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

Rating action

Scope has today affirmed the rating of Bonafarm Csoport at BB-/Stable. Senior unsecured debt has also been affirmed at BB-.

Rating rationale

Bonafarm’s strengths continue to be its strong market and asset position, with prudent financing. These remain offset by leveraged financing and inherent input price volatility, resulting in the increased vulnerability of EBITDA to market price movements. Free operating cash flow/Scope-adjusted debt (SaD) also continues to be volatile and negative due to ongoing capex for a new production facility for wholly owned subsidiary Pick-Szeged Zrt. The industry risk profile rating remains at A-, reflecting a mix of consumer goods (A) and agribusiness (BBB). The competitive position rating of BB reflects a strong presence in Hungarian markets with increasing diversification abroad but is tempered by volatile profitability with moderate margins. This leads to an overall business risk profile rating of BB+.

The company’s financial risk profile is held back by negative free operating cash flow and the anticipation of weaker metrics in the future when capex is realised. The financial risk profile remains at B. The delay in capex reflects an active management of investment risks, in part due to Covid-19 but also due to administrative delays and the redefining of investment goals for the Bonafarm group as a whole, with overall long-term investments moving from the original plan of EUR 600m to EUR 500m. The delay in capex does not change the fundamental volatility of the funds from operations/SaD ratio, cash flow coverage and free cash flow generation. In addition, Bonafarm carries the debt and liquidity burden on behalf of all group members and leverage will remain high during the planned, once-in-a-generation capex programme. The issuer rating without supplementary rating drivers is B+. Scope continues to assign a one-notch upgrade for parent support.

Outlook and rating-change drivers

The Outlook continues to be Stable. The large, once-in-a-lifetime capex programme has been delayed and changed credit metrics will revert to their previous levels once this is executed. A positive rating action could be warranted if Bonafarm achieves a sustained improvement in free operating cash flow/SaD to more than 5%. A negative rating action could be warranted by a sustained increase in funds from operations/SaD to below 15% and/or a sustained movement of SaD/EBITDA to more than 5x.

Long-term and short-term debt ratings

Scope affirms the BB- debt rating on senior unsecured debt issued by Bonafarm Csoport. The debt category rating reflects the ranking status of the debt issued by wholly owned subsidiary, Pick-Szeged Zrt, ranking below the HUF 11bn senior secured bank debt of Bonafarm Csoport. Scope expects an average recovery (30%-50%) for outstanding senior unsecured debt in a hypothetical default scenario in 2022. 

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

Methodology
The methodology used for this rating and/or rating outlook (Corporate Rating Methodology, 26 February 2020) is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
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 rating process was conducted:
With Rated Entity or Related Third Party Participation          YES 
With Access to Internal Documents                                       YES
With Access to Management                                                 YES
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity 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, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: John Francis 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
© 2020 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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