The BB- issuer rating primarily reflects BET’s quasi-monopoly as a producer of district heating and operator of the local district heating grid in Taufkirchen and nearby communities. Despite the potential volatility of feedstock prices, e.g. combustibles, the company generates robust and plannable operating cash flows, which are ample to cover scheduled investments in the biomass power plant and the expansion of the heating grid. Nevertheless, the rating is largely constrained by BET’s limited corporate outreach in terms of size and diversification.

The company’s rather weak financial risk profile, which is characterised by Scope-adjusted leverage ranging between 5-6x and an EBITDA interest coverage ranging between 2-3x, also constrains the rating. Furthermore, the company’s liquidity, including access to credit lines and a shareholders’ guarantee, sufficiently covers upcoming debt maturities over the next 2.5 years, in Scope’s view. Bolstered by the expectation of positive free cash flows, key credit metrics are anticipated to improve slightly over the next few years, whilst, however, remaining at a level which is commensurate with the current rating. Scope expects that the company is likely to refinance the EUR 15m senior secured corporate bond in July 2020 by a new bank loan.

Scope’s BBB- rating for the EUR 15m senior secured corporate bond (6.5% 2013/2020) of BET reflects the strong collateralisation of the bond with recoverable assets. With a collateral package that comprises material parts of its district heating network, easements, a biomass cogeneration plant, and a liquidity reserve, Scope considers the recovery prospects of BET’s senior secured bond to be very good (significant overcollateralisation), which finds positive expression in the instrument’s BBB-rating.

The Outlooks are Stable. The Outlook reflects Scope’s expectation that deleveraging will continue and that EBITDA interest coverage will remain at a stable 2-3x. The rating is very much constrained by the company’s size and outreach. A lower rating would be warranted in the case of a significant worsening of BET’s EBITDA interest coverage to below 2.0x.

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