Garfunkelux Holdco 2 S.A.

The stable outlook reflects our expectation that Lowell will be able to reduce its leverage in the near term in line with our base-case scenario and that its metrics will remain commensurate with the 'B+' rating over the next 12 months. We would lower the rating if Lowell's leverage and coverage metrics materially weaken over the next 12 months such that its cash-adjusted debt-to-EBITDA ratio was greater than 6.0x. Although not our base case, this could follow significant pressure on Lowell's collections and a sharp decline in servicing revenues as a consequence of rising macroeconomic risks. Ratings upside is unlikely over the next 12 months because, despite improvements, Lowell's non-cash-adjusted credit metrics, especially interest coverage by EBITDA, remain at the

...We expect Lowell's performance to recover in 2023-2024 after a weaker FY2022. The cyber incident in Germany in 2022 constrained Garfunkelux Holdco 2 S.A.'s (Lowell's) 2022 collection performance, which was only partly offset by strong collections in the Nordics. Servicing income was also down by 28%. We expect EBITDA recovery following resolution of the cyber incident, noting that this did not lead to client losses. In addition, the integration of Hoist UK, which Lowell acquired in the last quarter of 2022, added ú485 million 180-month ERCs and close to two million new accounts. The successful implementation of cost-reduction programs will likely boost EBITDA margins. We expect revenues from third-party servicing business lines--a more stable though less profitable revenue source--will likely grow more slowly than nonperforming exposures (NPEs) purchased collection activities. Along with operating expense containment, this should further support EBITDA margins, which we expect will increase...

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