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

Rating action

Scope Ratings GmbH (Scope) has placed the BB- issuer rating and BB- senior unsecured debt rating of B+N Referencia Zrt. (B+N) under review for a developing outcome.

Rating rationale

B+N missed its regulatory deadline to publish its 2021 consolidated financial statements due to difficulties in converting from Hungarian to international financial reporting standards. This has led to a lack of clarity on group financial performance for 2021 and going forward. Although favourable operating conditions characterized 2021, softer economic conditions are expected in 2022 and the following years, thus a potential loss of major contracts may significantly impact the group’s future revenue growth and profitability. Scope has placed the issuer rating and the senior unsecured debt rating under review until the audited consolidated financial statements are released and more clarity can be gained.

B+N’s business risk profile (assessed as BB-) remains the main rating constraint and is not impacted by the delayed reporting. The group’s leading position in the Hungarian market is complemented by the top positions of its foreign subsidiaries in their respective markets, though these markets are competitive and highly fragmented. The acquisitions of facility management providers Inwemer Group in Poland and I-facility EOOD in Bulgaria have improved geographical diversification and allowed the group to benefit from their domestic dominance. Customer concentration and its related risks remain strong. This is demonstrated by the receding revenues in the fit-out division after a contract ended with the renovation of several Hungarian hospitals, which has also limited the division’s order book for the upcoming years. Counterparty and non-payment risks are, however, low as the main customers are government-related entities. Profitability is expected to return to historical levels of around 11% as the increase in 2021 is considered temporary with the ending of major contracts. Scope expects the additional costs that will be needed to resolve significant labour shortages in Hungary to restrain the EBITDA margin going forward.

Group revenue grew substantially in 2021, based on the standalone financial statements of each group entity. This was supported by the fit-out division’s significant contribution and the ISS CEE acquisition. In 2022, Scope expects growth to be driven by the Inwemer and I-facility acquisitions and the new clients under the hospital cleaning framework agreement. The financial risk profile could benefit from organic revenue growth that is not financed by additional debt. Liquidity is expected to remain adequate, with nearly no short-term debt and cash generation to increase. However, one bond will start amortising in 2024.

The rating assessment includes a negative rating adjustment of one notch which flags several concerns, including key person risk and limited transparency on B+N’s reporting and financial policy (ESG factor).

One or more key drivers of the credit rating action are considered ESG factors.

Issuer rating put under review

The issuer credit rating is under review for a developing outcome, pending the completion and publication of the 2021 consolidated financial statements.

An upgrade by one notch could result from an improvement of B+N’s credit metrics compared to the previous base case through the substantiated stability of the operating business for the following years. Scope will resolve the review status once there is more clarity once the 2021 consolidated financial statements are published. The rating agency expects to resolve the review status within the next few months.

A negative rating action can be prompted by a deterioration in credit metrics as indicated by Scope-adjusted debt/EBITDA of above 3.5x, e.g. consolidated debt portfolio including financial leases increase significantly compared to previous base case or stemming from a loss of major contracts.

Long-term debt ratings

The BB- senior unsecured debt rating, mainly for the HUF 10bn bond placed in 2019 (10-year tenor, 2.9% coupon) and the HUF 13.2bn bond placed in 2021 (10-year tenor, 3.5% coupon), was based on the BB- issuer rating and an ‘average’ recovery expectation for this debt category. Driven by the rating action on the issuer, Scope has also placed the senior unsecured debt rating under review for a developing outcome.

Rating driver references
1. 2 August 2022 Press release of delayed financial statement publication

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 these Credit Ratings and/or 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 Credit Ratings were 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 Ratings: public domain, the Rated Entity 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 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/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Vivianne Anna Kápolnai, Senior Analyst
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 4 October 2019. The Credit Ratings/Outlook were last updated on 15 October 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
© 2022 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.