The BB- Corporate Issuer Credit Rating reflects BioEnergie Taufkirchen GmbH & Co. KG’s (‘BET’) quasi-monopoly as a producer of district heating in Taufkirchen, and nearby communities, in Germany. The rating incorporates the business model’s robustness with solid discretionary cash flows despite the company’s small size and outreach, which stems strongly from the regulated sale of district heating and electricity. Moreover, the rating incorporates the company’s continuous deleveraging in terms of Scope-adjusted debt/EBITDA of 5.7x in 2015, as well as the solid interest coverage of 2.5x (EBITDA/interest). Scope expects slight improvement in key financial measures over the next two years along the further deleveraging of the company. However, the corporate rating is largely constrained by the strong dependence on the rather small service territory and the lack of diversification.

The BBB- rating for the company’s EUR 15m senior secured corporate bond (6.5% 2013/2020) reflects Scope’s excellent expected recovery assumptions, which is driven by the significant overcollateralisation from recoverable assets.

Key rating drivers

Low-diversified small independent power producer with quasi-monopolistic market position. Due to BET’s limited geographical outreach and coverage of a very limited service territory, BET generally bears high operating risks. However, BET holds a quasi-monopoly in a market with high entry barriers due to the company-owned district heating network of roughly 42 km in Taufkirchen, and nearby communities, in Germany. This network ensures sales in district heating. In addition, BET can stabilise its business model through the guaranteed sale of electricity under the German Renewable Energy Act (‘Erneuerbare-Energien-Gesetz’ - EEG). Scope considers the sales and margins resulting from this market position as solid and predictable, and resilient to external shocks.

Robust profitability. Despite the high dependency on the volatile price developments of combustibles, (such as wood, biogas, oil and gas), as well as weather effects, the company’s margins are comparatively robust compared to other operators of biomass power plants. Scope expects that the company can retain an EBITDA margin of above 25%, adjusted for one-offs. Negative tariff adjustments can be offset to a great extent by improved sourcing costs.

Further deleveraging. BET’s leverage – measured as Scope-adjusted debt/EBITDA of 5.7x in 2015 – is typical for an independent power producer. Operating and discretionary cash flows are expected to remain positive over the next two years, allowing the company to gradually improve its leverage (continuous amortisation of loans, limited equity withdrawal in line with recent years).

Stable interest coverage. The BB- corporate rating reflects BET’s comparatively stable positive operating cash flows with an average operating cash flow yield of more than 20%. The operating strength is reflected in the company’s solid interest coverage of 2.5x (EBITDA interest coverage in 2015).

Solid liquidity and no material short-term refinancing needs. BET’s liquidity is regarded as strong as it can sufficiently cover scheduled short-term debt positions over the next two years (liquidity well above 100%). Amortisations of loans can be covered by the operating business with no needs for additional debt financing. Furthermore, the company has no significant refinancing needs by 2020 when the EUR 15m senior secured corporate bond matures. Scope believes that refinancing risks for the corporate bond are limited due to the intrinsic value of the power plant and heating networks as well as the company’s deleveraging by 2020.

Overcollateralisation of corporate bond through recoverable assets. Within its recovery analysis Scope expects an ‘excellent recovery’ which translates into an instrument rating of BBB-. The EUR 15m corporate bond (6.5% 2013/2020) is secured by ample collateral (easements, material parts of a biomass cogeneration plant, material parts of the company-owned district-heating network and liquidity reserve). Scope notes that the corporate bond strongly benefits from overcollateralisation even after the application of valuation discounts which is reflected in the assigned BBB- instrument rating. In this context, Scope rates highly the value of BET’s district heating network given its position as a quasi-monopoly.

Outlook: Stable. The Outlooks are Stable. The Outlook reflects Scope’s expectations of the continuous deleveraging and a stable development of the EBITDA interest coverage in a corridor between 2-3x. The rating is strongly constrained by the company’s size and outreach. A lower rating would be warranted in case of a significant worsening of BET’s EBITDA interest coverage below 2.0x.

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 (EUR 15m Senior Secured Corporate Bond 6,5% 2013/2020)
Datum Rating Action Rating
07 July 2015 Affirmation BBB- Outlook Stable
09 July 2014 Affirmation BBB- Outlook Stable
09 July 2013 Initial BBB- Outlook Positive

Ratinghistorie (CICR)
Datum Rating Action Rating
07 July 2015 Initial BB- Outlook Stable

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
• Annual financial statements
• Annual reports/semi-annual reports of the rated entity
• Interview with the rated entity
• Website of the rated entity
• Valuation reports, other opinions
• Detailed information provided on request
• Data provided by external data providers
• External market reports

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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