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 CLA Pig Kft. (issuer rating: B+/Stable; guaranteed senior unsecured bond rating: BB-) on 11 April 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will bond 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

Scope has reviewed the details of the new working capital loan of CLA Pig which will likely exceed 10% of its equity, expected to be contracted in April 2023, and has taken no action on the B+/Stable issuer rating and BB- guaranteed senior unsecured bond rating.

The rating continues to be supported by the issuer’s solid financial risk profile (assessed at BB+), with credit metrics in line with Scope’s base case. The new financial debt is deemed to have a limited impact on leverage, measured by Scope-adjusted debt/EBITDA expected to remain below 3.0x in 2023. Further deleveraging is expected going forward benefiting from new capital investments. EBITDA interest cover is expected to remain around 10x in the upcoming years. Scope expects cash flow cover, measured by Scope-adjusted free operating cash flow/debt to be negative in 2023 as a result of capital expenditure. However, negative free operating cash flow should not have a significant adverse impact on liquidity as the ongoing investment is covered by the proceeds of the bond issuance and investment subsidies. The new working capital line should provide an additional buffer for the issuer’s higher working capital needs in line with inflated input prices and material costs.

CLA Pig’s business risk profile (assessed at B) is constrained by the company’s limited size, both in European and domestic contexts, and weak diversification (highly dependent on a single product category) but positively driven by its historically strong operating profitability.

In August 2021, Agrár issued a HUF 3.26bn senior unsecured guaranteed bond (ISIN: HU0000360672) through the Hungarian central bank’s Bond Funding for Growth Scheme. The bond’s tenor is 10 years, with a fixed coupon rate of 2.9% and repayment in six tranches of 10% in 2026, 2027, 2028, 2029 and 2030 and of 50% in 2031. The bond was issued with a guarantee from related company Agro-Build Kft.

Although Scope’s analysis, based on a hypothetical default scenario at year-end 2024, indicates lower recovery compared to the previous base case (the new working capital loan ranks above the senior unsecured guaranteed bond in terms of repayment), Scope continues to rate the guaranteed senior unsecured bond one notch above the issuer rating (BB-), still reflecting an above-average recovery expectation for the bond.

Scope notes that CLA Pig’s guaranteed senior unsecured bond issued under the Hungarian Central Bank’s bond scheme has an accelerated repayment clause. The clause requires CLA Pig to repay the nominal amount (HUF 3.26bn) in case of a rating deterioration pertaining to the debt instrument rating (two-year cure period for a B/B- rating, repayment 30 days after the bond rating falls below B-, which could have default implications). From today’s perspective, there is solid headroom before such covenant could be breached.

The methodology applicable for the reviewed rating and rating Outlook (General Corporate Rating Methodology, 15 July 2022) is 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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