
Sahil Nadeem
Path Business Recovery Limited
Tel No: 0161413 0999
Email: sahil.nadeem@pathbr.co.uk
2nd Floor, 9 Portland Street
Manchester, M1 3BE
EVANS GRAPHICS: KRE Corporate Named as Administrators
-----------------------------------------------------
Evans Graphics Limited was placed into administration proceedings
in the High Court of Justice, Court Number: CR-2025-387, and Paul
Ellison and Chris Errington of KRE Corporate Recovery Limited were
appointed as administrators on Jan. 23, 2025.
Evans Graphics engages in graphic printing.
Its registered office is c/o KRE Corporate Recovery Limited, at
Unit 8, The Aquarium, 1-7 King Street, Reading, RG1 2AN
Its principal trading address is at 4 Loverock Road, Reading, RG30
1RA
The joint administrators can be reached at:
Paul Ellison
Chris Errington
KRE Corporate Recovery Limited
Unit 8, The Aquarium, 1-7 King Street
Reading, RG1 2AN
For further details contact:
The Joint Administrators
Email: info@krecr.co.uk
Tel No: 01189 479090
Alternative contact: Kelly Rumsam
FROST & CO: Voscap Limited Named as Administrators
--------------------------------------------------
Frost & Co. Jewellers Limited trading as Frost of London was placed
into administration proceedings in the High Court of Justice
Business and Property Courts of England and Wales Insolvency and
Companies List, Court Number: CR-2025-000177, and Ian Lawrence
Goodhew and Abigail Shearing of Voscap Limited were appointed as
administrators on Jan. 17, 2025.
Frost & Co. Jewellers engages in the retail sale of new goods in
specialised stores (not commercial art galleries and opticians).
Its registered office is at Unit 3, Gateway Mews, London, England,
N11 2UT
Its principal trading address is at 67 Grosvenor Street, Mayfair,
London, W1K 3JN
The joint administrators can be reached at:
Ian Lawrence Goodhew
Abigail Shearing
Voscap Limited
67 Grosvenor Street
Mayfair, London, W1K 3JN
For further details, contact:
William Belsey-Farrer
Tel No: 0207 769 6831
Email: team@voscap.co.uk
HORIZONWORKS MARKETING: KBL Advisory Named as Administrators
------------------------------------------------------------
Horizonworks Marketing Limited was placed into administration
proceedings in the High Court of Justice Business and Property
Courts in Leeds Company and Insolvency List, No CR-2024-LDS-1220 of
2024, and Richard Cole and Steve Kenny of KBL Advisory Limited were
appointed as administrators on Dec. 19, 2025.
Horizonworks Marketing is into electrical installation.
Its registered office and principal trading is at 14 Berrymoor
Court Northumberland Business Park, Cramlington, NE23 7RZ.
The joint administrators can be reached at:
Richard Cole
Steve Kenny
KBL Advisory Limited
Stamford House
Northenden Road Sale
Cheshire, M33 2DH
For further information, contact:
Joanne Bate
KBL Advisory Limited
Tel No: 0161 637 8100
Email: joanne@kbl-advisory.com
HWSI LIMITED: Interpath Ltd Named as Administrators
---------------------------------------------------
HWSI Limited was placed into administration proceedings in the High
Court of Justice, Business and Property Courts of England and
Wales, Insolvency and Companies List (ChD), No CR-2025-000285, and
William James Wright and Christopher Robert Pole of Interpath Ltd
were appointed as administrators on Jan. 16, 2025.
HWSI Limited is into the restaurant and cafe business.
Its registered office is at Interpath Ltd, 10 Fleet Place, London,
EC4M 7RB
Its principal trading address is at Building 1 Imperial Place,
Elstree Way, Borehamwood, Herts, WD6 1JN
The joint administrators can be reached at:
James Wright
Christopher Robert Pole
Interpath Ltd
10 Fleet Place
London EC4M 7RB
For further details, contact: HWSR@interpath.com
MINT REALISATIONS: Xeinadin Corporate Named as Administrators
-------------------------------------------------------------
Mint Realisations Limited, formerly FM Outsource Limited, was
placed into administration proceedings in the Business and Property
Courts in Manchester Insolvency & Companies List, Court Number:
CR2025MAN000053, and Alan Fallows and William Bowden of Xeinadin
Corporate Recovery Limited were appointed as administrators on Jan.
20, 2025.
Mint Realisations specialized in Telesales.
Its registered office and trading address is at Imperial House,
79-81 Hornby Street, Bury, BL9 5BN.
The joint administrators can be reached at:
Alan Fallows
William Bowden
Xeinadin Corporate Recovery Limited
100 Barbirolli Square
Manchester, M2 3BD
Tel No: 0161 832 6221
For further information, contact:
William Bowden
Xeinadin Corporate Recovery Limited
Tel No: 0161 212 8412
Email: william.bowden@xeinadin.com
100 Barbirolli Square
Manchester M2 3BD
NORTHERN POWER: Begbies Traynor Named as Administrators
-------------------------------------------------------
Northern Power Tools & Accessories Limited was placed into
administration proceedings in the Business and Property Courts in
Manchester, Insolvency & Companies List (ChD), Court Number:
CR-2024-001636, and Jason Dean Greenhalgh and Stephen Berry of
Begbies Traynor (Central) LLP were appointed as administrators on
Dec. 23, 2024.
Northern Power Tools is a supplier of high quality professional
equipment and workwear.
Its registered office is at Casterton Suite Chbc, Burton-in-Kendal,
Carnforth, LA6 1NU.
The joint administrators can be reached at:
Jason Dean Greenhalgh
Stephen Berry
Begbies Traynor (Central) LLP
No 1 Old Hall Street
Liverpool L3 9HF
Any person who requires further information may contact:
Jack Priestley
Begbies Traynor (Central) LLP
Email: jack.priestley@btguk.com
Tel No: 0151 227 4010
PHR (NORTHERN EUROPE): Interpath Ltd Named as Administrators
------------------------------------------------------------
PHR (Northern Europe) Limited was placed into administration
proceedings in the High Court of Justice, Business and Property
Courts of England and Wales, Insolvency and Companies List (ChD),
No CR-2025-000288, and William James Wright and Christopher Robert
Pole of Interpath Ltd were appointed as administrators on Jan. 16,
2025.
PHR (Northern Europe) engages in business support service
activities.
Its registered office is at Interpath Ltd, 10 Fleet Place, London,
EC4M 7RB
Its principal trading address is at Building 1 Imperial Place,
Elstree Way, Borehamwood, Herts, WD6 1JN
The joint administrators can be reached at:
William James Wright
Christopher Robert Pole
Interpath Ltd
10 Fleet Place
London, EC4M 7RB
For further details, contact: HWSR@interpath.com
SLATER HARRISON: Evelyn Partners Named as Administrators
--------------------------------------------------------
Slater Harrison & Co Limited was placed into administration
proceedings in the High Court of Justice, Business and Property
Courts of England and Wales, Insolvency and Companies List, Court
Number: CR-2025-000144, and Mark Supperstone and Simon Jagger of
Evelyn Partners LLP were appointed as administrators on Jan. 22,
2025.
Slater Harrison is a manufacturer of other articles of paper and
paperboard.
Its registered office and principal trading address is at
Lowerhouse Mills, Bollington, Macclesfield, Cheshire, SK10 5HW.
The joint administrators can be reached at:
Mark Supperstone
Simon Jagger
Evelyn Partners LLP
45 Gresham Street
London, EC2V 7BG
For further details, contact:
The Joint Administrators
Tel No: 020 7702 9775
Alternative contact:
Thomas Graham
Email: thomas.graham@resolvegroupuk.com
*********
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,
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