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Rating action

Scope Ratings GmbH (Scope) has today upgraded the issuer rating of Ilija Batljan Invest AB (IB Invest) to CC from C and assigned a Stable Outlook. Concurrently, the senior unsecured debt rating and the subordinated hybrid debt rating have been affirmed at C. Consequently, the under-review status for a possible upgrade on the ratings has been resolved.

Scope upgraded Ilija Batljan Invest’s issuer rating following the debt restructuring, based on improved liquidity and credit metrics.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: B+. IB Invest's business risk profile benefits from the portfolio's geographic and sector diversification, although its reliance on various property exposures remains a constraint. Further support comes from the portfolio's liquidity, with 51% of its holdings listed as at end-March 2024. The portfolio's sustainability weighs on the rating, as the number of income-generating core holdings is low and the dependence on SBB i Norden remains. Given the high uncertainty as to when SBB i Norden will be able to resume normal dividends, IB Invest's income needs to be diversified. The investment philosophy is also seen as a constraint, as the company has a limited track record of portfolio rebalancing and recent sales have been driven by liquidity needs.

Financial risk profile: CCC (revised from CC). Following the debt restructuring in March 2024, which led to the maturity extension of its senior unsecured bond to January 2026 and a PIK payment of interest until then, Scope views the liquidity concerns lessened, and credit metrics improved.

IB Invest's Scope-adjusted total cost coverage* for 2024 is expected to be more than 2x, driven by SBB i Norden paying its deferred dividends from June 2023 (settled on 02/07/2024) and the PIK interest structure since April 2024. Scope expects total cost coverage to remain above 2x in 2025, albeit based on significantly reduced income as SBB i Norden is unlikely to resume dividend payments, but also reduced costs in 2025 through a pure PIK structure. However, Scope cautions that all PIK interest will be payable when IB Invest's senior unsecured bond matures in January 2026, and that credit metrics could look severely adverse if i) the bond maturity is not addressed early including a significant reduction of the PIK element payable or ii) the recurring income generated by the issuer’s holdings has not improved notably beyond Scope's base case.

Leverage, as measured by the loan/value (LTV) ratio, is 91% (as at Q1 2024), reflecting the market values of IB Invest's listed portfolio and appropriate discounts applied to the unlisted portion, while 50% of the hybrids are treated as debt. LTV has been very volatile over the last two years as the market value of IB Invest's holdings has fallen dramatically, while opportunistic transactions have exacerbated the problem. Scope expects a more stable performance going forward, with an increased focus by management on repositioning the portfolio towards income-generating holdings, which should benefit overall cost coverage and ultimately the LTV. Scope expects at least a partial implementation of the announced intention to redeem bonds of up to SEK 300m, which will benefit both LTV and future total cost coverage.

Liquidity: inadequate. Liquidity remains inadequate in light of maturity cliff-risk in January 2026, when all PIK interest becomes payable in addition to refinancing the senior unsecured bond. The reduced proximity of a liquidity event following the bond restructuring is reflected in Scope’s assessment of the financial risk profile.

Supplementary rating drivers: -1 notch. The issuer rating incorporates a negative one-notch adjustment to the standalone credit assessment of CCC, resulting in an CC issuer rating. The adjustment is linked to governance issues observed, detailed below under ESG factors.

Outlook and rating sensitivities

The Stable Outlook resolves the under-review status and reflects Scope’s view of a stabilisation in IB Invest’s operations after the significant disposals observed within the last 12 months and the bond restructuring witnessed in March 2024. Scope's base case assumes a total cost coverage well above 1x thanks to the payment of the deferred dividend from IB Invest's core holding SBB i Norden in July 2024, although such dividends are not expected to resume on a normal basis. Scope highlights the refinancing cliff-risk in January 2026, when the senior unsecured bond matures and its PIK interest becomes payable - translating likely into a very low total cost coverage and liquidity constraints.

The upside scenarios for the ratings and Outlook are (collectively):

1. Addressing the senior unsecured bond maturity well ahead of time to reduce the refinancing risk.
    
2. A sustainable improvement in credit metrics through a positive development of its underlying holdings in terms of market values and income generating ability for IB invest and a disposal of part of its portfolio to retire expensive debt.

The downside scenario for the ratings and Outlooks is:

1. A deterioration in perceived liquidity due to a failure to address the January 2026 senior unsecured bond maturity in a timely manner.

Debt ratings

As of Q1 2024, IB Invest had SEK 62m in unsecured bank debt (ranking structurally ahead of the senior unsecured bond) in addition to SEK 1.3bn in outstanding senior unsecured bonds. Those rank ahead of the SEK 750m in subordinated perpetual floating-rate callable capital notes.

The senior unsecured debt rating has been affirmed at C, based on a below-average recovery in a hypothetical default scenario. Scope highlights the high sensitivity of recovery expectations to advance rates and the volume of senior secured debt at the time of a hypothetical default.

The subordinated (hybrid) debt rating has been affirmed at C. 

Environmental, social and governance (ESG) factors

Scope experienced a reduced and delayed flow of information from the company during H2 2023, with a deterioration in transparency and access to management. Scope notes that the information flow has since improved significantly, as has access to management. Scope also notes the personal attachment of IB Invest's CEO to the core holding SBB i Norden, which has resulted in market value destruction for IB Invest. While Scope understands his role as a founder of SBB i Norden and his continued involvement as a board member, this attachment has culminated in opportunistic trades that have not been in the best interests of IB Invest's stakeholders, raising a governance issue.

All rating actions and rated entities

Ilija Batljan Invest AB

Issuer rating: CC/Stable, upgrade

Senior unsecured debt rating: C, affirmation

Subordinated debt (Hybrid) rating: C, affirmation

*All credit metrics refer to Scope-adjusted figures.

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, 16 October 2023; Investment Holding Companies Rating Methodology, 17 May 2024), 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 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 these 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 and/or Outlook 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: Thomas Faeh, Executive Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The issuer and senior unsecured debt Credit Ratings/Outlook were first released by Scope Ratings on 28 May 2021. The Credit Ratings/Outlook were last updated on 22 March 2024.
The subordinated debt (hybrid) Credit Rating was first released by Scope Ratings on 1 June 2021. The Credit Rating was last updated on 22 March 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties. 

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.