Scope downgrades Karlie’s corporate rating to SD from B- under review for possible downgrade.

The rating action follows the announcement of Karlie Group GmbH (Karlie) on 8 November 2016 regarding the opening of insolvency proceedings of two of its wholly owned Belgian subsidiaries, Karlie Flamingo N.V. and Garpet N.V.

The insolvencies of the subsidiaries have been filed as the companies’ financing banks have cancelled their loans with the debtors. The official insolvency proceedings of the two subsidiaries also confirm the uncertain insolvency of Karlie’s Belgian holding company, Karlie Flamingo Belgium Holding B.V.B.A. (announced on 20 October 2016), which is the intermediate holding company for Karlie’s operational activities in Belgium. The insolvency of these Belgian subsidiaries largely threatens the ongoing operational restructuring, as well as achievements arising from Karlie’s financial restructuring in July 2016, including the successful extension of credit lines by YE 2017 and the restructuring of the EUR 10.1m senior unsecured corporate bond. The insolvency of the Belgian subsidiaries and their debt obligations have led to a Selective Default (SD) rating (in line with Scope’s corporate rating methodology).

Furthermore, Scope interprets the filing of insolvency proceedings of the Belgian subsidiaries as a cross default, which might also affect the creditors of the ultimate parent company, Karlie Group GmbH. According to the terms of the EUR 10.1m senior unsecured corporate bond (§7.2 bond terms), creditors may use their special right to cancel the outstanding bond in case of a cross default. This could lead to a further deterioration of Karlie Group’s creditworthiness as it is unlikely that the company could settle a significant amount of the outstanding bond volume (EUR 10.1m in total less the EUR 3.1m bond exposure of Karlie’s 100% shareholder, Perusa Partner GmbH).

Scope intends to resolve the SD rating status as soon as there is sufficient visibility on the impact of Karlie’s core business in Germany and the potential impact on other debt obligations.

Legal and regulatory disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund, Dr. Sven Janssen.

The rating analysis has been prepared by Sebastian Zank, Lead Analyst
Responsible for approving the rating: Olaf Tölke, Committee Chair

Rating history (Date | Rating action | Rating)

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity.
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
- Prospectus
- Website of the rated entity
- Annual financial statements
- Valuation reports, other opinions
- Annual reports/semi-annual reports of the rated entity
- Current performance record
- Detailed information provided on request
- Data provided by external data providers
- Interview with the rated entity
- External market reports
- Press reports / other public information

Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for this rating (Corporate Rating Methodology) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

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