Rating Rationale

Scope Ratings affirms the BB- issuer rating of BioEnergie Taufkirchen GmbH & Co. KG (‚BET‘) with a Stable Outlook. The rating for the company’s corporate bond is affirmed at BBB-.

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. 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. While Scope expects key credit metrics to improve slightly over the next few years as a result of positive free operating cash flows, they will remain within the range which is commensurate with the issuer rating. Scope expects that bank loans as well as loans from related parties can well be amortised over the next 1.5 years backed by available cash sources such as free operating cash flows, cash buffer, credit lines and a shareholder’s guarantee. However, the upcoming repayment of BET’s EUR 15m senior secured corporate bond in July 2020 can also be executed with a refinancing, i.e. through a bank loan. Scope remains convinced that BET will be able to arrange a new loan, backed by its expected leverage of around 5x in 2019 as well as the company’s pool of unencumbered assets at the time of the refinancing.

Outlook

The Outlook is 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 remains 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 or if Scope recognised material refinancing risks regarding BET’s corporate bond.

Instrument rating of BET’s EUR 15m senior secured corporate bond (ISIN DE000A1TNHC0)

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.

Download detailed rating report on BioEnergie Taufkirchen GmbH & Co. KG (German).

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for this rating and rating outlook Corporate Rating Methodology and Renewable Energy Corporates Rating Methodology are available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities' agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Sebastian Zank, Executive Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 09.07.2013. The ratings/outlooks were last updated on 05.07.2016.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions 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 does not, 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 other 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 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 GmbH at Lennéstrasse 5 D-10785 Berlin.

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