Scope affirms BB+ rating of Bikeleasing-Service GmbH & Co. KG, with Stable Outlook
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Scope Ratings GmbH (Scope) has today affirmed its BB+/Stable issuer rating on Bikeleasing-Service GmbH & Co. KG (BLS). Scope has also affirmed its BB+ senior unsecured debt rating.
The issuer rating reflects Scope’s view on BLS’ successful business concept in the rapidly growing German bike-leasing market, which Scope has categorised under business services. Key determinants of Scope’s business risk assessment are the company’s ability to achieve a market share of more than 20% only seven years after its founding as well as its good profitability in its core segment of bike-lease contract brokerage.
At the start of 2021, BLS acquired one of its leasing partners, Hofmann Leasing (HL), for about EUR 11m, marking BLS’ entry into the financing market. While this comes with additional risk, it also improves product diversification (in line with management’s medium-term goal to expand its scope of leasing products) and lessens financing risk. HL’s integration is thus neutral for BLS’ business risk profile.
In June 2021, BLS was acquired by financial investor Brockhaus Capital Management (BCM). BCM has taken over 60% of BLS’ share capital from its two founders. The founders have reinvested the proceeds to gain 40% in BCM’s acquisition vehicle (BCM Zweite Beteiligungs GmbH). BCM has financed most of the BLS takeover with equity, while the acquisition vehicle has funded the remaining EUR 30m with debt. Despite this and the impact of HL’s financial debt, which is now consolidated, BLS’ financial risk profile is likely to remain solid, which is reflected in the rating. Scope believes the company’s very low leverage is likely to continue as the company was debt-free before, now supported by free cash flows providing significant funds in the near future. Furthermore, the company’s high double-digit growth can now be funded both by the traditional forfaiting of receivables and the securitisation of leasing receivables to investors via its new financing platform.
With regard to BLS’ business risk profile (assessed at BB), market shares and profitability are the main strengths. Based on BLS’ sales volume of about 70,000 bikes in 2020, its market share in Germany is believed to be above 20%, which is significant given that the company was founded only in 2015. With regard to profitability, Scope believes that BLS' adjusted EBITDA margin is sustainable as it is much higher than that of business services peers. Including HL’s leasing business, the EBITDA margin is above 40%, reflecting the asset-light service business and underlying growth potential. BLS’ operating profits contain commission income from the leasing and insurance companies as well as from leasing receivables sold. An additional benefit is that the business concept enables superior visibility on future sales, which can be estimated very accurately based on new firms contracted and the number of employees eligible for a bike order.
Diversification is assessed the lowest among the business risk elements. However, diversification might benefit from the HL acquisition and last year’s entry into Austria. The HL acquisition will allow BLS to expand its product offering beyond one product (bikes) via the ownership of valuable customer leasing data. The entry into the Austrian market has expanded the geographical presence beyond just Germany. However, given the very recent nature of these two changes, the diversification assessment is unchanged until relevant growth can be demonstrated. The underlying markets may be large, but the competitive environment is still evolving. For example, Volkswagen Financial Services recently announced its entry into the bike-leasing segment. Thus, while Scope holds a positive view of customer diversification (30,000 corporate customers with more than 2 million employees under contract) and the exposure to specialist bike retailers (about 5,000), both regional and market segment diversification are still a constraint for BLS’ diversification score.
Scope believes that BLS’ financial risk profile (assessed at A) is presently much stronger from a ratings perspective than its business risk profile. This is due to the business model’s low cash absorption in a non-capital-intensive industry. Given that working capital is likely to release cash in the near future based on pre-funding of bike purchases via receivables sold and commission income received, as well as from ramping up profits, the resulting free operating cash flow levels are significant. Scope thus projects very high free operating cash flow-to-Scope-adjusted debt levels relative to the ratings. BLS’ operational setup was originally funded without any financial debt and thus entirely with equity.
In the first half of 2022, BLS was able to continue achieving high operating growth (a 39% jump in bikes distributed and 45% in sales realised, both year over year), based on high demand for leased bikes, spurred by a combination of favourable factors (health focus of customers, tax incentives, product innovation). Based on this, Scope believes that the company is likely to be able to decrease leverage quickly from the slightly elevated levels seen in 2021, which reflected the takeover by BCM, including a small element of financial debt, and the fact that supply chain bottlenecks from some Far Eastern suppliers in 2020 became less significant in the second half of 2021.
Scope expects the significant growth in bike leasing to continue through the rating horizon (i.e. until 2023), assuming BLS can continue to finance this growth while maintaining sufficient liquidity. The latter is likely to benefit from increasing annual free operating cash flow generation to EUR 20m-30m, which is very high compared to EBITDA. Liquidity is adequate, benefiting from the low short-term financial debt balance (except for the EUR 10m in bearer certificates) while cash generation continues to ramp up.
Scope did not adjust the rating for supplementary rating drivers. The bearer certificate documentation stipulates a leverage covenant of below 2x.
The company’s promotion of greater bike use contributes to less pollution and fosters individual health (ESG factor: credit-positive environmental and social factors).
One or more key drivers of the credit rating action is considered an ESG factor.
Outlook and rating-change drivers
The Outlook is Stable and reflects Scope’s expectation that BLS’ balance sheet will continue to reflect small amounts of financial debt and its ability to finance significant growth without jeopardising liquidity.
A positive rating action could result from a successful execution of growth plans and no emergence of additional competitors. It could also be supported by improved diversification through expansion into other leasing products.
A negative rating action could result from an increase in leverage to above 2.5x on a sustained basis. This could be caused by BLS’ inability to increase platform use to about a third of total refinancing volumes and lessen its dependence on traditional financing via the forfaiting of receivables.
Long-term debt rating
Scope has affirmed the senior unsecured debt category rating of BB+, taking into account the issuance of a new EUR 10m bearer bond. This rating reflects the ‘average’ recovery expected by Scope. The recovery assessment is based on a hypothetical default scenario reflecting a high advance rate for leasing receivables which result in a full recovery of senior secured debt positions. The recovery of senior unsecured debt positions is regarded as ‘average’ leading to no uplift from the issuer rating.
Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.
The methodology used for these Credit Ratings and Outlook, (General Corporate Rating Methodology, 15 July 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.
Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, 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 these Credit Ratings 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 Ratings and Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings were not amended before being issued.
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Olaf Tölke, Managing Director
Person responsible for approval of the Credit Rating: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 14 October 2021.
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. Scope Ratings provided the following Other Services to the Rated Entity and/or its Related Third Parties within the two years preceding this Credit Rating action: Credit Estimate.
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