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.

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. (rated B-/under review for a possible downgrade; senior unsecured debt rating B-/under review for a possible downgrade) on 26 July 2024.

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

Based on H1 2024 interim management accounts, the rebound in profitability, which began in Q3 2023, has continued in 2024, with the Scope-adjusted EBITDA margin improving to above 9% (H1 2024: 9.4%). This is thanks to the large-scale rationalisation and reorganisation plan implemented in 2023, as well as the more supportive business environment, with demand gradually increasing on key Western European markets. Wellis’ financial risk profile, however, remains stressed.

The B- issuer rating remains under review for a possible downgrade. Scope will closely follow developments related to the ongoing negotiations between the issuer and bondholders. These are currently at an advanced stage according to the issuer, and are expected to be resolved by September 2024 at the latest.

A downgrade, not limited to one notch, would occur in case the issuer is unable to obtain a waiver from the bondholders well before the expiry of the grace period on 20 Oct 2024. This would require Wellis to repay the nominal amount (HUF 9.9bn) within 30 days, which would likely lead to a further deterioration of the company’s liquidity profile and could have default implications.

The rating could be affirmed if Wellis is able to obtain a waiver from bondholders before the end of the grace period.

A positive rating action could be conducted if i) Wellis obtained a waiver from creditors on the covenant breach well ahead of the end of the grace period, ii) sustainably improved its operating margin and credit metrics and iii) improved further its access to external funding such as working capital facilities.

The B- long-term debt rating for senior unsecured debt issued by Wellis also remains under review for a possible downgrade.

The methodologies applicable for the reviewed ratings (General Corporate Rating Methodology, 16 October 2023; Consumer Products Rating Methodology, 3 November 2023) 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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