Fitch downgrades Elli

Fitch Ratings said it downgraded Elli Investments Ltd.’s senior secured notes to B-with recovery rating of RR2 from B with recovery rating of RR1 and its senior unsecured notes to CC with recovery rating of RR6 from CCC+ with recovery rating of RR3.

The downgrades were based on an updated recovery analysis.

Elli’s long-term issuer default rating also was affirmed at CCC.

The ratings reflect a view that Elli will continue to face operational challenges and constraints on profitability and cash flows, Fitch said.

This is based on pressures on the group’s cost base associated with the increase in national living wage in April 2016 and uncertainty around this impact, the agency said.

Fitch said it expects continued pressure on the group’s underlying operating performance despite a stabilization of occupancy rates and increasing care standards as evidenced by a declining embargo rate.

The ratings also assume that the company will experience a liquidity shortfall, but payment default on the notes may be avoided over the next 12 months if the group continues to supplement depressed operating cash flows with permitted non-core asset disposals throughout the year, the agency said.

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