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

Rating action

Scope Ratings assigns a B+ rating to the HUF 5.0bn senior unsecured bond issued by MetMax Europe Zrt. and guaranteed by CNC Tőkebefektető Kft. The issuer rating of B+/Stable assigned to MetMax Europe Zrt. is unchanged and no rating action was taken on the issuer rating.

Rating rationale

Scope Ratings has been made aware of a change to the bond terms that now include a guarantee provided by CNC Tőkebefektető Kft. to the issuing entity MetMax Europe Zrt. which formally creates a senior unsecured debt instrument with guarantee.

The remaining features of the HUF 5.0bn bond with tenor of 10 years, amortization of notional by 10% annually over 2025-2029 with 50% bullet repayment in 2030, and fixed interest rate coupon payable annually remain unchanged. Proceeds from the bonds are earmarked for investments to expand production capacity and to refinance existing debt at the parent company.

Scope assigns a B+ rating to the senior unsecured bond with guarantee HUF 5.0bn bond to be issued under the MNB Bond Funding for Growth Scheme. Scope has determined that the inclusion of the guarantee for the bond is not in and of itself a material rating driver and does not result in a rating action on the issuer rating or an outlook action.

The rating assigned is based on the information memorandum and terms and conditions provided in their respective final status as of 1 Dec 2020. As such, the rating incorporates the execution of the bond placement with the same transaction structure and terms of the issuance as laid out in those documents.

The issuer rating of B+/Stable assigned on 27 Oct 2020 (for the credit rating action please click here) is unchanged and no rating action was taken on the issuer rating.

Outlook and rating-change drivers

The Stable Outlook incorporates the successful placement of the HUF 5.0bn bond under the Hungarian National Bank’s Bond Funding for Growth Scheme and the arrangement of state subsidies for the duration of the investment programme. It also includes the expectation of mid-to-high single-digit revenue growth in 2021 while margins remain at current levels, translating into a SaD/EBITDA of around 2.0x in 2021.

At this stage, Scope deems an upgrade of the rating to be remote unless MetMax can improve its business risk profile in terms of customer concentration and product/end-market diversification, while maintaining credit metrics at the forecasted levels.

A negative rating action could result from SaD/EBITDA increasing above 3.0x on a sustained basis, caused by EBITDA margin pressure from rising staff costs or investment that goes beyond the current plan.

Long-term and short-term debt ratings

MetMax Europe Zrt. plans to issue a senior unsecured HUF 5.0bn bond with a 10-year maturity (amortising 10% every year during 2025-2029, and 50% in 2030). The bond includes a guarantee provided by CNC Tőkebefektető Kft. to the issuing entity MetMax Europe Zrt. which formally creates a guaranteed unsecured debt instrument. The remaining features of the proposed HUF 5.0bn bond are: amortization of notional by 10% annually over the period 2025-2029 with 50% bullet repayment in 2030 and fixed interest coupon payable annually. Proceeds from the bonds are earmarked for investments to expand production capacity (real estate, building, and new machines) at the sister company, and to refinance existing debt at the parent company. The investments at the sister company are planned to be funded through funds provided by MetMax Europe Zrt. Therefore, total bond proceeds will be lended to either the parent company or the sister company.

Scope’s recovery analysis uses the liquidation value in a hypothetical default in 2022 of HUF 3.8bn. This value is based on a haircut of around 50% on the assets and reflects liquidation costs for the assets of 10%. The haircut also assumes that the intra-group receivable from the parent used to refinance the acquisition debt would become non-recoverable in the event of payment default. Given that the intra-group receivable from the parent is viewed as non-recoverable in the event of a simulated payment default, we assign no benefit to the guarantee provided by CNC Tőkebefektető Kft. to the bond.

Our recovery analysis suggests ‘average’ recovery prospects for bondholders in a simulated event of default.

To determine claimholders, Scope has ranked the repayment obligation for subsidies at the simulated point of default senior to the claims on the prospective bond. Scope assumes the business plan and investment program will be executed as planned with no additional bank debt or other senior ranking financings ahead of the planned bond. Scope also assumes the existing undrawn bank facilities will be cancelled while mortgages and pledges over assets currently in place will be released.

In view of the expected recovery rate, Scope assigns a B+ rating to the senior unsecured (secured by guarantee provided by the parent company) HUF 5.0bn bond.

No short-term rating was assigned.

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(s) and/or rating outlook(s): Corporate Rating Methodology, published on 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 rated entity and/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: the rated entity, the rated entities' agents, public domain, 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 Werner Stäblein, Executive Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The rating/outlook was first released by Scope on 7 December 2020.

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.
Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.