Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Wellis Magyarország Zrt. (issuer rating: B-/Negative, senior unsecured debt rating: B-) on 21 February 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

After reviewing the preliminary 2022 consolidated financial information on Wellis, Scope has concluded that the business and financial risk profiles are in line with Scope’s base case assumptions as outlined in the October 2022 rating action.

The rating continues to be constrained by the financial risk profile, negatively affected by the Scope-adjusted EBITDA margin expected to remain below historical averages in the medium term. According to Scope’s base case forecast, leverage as measured by Scope-adjusted debt/EBITDA is expected to be above 15.0x in 2023 and to remain high in the short-to-medium term. Additionally, liquidity is expected to remain inadequate as available liquid assets as of YE 2022 (HUF 245m) and the free operating cash flow of HUF 1.8bn do not cover the short-term debt of HUF 10.5bn maturing in 2023. Scope’s base case assumes that the company will be able to secure appropriate funding by the end of 2023.

Scope notes that the senior unsecured bond issued by Wellis (ISIN: HU0000360250) has an accelerated repayment clause related to the loss of the B+ rating. After the last rating action dated 20 October 2022, the issuer has entered the two-year cure period preceding the bond acceleration. Failure to improve the rating to B+ until the end of the cure period or a further negative rating action would trigger immediate debt acceleration, requiring Wellis to repay the nominal amount (HUF 10bn) within 30 days, which could have default implications.

The methodologies applicable for the reviewed ratings and rating Outlook (General Corporate Rating Methodology, 15 July 2022; Consumer Products Rating Methodology, 4 November 2022) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Istvan Braun, Associate Director

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