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Rating action

Scope Ratings GmbH (Scope) has assigned a B+ rating to the HUF 22bn guaranteed senior unsecured corporate bond (2021-31) to be issued by Hungarian agribusiness company Hunland Trade Kft. The bond is guaranteed by Hunland Trade’s sole subsidiary (Hunland Trans Kft) and three sister companies (Bovinia Kft, Hunland Production Kft, and Hunland Dairy Kft).

Rating rationale

Hunland Trade will issue a HUF 22bn (equivalent to EUR 63m) guaranteed senior unsecured bond in 2021 under the Bond Funding for Growth Scheme of the Hungarian National Bank. The Scheme allows the issuer to accept up to 10% in oversubscriptions for the bond. The bond will have a 2.88% coupon, and its 10-year tenor will consist of a five-year grace period followed by amortisation of 10% in years 5-9 and 50% in year 10. The bond’s four guarantors are Hunland Trade’s sole subsidiary (Hunland Trans Kft) and three of its sister companies (Bovinia Kft, Hunland Production Kft, and Hunland Dairy Kft). Bond proceeds are earmarked for refinancing EUR 40m in short-term debt, investing EUR 3m in new production machines, and providing EUR 20m in intercompany loans to the guarantors to refinance their financial debt (EUR 10.9m) and finance their capex (EUR 9.1m). The bond’s terms allow the issuer a unilateral deviation of 10% (or up to EUR 4.3m) from intended uses of EUR 43m for its benefit (guarantors’ stake down to EUR 15.7m accordingly). Even so, the guarantors will remain entitled to EUR 20m in proceeds. Thus, the guarantors' loans will be repaid even if the issuer uses more of the proceeds, in which case part of the investments realised from the bonds will decrease or will be realised from own funds.

The bond represents a direct, unconditional, non-subordinated obligation of the Issuer and is guaranteed by the four guarantors. According to the final signed bond prospectus, the bond shall be ranked at least pari passu with each other and with other current and future liabilities obtained by the issuer with a similar ranking; there are also clauses relating to negative pledges, cross-defaults, a change of control, a dividend payment limit, a deterioration of the credit rating, and late payment. The final signed prospectus also includes financial covenants. The final prospectus was modified slightly to the benefit of bondholders.

Scope applied a recovery analysis due to the guarantees given by Hunland Trans Kft, Bovinia Kft, Hunland Production Kft, and Hunland Dairy Kft. This led to an ‘average’ recovery expectation for the guaranteed senior unsecured debt, translating into a B+ rating. The recovery expectation is based on an anticipated liquidation value in a hypothetical default scenario. The guaranteed senior unsecured debt ranks below short-term and long-term debt (excluding the bond issue) raised from financial institutions and payables secured by asset pledges. Consequently, in a hypothetical default, creditors of the guaranteed senior unsecured bond are likely repaid from the liquidation proceeds remaining after repayments to senior secured debt creditors, the guarantors’ current assets, and property, plant and equipment reduced by long-term and short-term financial debt, and payables. The recovery expectation incorporates uncertainties regarding the value of claims at the guarantor level at the point of the issuer’s hypothetical default as well as regarding the guarantors’ debt at the point of the issuer’s hypothetical default and the seniority of the claim. 
 
Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this Credit Rating, (Corporate Rating Methodology, 6 July 2021), is available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Rating was not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the 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, the Rated Entities' Related Third Parties and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
These Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Anne Grammatico, Associate Director
Person responsible for approval of the Credit Rating: Sebastian Zank, Executive Director
The Credit Rating was first released by Scope Ratings on 13 July 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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.