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 Vajda-Papír Kft. (issuer rating: B/Negative, senior unsecured debt rating: B) on 7 June 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

Vajda-Papír’s financial risk profile remains the main constraint to the issuer rating. The group’s 2022 audited consolidated financial statements show weaker operating profitability than forecasted (reported EBITDA margin of -1%). This is because the unfavourable macroeconomic environment – materialising in heightened input prices – persisted longer than expected. As a result, the group arranged an additional HUF 2bn in short-term debt in 2022 (and another HUF 2bn in 2023) on top of the HUF 4.5bn in intercompany loans granted by affiliate companies Vajda Papir Scandinavia AS and Vajda Holding GmbH. The open credit line of HUF 1bn was partially utilised too. Although these measures support the group’s ‘adequate’ liquidity assessment (as its available liquid assets at YE 2022 were HUF 2.2bn), they have negatively affected the group’s 2022 credit metrics.

Both energy and cellulose prices started to decrease in Q1 2023, leading to better operating profitability (reported EBITDA margin of 8%). The group has only set hedging contract fixing its gas costs at 30% of its consumption which leaves it vulnerable to volatile input prices. In addition to benefiting from improving market conditions in 2023, the group is expected to benefit from third-party sales of base paper given that its Phase II investment has been completed, however it will likely face pricing pressure due to declining retail volumes.

Considering that the group has lifted some of the measures it implemented in Q4 2022 to combat unfavourable market conditions, Scope has taken no action on the issuer rating. This is because the assigned Negative Outlook adequately reflects Scope’s concern about whether the measures previously taken will be enough to counteract the negative impact the group has experienced on its profitability and cash flow generation and the group’s ability to maintain adequate liquidity. Overall, Scope has concluded that the business and financial risk profiles of Vajda-Papír are in line with Scope’s base case assumptions as outlined in the November 2022 rating action.

Scope notes that both senior unsecured bonds issued by Vajda-Papír (ISIN codes HU0000359989 and HU0000360474) have an accelerated repayment clause related to the loss of the B+ rating. After the last rating action dated 17 November 2022, the issuer entered a two-year cure period preceding bond acceleration. Failure to improve the rating to B+ by the end of the cure period or a further negative rating action may trigger immediate debt acceleration. This would require Vajda-Papír to repay the nominal amounts (HUF 11.2bn and HUF 9.9bn) 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: Vivianne Kapolnai, Senior Analyst

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