The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has today affirmed the B+ issuer rating on Hungarian independent power producer MET Hungary Solar Park Kft (MET HSP), while revising the Outlook to Positive from Stable. Scope has also affirmed the BB- rating on senior unsecured debt.

The Outlook change to Positive is based on the strengthening of credit metrics in 2023, confirmed so far also in 2024, which is expected to continue in the coming years following the end of the company’s heavy investment phase. Indeed, the foreseen largely positive free operating cash flow and limited dividend payments will likely support a gradual deleveraging, ultimately resulting in a stronger financial risk profile.

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

Key rating drivers

Business risk profile: BBB (unchanged). MET HSP’s business risk profile remains supported by a protected business model pertaining to the operation of a power generation portfolio of 240 MW of photovoltaic plants in Hungary (ESG factor: credit positive), which benefits from the prioritised feed-in of generated electricity at predictable prices for an extended period under the KÁT regime.

Conversely, the company is penalised by its limited business diversification, given the asset concentration in one country and the full regulatory exposure to Hungary for all operating activities. Nonetheless, as with other companies running a protected business model, such lack of diversification is not seen as overly credit negative.

At the same time, profitability is still the strongest driver of MET HSP’s business risk profile, with the Scope-adjusted EBITDA margin* around 80% in 2021 and 2022, even peaking 84.4% in 2023, thanks to the favorable irradiation conditions and higher-than-expected generation volume. Based on unaudited H1 2024 results (interim EBITDA margin of 86.3%), profitability is likely to remain above 80% this year, benefitting from overproduction and favorable terms contracted by the company on balancing cost. For the next few years, EBITDA margin will likely be retained around such level, given the rigid tariff scheme and the inflation adjustment mechanism.

Financial risk profile: B+ (unchanged). MET HSP’s financial risk profile remains the main constraint on its standalone credit assessment, due to the high indebtedness deriving from debt-funded investments earmarked for the acquisition of project development rights and the execution of EPC works over the recent past. However, given the end of the company’s investment phase in 2023, credit metrics are expected to progressively improve in the coming years, as already visible at YE 2023 and 2024 (year-to-date).

Leverage as measured by debt/EBITDA fell to 9.0x in December 2023 (from above 30x in 2022) and even lower to 7.3x as of June 2024 (based on LTM figures), benefitting from the full ramp-up of new power plants which boosted the EBITDA. Reflecting the MET HSP’s plan of keeping a steady state of its power generation fleet for the next few years without any other new installations and very limited maintenance capex, FOCF should remain largely positive from 2024 onwards, as already occurred in 2023, supporting then a further deleveraging.

Debt protection as measured by EBITDA interest cover has strengthened in 2023, standing at 2.4x (versus 1.0x in 2022), strongly sustained by the above-mentioned growth of margins. For 2024, Scope expects this ratio to settle at around this level, while the progressive reduction in interest payments foreseen from 2025 onwards should ease the pressure and allow interest cover to move towards 3.0x.

Liquidity: adequate. Scope regards MET HSP’s liquidity position as adequate over the next few years. Expected debt repayments from the amortisation of the MNB bond are likely to be fully covered by available cash sources after scheduled maintenance capex.

Scope highlights that MET HSP’s senior unsecured bond issued under the Hungarian National Bank’s Bond Funding for Growth Scheme has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 61,236m) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 30 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is two notches. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Supplementary rating drivers: -1 notch. Scope considers MET HSP’s ultimate 100% shareholder – the Swiss energy trading company MET Holding AG – to have higher credit quality than MET HSP. However, Scope assesses parent support as credit-neutral, based on the parent’s assumed limited willingness to provide support on a sustained basis.

At the same time, the issuer rating still retains a negative one-notch adjustment, reflecting the company-inherent weaknesses on governance and structure related to the interaction within the MET Holding AG group (ESG factor: credit negative). While MET HSP’s management determines strategy, finances (budget) and operations, several points pose credit risks: (1) The rated entity’s management also holds functions within MET Holding AG, meaning that they hold management positions at sister companies or the parent company. This raises some concerns over the alignment of management’s interests with those of stakeholders, which include creditors of the rated entity and the management of group companies. This could materialise as services not being billed in line with the lean management of the rated entity or profit being distributed to the detriment of creditor interests. (2) While transfer pricing covers all the services that the rated entity sources from within MET Holding AG, outsourced services are basically used for almost all of MET HSP’s operations, which gives the rated entity little control over provided services.

One or more key drivers of the credit rating action are considered ESG factors.

Outlook and rating sensitivities

The Positive Outlook reflects Scope’s expectation that credit metrics will progressively improve in the coming years amid the finalisation of the company’s investment phase, resulting in largely positive free operating cash flow and ultimately in a leverage – measured by debt/EBITDA – sustained at around or below 7.5x.

The upside scenario for the rating and Outlook is:

• Debt/EBITDA remaining around 7.5x on a sustained basis, supported by consistently positive free operating cash flow.

The downside scenario for the rating and Outlook is:

• Debt/EBITDA not remaining around 7.5x (reversion of the Outlook to Stable).

Debt rating

Scope has affirmed the BB- senior unsecured debt rating, which still stands one notch higher than the issuer rating.

No debt is ranked superior to senior unsecured debt, such as the senior unsecured bond which was placed under the Hungarian National Bank’s bond for growth scheme. This is likely to remain so until 2031, when the planned bond matures, given the negative pledge.

Recovery expectations are based on a liquidation value reflecting the good recoverability of the company’s major unencumbered assets, e.g. the five different solar parks. Although a bailout by the ultimate parent in a hypothetical insolvency of the rated entity is not ruled out, Scope believes an insolvent company would be liquidated, primarily through the sale of various power plants. Such assets would easily find a buyer without significant haircuts to the issuer’s book values in light of the assets’ ESG footprints, their remaining regulatory lifetimes and Hungary’s energy market fundamentals. While execution risks on the ramp-up of the asset portfolio have diminished and Scope expects a ‘superior’ recovery for senior unsecured debt, reflecting a high advance rate for property, plant and equipment, the debt category rating remains constrained by the lack of operational data on operating assets over an extended period of time. As such, Scope refrains from granting a two-notch uplift for these recovery expectations.

Environmental, social and governance (ESG) factors

The operation of solar power plants in Hungary – a country which still lags behind other European countries related to its energy transition towards “clean” energy sources – naturally supports the rated entity’s ESG footprint and also robust cash flow streams. However, the above-mentioned full exposure to one only country for all operating activities under the KÁT remuneration scheme theoretically bears potential regulatory risks albeit this is currently not at the horizon.

Lastly, as lined out among the supplementary rating drivers, Scope does not deem MET HASP’s governance setup as optimal for a risk-averse management approach in the interest of creditors.

All rating actions and rated entities

MET Hungary Solar Park Kft

Issuer rating: B+/Positive, affirmation and Outlook change

Senior unsecured debt rating: BB-, 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; European Utilities Rating Methodology, 17 June 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: Marco Romeo, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 19 November 2021. The Credit Ratings/Outlook were last updated on 20 November 2023.

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.