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On 19 August 2020 ALTEO Energiaszolgáltató Nyrt announced its plans to issue a new senior unsecured bond with a volume of HUF 3-4bn, which is intended to be placed under the Hungarian Central Bank’s Bond Funding for Growth Scheme (MNB scheme). The new bond is proposed to have a maturity exceeding ten years, with bullet repayment upon maturity. Although this will be determined via an auction, the agency assumes that the new bond’s coupon will be slightly lower than the coupon of the first bond issued under the scheme in 2019 (3.15%). That is unless the new bond has a maturity which is significantly higher than ten years.

Whereas the proceeds of the first bond placed in 2019 under the MNB scheme were primarily used for refinancing purposes, the new bond is earmarked for the funding of general business, such as the execution of ALTEO’s comparatively large HUF 20bn investment plan for the period to 2024. As such, the planned MNB bond represents an element of the external funding which Scope incorporated in its updated rating case published on 27 July 2020.

The largely debt-financed investment plan focusses on organic growth and smaller bolt-on acquisitions – primarily single generation projects in renewables and/or cogeneration – which are expected to provide significant EBITDA growth over the next few years. Scope anticipates that this will lead to leverage sustained at around 3.5-4.5x over the next few years and EBITDA interest coverage remaining above 5.0x. The agency’s rating case assumes EBITDA growth of at least 50% between 2019 and 2022, which justifies the higher amount of debt expected to be taken onto ALTEO’s balance sheet over the next few years.

ALTEO’s consistent execution of an EBITDA-enhancing growth strategy has already led to significantly improved operating results over the past few quarters. Moreover, the most recent announcement of another bolt-on acquisition of a 15 MWe wind park in the vicinity of Bábolna (announced on 18 August 2020) will strongly contribute to improved operating earnings over the next few years. The wind park, which operates under regulated feed-in tariffs under the KÁT scheme up to July 2025, will contribute to ALTEO’s strong EBITDA growth and the retention of a double-digit EBITDA margin over the next few years. Furthermore, it will also improve the company’s outreach and reduce asset concentration risks, as expected in Scope’s rating case.

Overall, the rating case for ALTEO’s BB+/Stable issuer rating remains unchanged. Moreover, the placement of a new senior unsecured debt position does not alter Scope’s view on above-average recovery expectations for senior unsecured debt in a hypothetical default scenario. This is reflected in the BBB- rating for ALTEO’s senior unsecured debt.

This publication does not constitute a credit rating action. Scope recently affirmed its initial public rating on ALTEO Energiaszolgáltató Nyrt on 27 July 2020. For the official credit rating action release click here.

The methodologies used for this rating and rating outlook (Corporate Rating Methodology, published on 26 February 2020; Rating Methodology for European Utilities, published on 18 March 2020; Rating Methodology for European Renewable Energy Corporates, published on 17 January 2020) are available on https://www.scoperatings.com/#!methodology/list.

This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.

Lead analyst Sebastian Zank, Executive Director

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