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

Rating action

Scope Ratings GmbH (Scope) has downgraded the issuer rating on Hungarian textile retailer and consumer products manufacturer Textura Zrt. to C from CCC/Negative and placed it under review for a possible downgrade.

Scope has downgraded the rating on the senior unsecured bond (ISIN HU0000361449) guaranteed by the state-owned MFB Hungarian Development Bank to CCC from B- and placed it under review for a possible downgrade.

The downgrade is driven by the liquidity crunch the issuer is facing due to the covenant-related debt acceleration. The downgrade of the instrument rating on the senior unsecured guaranteed bonds triggers an early repayment of the bonds within 30 days of the publication of this rating action. The issuer rating of C and the senior unsecured bond rating of CCC have been placed under review for a possible downgrade signalling a likely upcoming default.

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

Key rating drivers

Today's downgrade of the instrument rating on the senior unsecured guaranteed bonds to below B- triggers an early repayment of the bonds within 30 days of the publication of this rating action. As a result, the company could face severe liquidity constraints and default unless it obtains refinancing that covers the early repayment of the outstanding bond amount or proactively obtains an investor waiver of the accelerated repayment.

Following the downgrade of the senior unsecured (guaranteed) bond rating to B on 6 February 2023, Textura has entered the grace period to cure its rating deterioration covenant. Since February 2023, there has been very limited progress in the operational restructuring of the company and there are increasing concerns about governance and transparency. Based on information received from management, negotiations with bondholders are still at an early stage. As a result, Scope considers a timely and orderly cure of the covenant to be a remote possibility.

Business risk profile: CCC (revised from B). The business risk profile has deteriorated due to continued weak operating profitability. Market shares are low and diversification is weak in both the textile and plastics divisions. The poor interim results of the textile business – which had acted as a hedge against the of the issuer establishing the plastics division – heightened Scope’s concerns about management's ability to sell Textura's early-stage plastics products due to the very limited order book. In the plastics division, Textura operates with framework agreements in which planned annual volumes are agreed. However, there are no minimum volume commitments from the buyer, nor are there any penalties for not meeting the planned volumes. The rapid increase in sales from the plastics business that management had anticipated, and which was necessary for the financial and operational recovery, has not materialised. Therefore, the going concern of the business is questionable, especially as the sales contracted in 2024 will only lead to a delayed cash inflow, given the payment terms (six months) granted to the main customer (sister company) of the plastics division.

Financial risk profile: C (revised from CCC). Scope’s assessment of Textura’s financial risk profile is driven by insufficient liquidity due to upcoming debt maturities. In addition, leverage in terms of Scope-adjusted debt/EBITDA* remains high (H1 2024: 21.3x; 2023: 21.1x). Interest cover is moderate, but Scope considers this to be overstated as the EBITDA reported relates to transactions with a sister company with delayed cash conversion. Free operating cash flow remained negative in H1 2024, leading to continued cash absorption. The remainder of the bond proceeds earmarked for the second phase of investment in the plastics division were used to cover operating expenses and debt service. There is limited visibility on Textura's business prospects, and the company is not able to provide a comprehensive and reliable business plan. This limits Scope’s ability to provide a meaningful forecast of the development of Textura’s income and expenses, balance sheet items and cash flows beyond 2024. However, Scope does not expect cash generation, and therefore credit metrics, to improve in the near term.

Liquidity: inadequate (-2 notches, revised from -1 notch). Liquidity is inadequate as the issuer needs to repay the HUF 5bn bond issued under the MNB bond funding for growth scheme within 30 days following the publication of this rating action. Current cash generation and available cash (HUF 0.9bn as at end-September 2024) are not sufficient to enable a repayment from internal sources. A liquidity crunch could occur if there is no waiver or refinancing to successfully address the covenant breach-related debt acceleration.

Supplementary rating drivers: credit neutral (unchanged). Although supplementary rating drivers are credit neutral, Scope's assessment of the company's business and financial risk profile reflects governance concerns. These include frequent changes in the issuer’s financial planning which are detrimental to creditors as this constrains visibility and may indicate underlying operational issues. Other governance concerns include inadequate reporting practices and the failure to disclose key information in a timely manner.

Under review for a possible downgrade

The ratings of Textura Zrt. have been placed under review for a possible downgrade. Scope intends to resolve the under-review status as soon as possible.

A (selective) default would occur if the issuer is unable to obtain a waiver from bondholders as regards the accelerated repayment of the principal amount of the bonds (HUF 5.0bn) within 30 days of the publication of this rating action.

The rating could be affirmed if Textura is able to obtain a waiver from the bondholders within 30 days of the publication of this rating action.

A positive rating action is remote.

Debt rating

The rating of the HUF 5.0bn senior unsecured bond (ISIN HU0000361449) guaranteed by the MFB Hungarian Development Bank has been downgraded to CCC from B- and placed under review for a possible downgrade.

Scope expects a ‘superior’ recovery as 80% of the bond notional is guaranteed² by the MFB Hungarian Development Bank (rated by Scope at BBB/Stable¹), resulting in a two-notch uplift above the issuer rating. This translates into a CCC rating for Textura’s bond (ISIN: HU0000361449).

Environmental, social and governance (ESG) factors

Scope notes the small size of the company and its nature as a family business. Scope also highlights key person risk, new product risk, transparency concerns, concerns for the respect of creditors (use of cash proceeds earmarked for investments for operational expenditures, placing inventories with a sister company with a six-months payment term and little cash conversion) and the complex structure.

All rating actions and rated entities

Textura Zrt.

Issuer rating: C, Downgrade and under review placement for a possible downgrade

Senior unsecured guaranteed debt instrument rating (ISIN: HU0000361449): CCC, Downgrade and under review placement for a possible downgrade

*All credit metrics refer to Scope-adjusted figures.

Rating driver references
1. MFB issuer rating
2. MFB unconditional and irrevocable bank guarantee
 
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, (Retail and Wholesale Rating Methodology, 26 April 2024; General Corporate Rating Methodology, 16 October 2023), 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.

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 the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Barna Szabolcs Gáspár, Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The issuer Credit Rating/Outlook was first released by Scope Ratings on 3 February 2022. The Credit Rating/Outlook was last updated on 22 May 2024.
The bond final Credit Rating was first assigned by Scope Ratings on 21 February 2022. The Credit Rating was last updated on 22 May 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.