Rating action

Scope Ratings has today assigned first-time issuer ratings of BB- to Bonafarm Csoport with a Stable Outlook. Senior unsecured debt rating of BB- has also been assigned for the first time.

The latest information on the rating, including rating reports and related methodologies are available on this LINK.

Rating rationale

Company strengths of strong market position and liquidity and prudent financing are offset by increasing leverage, inherent input-price volatility that makes EBITDA vulnerable to market price movements, and a FOCF/Scope-adjusted debt (SaD) ratio that is volatile and largely negative due to the large investment expenditures.

The industry risk profile rating of A- reflects a mixed industry profile of consumer goods and agribusiness. Our view on competitive position reflects the strong market presence in Hungary with increased diversification abroad, tempered by volatile profitability with moderate margins. This leads overall to a business risk profile rating of BB+.

Our rating for the financial risk profile is B. This reflects the increasing leverage, which is expected by us to move towards 5x in the medium term, as well as the relatively volatile FFO/SaD ratio. Cash flow coverage and free cash flow generation show relatively strong volatility and are constrained by ongoing investments. The worse-than-adequate liquidity assessment reflects that Bonafarm carries the debt and liquidity burden on behalf of all group members by maintaining a multi-currency cash pool and overdraft facility, which tempers its relatively good metrics. The issuer rating without supplementary rating drivers is B+. Scope gave a one notch upgrade for parent support.

This results in an overall issuer rating of BB-, with a senior unsecured debt rating of BB-.

Key rating drivers

• Strong market position
• Prudent financial policy
• EBITDA vulnerability to market price changes
• FOCF/Scope-adjusted debt negative due to heavy investment phase

Rating-change drivers

The outlook is Stable. While some fundamentals constrain the rating, the company is also undertaking a large once-in-a-generation investment. A positive rating action could be warranted if Bonafarm were to have a sustained improvement of FOCF/SaD to more than 5%. A negative rating action could be warranted if there were to be a sustained increase of FFO/Scope adjusted debt to below 15% and/or a sustained movement of SaD/EBITDA to more than 5x.

Stress testing
No stress testing was performed.

Cash flow analysis
Scope performed its standard cash flow forecasting for the company.

Methodology
The methodolog used for this rating and/or rating outlook (Scope Corporate Rating Methodology) is available on www.scoperatings.com.
Historical default rates of the entities rated by 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
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 rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, 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 John F. Opie, Associate Director
Person responsible for approval of the rating: Henrik Blymke, Managing Director
The ratings/outlooks were first released by Scope on 6 September 2019.

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
© 2019 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.
Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Directors: Torsten Hinrichs and Guillaume Jolivet.