Key rating drivers

Persistently weak profitability despite favourable industry environment and leading position in core markets. While Alno AG has successfully executed measures aimed at strengthening the company’s profitability and operating cash flows, such as increasing the business’ internationalisation, the company still accounts for negative operating cash flows (2016E: minus EUR 38m). Alno has not been able to reach its envisaged break-even over the past three years; hence it remains strongly dependent on bridge financing from old and new shareholders, as well as the goodwill of its former key investor, Whirlpool, regarding a standstill of shareholder loans and payables. Scope believes that the new anchor investor, Tahoe Investors GmbH, which controls more than 40% of the company’s shares, will try to accelerate the operational restructuring with a clear focus on profitability. However, such measures take time. Scope also highlights that Alno’s margins are highly vulnerable to a potential economic cool-down.

Very weak financial risk profile. Alno’s key credit metrics, such as leverage and interest coverage, point to a very weak financial risk profile, which is primarily a result of the company’s negative EBITDA and FFO (EBITDA: minus EUR 11m in 2016E against minus EUR 6m in 2015A) and a Scope-adjusted debt position of EUR 255m at the end of 2016. Scope expects EBITDA/interest cover to be an insufficient minus 0.2x for 2016. Even with a return to an operating break-even in 2017E, the company remains strongly dependent on external financing to cover its interest burden (i.e. new shareholder loans, equity injections, sale-and-leaseback transactions or extended factoring).

Increased liquidity and refinancing risks in light of upcoming debt maturities in 2017 and 2018. Alno’s financial weakness is amplified by its deteriorated liquidity. Given its negative operating cash flows, low cash cushion (below EUR 3m at the end of 2016E) and restricted access to bank financing, the company is likely to face severe refinancing risks in 2017 through upcoming debt maturities of more than EUR 40m (excluding shareholder loans). From Scope’s perspective, Alno’s going-concern status is increasingly dependent on key shareholders’ financial commitment or a successful restructuring of upcoming debt maturities. The same applies to Alno’s EUR 45m senior unsecured corporate bond, which is due in May 2018.

EUR 45m senior unsecured corporate bond downgraded to CC. The senior unsecured corporate bond ranks higher than subordinated debt from shareholder loans, but ranks lower than senior secured debt such as bank debt, payables or factoring lines. The downgrade of the debt instrument rating is the result of the company’s higher indebtedness, with more debt ranking at the same level as the rated corporate bond. Moreover, Scope has become more conservative on an expected liquidation value in a theoretical default scenario. As a result, the CC rating of the corporate bond reflects Scope’s ‘average’ recovery expectations of 30-50% (against ‘above average’ of 50-70% recovery expectations in the previous rating), thereby rating the corporate bond at the same level as the issuer.

Negative Outlook

The Outlook remains Negative given the continuously stretched liquidity position of the company, which requires a strong commitment of anchor shareholders to bridge potential liquidity shortfalls over the next 12 months.

A rating upgrade would be warranted if the company successfully refinanced various short-term debt positions in 2017.

A negative rating action would be required if the refinancing of the company’s upcoming debt maturities in 2017 was unsuccessful. 

Editor’s note, 11 January 2017: The press release from 28 December 2016 stated that the “senior secured corporate bond ranks higher than subordinated debt from shareholder loans, but ranks lower than senior secured debt such as bank debt, payables or factoring lines”. This sentence erroneously referred to a “senior secured corporate bond”. This has now been corrected to “senior unsecured corporate bond”.

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 and 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 45m senior unsecured corporate bond

23.12.2015: B- Outlook Negative
22.12.2014: B- Outlook Negative
23.12.2013: B- Outlook Negative
23.04.2013: B- Outlook Stable (Initial)

Rating history: Issuer rating
23.12.2015: CCC Outlook Negative
22.12.2014: CCC Outlook Negative
23.04.2013: CCC+ Outlook Stable (Initial)

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 Ratings) 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.

Conditions of use / exclusion of liability
© 2016 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis GmbH, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by
Scope Ratings AG, Lennéstrasse 5, 10785 Berlin