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Rating action

Scope Ratings GmbH (Scope) has downgraded its issuer rating on Textura Zrt. to B-/Stable from B/Stable. Scope has also downgraded the rating on the senior unsecured bond (ISIN HU0000361449) guaranteed by the Hungarian Development Bank to B from B+.

Rating rationale

The downgrade is driven by the little visibility on the future impact on sales and EBITDA of Textura’s new product lines, pools and coffee bio-capsules. The downgrade also encompasses the current absence of an order backlog. Textura did not provide audited consolidated accounts, which are not a regulatory necessity due to its small size. However, it will consolidate all of its holdings and produce consolidated financial statements from FY 2021 on-wards. Scope expects these to be provided in Q1 2023.

Textura is planning to ramp up the two new products in 2023 and expects them to account for close to 85% of total forecasted EBITDA, while the legacy activity of the group – textile wholesaling – will constitute the rest of the operating income. Scope has adopted more cautious forecasts for these products, given their early stage of development (testing and prototyping) as well as the absence of supply contracts, which limit visibility on the performance of the group in the coming months, hence the downgrade.

A successful deployment of pools and coffee bio-capsules in the coming months would significantly boost the EBITDA forecasts and lead to a revision of the business risk and financial risk profiles, as Textura expects both products to generate an average EBITDA margin of around 50% (its wholesale EBITDA margin has been below 10% up to YE 2022) and would further shift the business risk from retailing towards manufacturing. A poor reception of these products and/or a delay in their manufacturing could, however, pressure the financial risk profile and alter Textura’s capex ambitions.

The business risk profile (assessed at B+) continues to be the main rating driver. The group substantially increased its EBITDA margin in FY 2022 (based on preliminary unaudited data provided by management) to levels close to 15%. The increase is mainly due to an inventory stock-up in early FY 2022, a switch towards higher-margin products (special fabrics such as reflective material, water-, oil-, acid-, flame-repellent fabrics) and a decrease of supply costs in H2 2022. Scope notes that the two plastic divisions were EBITDA-dilutive in 2021-2022 due to a production delay and no sales activity.

The production delays in 2021 impacted the financial risk profile (assessed at B-), as Scope-adjusted debt/EBITDA and Scope-adjusted funds from operations/debt (measures of leverage) are expected to deteriorate towards 10x and 13% respectively at YE 2022. Interest cover is expected to remain strong for FY 2022 as only part of the bond proceeds was invested in FY 2022 and money on deposit has benefitted from the sharp rise in Hungarian interest rates, reflected in high interest income from HUF-denominated deposits in Hungary. Interest cover is, however, expected to suffer from a sharp deterioration driven by the expected refinancing of the working capital facility at significantly higher interest. Lastly, cash flow cover is expected to remain under pressure in the coming years, due to a notably high phase II capex that will amount to HUF 3.6bn (in line with the bond memorandum) and is likely to put pressure on working capital outflows linked to the development of the pools and coffee bio-capsules activities.

Liquidity is adequate. This is supported by the manageable upcoming debt maturities (including the HUF 2.5bn working capital loan expiring in September 2023) and the large amount of funds remaining from the bond issuance. These will compensate for any pressure on free operating cash flow exerted by the Phase II capital expenditure.

Outlook and rating-change drivers

The Stable Outlook reflects leverage staying at elevated levels in the short- to medium-term, i.e. Scope-adjusted debt/EBITDA of above 6x, given the limited visibility of sales from the plastic divisions. Furthermore, liquidity is deemed as adequate in the next 12 months, based on the expected successful refinancing of the HUF 2.5bn working capital loan in September 2023, as well as no further capital expenditure on the plastic divisions until a successful ramp-up of sales.

A positive rating action may be warranted if the Scope-adjusted debt/EBITDA moves towards 4x, likely enabled by a successful ramp-up of the plastic divisions.

A negative rating action would be considered if liquidity weakens as a consequence of further capital expenditure without additional visibility on sales from the plastic divisions and/or a non-successful extension of the working capital facility or working capital build-up, e.g. if the plastic divisions do not cover the additional costs generated.

Scope notes that Textura’s senior unsecured bond issued under the Hungarian Central Bank’s bond scheme has two accelerated repayment clauses. The clauses require the issuer to repay the nominal amount (HUF 5.0bn) in case of rating deterioration (2-year cure period for B/B- rating, immediate repayment below B-) or change of control at the issuer level. The same applies to the bank guarantee provided by MFB Hungarian Development Bank securing 80% of the bond notional.

Long-term debt rating

The HUF 5.0bn senior unsecured bond (ISIN HU0000361449) guaranteed by the Hungarian Development Bank and issued under the MNB Bond Funding for Growth Scheme was downgraded by one notch to B. It reflects Scopes view of an average recovery; however, it is supported by the guarantee by the Hungarian Development Bank (BBB+/Negative¹)

Rating driver references
1. Scope affirms BBB+ rating on MFB Hungarian Development Bank, revises Outlook to Negative 

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

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 15 July 2022; Consumer Products Rating Methodology, 4 November 2022; Retail and Wholesale Rating Methodology, 27 April 2022), are 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, 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 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: Adrien Guerin, Senior Analyst
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Issuer Credit Rating/Outlook was first released by Scope Ratings on 3 February 2022.
The bond preliminary Credit Rating was first assigned by Scope Ratings on 3 February 2022. The final Credit Rating was first assigned by Scope Ratings on 21 February 2022.

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
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