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

Rating action

Scope Ratings GmbH (Scope) has changed the under review status of Nitrogénművek Zrt.'s CC issuer rating to under-review for a developing outcome from under-review for possible downgrade. Concurrently, Scope has also changed the under-review status of the CC rating for senior unsecured debt to a developing outcome.

The changed direction of the under-review status follows the company's proposal to restructure its EUR 200m eurobond, which originally matures in May 2025. While Scope views the proposed restructuring as a forced debt restructuring to avoid a likely default, the proposed restructuring would not result in less favourable terms or a loss of value compared to the original terms of the debt. Therefore, it does not meet the agency's criteria for a Selective Default status. Implementation of the proposed debt restructuring could avoid a (selective) default and could provide upside to the ratings due to reduced liquidity pressure and immediate refinancing. However, it is still unclear whether the required majority of lenders will agree to the debt restructuring, leaving risks that the company could still (selectively) default in the short term.

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

Key rating drivers

On 16 April 2025, Nitrogénművek publicly proposed a restructuring of its EUR 200m eurobond, originally due on 14 May 2025, and sought bondholders' consent to the proposed bond restructuring by 5 May 2025. At present, the company does not have the financial resources (cash position of approximately EUR 55m at year-end 2024) or access to debt and/or equity financing in the short term to refinance this debt position. Nitrogénművek’s liquidity position and business operations have been significantly constrained by the extraordinary and punitive CO2 taxation measures imposed by the Hungarian government in 2022, which – besides temporary production halts and somewhat adverse price developments for the company’s fertilisers – have been a primary cause of the company’s current financial stress.

The proposed restructuring comprises the following key elements:

1. Extension of the bond’s maturity by about three years to 30 June 2028 from 14 May 2025
    
2. Increase of the annual coupon by 200 basis points to 9.00% from 7.00%, comprising 7.00% as cash interest and 2.00% as PIK interest
    
3. Payment of a cash fee of 100 basis points to bondholders that provide early consent to the bond restructuring (within 2 weeks after the launch of the announcement of the restructuring)
    
4. Provision of collateral over about EUR 100m of inventory, trade receivables and amounts standing to the credit of certain bank accounts, subject to waivers being obtained
    
5. Introduction of a Cash Sweep Mechanism that allows for early repayment of the notes at par of up to EUR 25m per annum if the company’s cash balance exceeds EUR 75m less cash for debt service obligations plus the tax refund (tested quarterly), once there is a verdict on the CO2 quota tax
    
6. Tightened covenants, such as a tightened negative pledge as well as enhanced governance, reporting and information provisions

While Scope assesses the proposed debt restructuring as a forced debt restructuring with the aim of avoiding a likely default, the proposed restructuring does not fulfil the agency’s criteria for the assignment of a Selective Default status as the proposed restructuring does not lead to less favourable terms or a loss of value compared to the original terms of the debt.

This is based on the following:

• the provision of an increased coupon on the bond,
   
• the potential collateralisation over EUR 100m inventory, trade receivables and cash covering 50% of the outstanding bond nominal, and
   
• the granted payment of an “early bird” consent fee (cash paid).

All three elements provide creditors with additional value compared to the original terms of the bond and represent compensation for the extended maturity of the eurobond. In addition, the potential partial repurchase of the bond at par would not result in less favourable terms or a loss of value compared to the original terms of the debt. As such, the execution of the bond restructuring would not constitute a Selective Default under Scope’s Credit Rating Definitions.

The implementation of the bond restructuring would provide significant relief to the company's liquidity position, but would not remove the strain on its credit metrics, which are expected to remain under pressure in the absence of a significant recovery in the company's operating performance and a resolution of the cash flow pressure arising from the CO2 quota tax payments.

At this stage, the implementation of the proposed bond restructuring remains uncertain as the proposal must be approved by 75% of the bondholders. Failure to obtain bondholder approval for a bond restructuring would likely result in a Selective Default or Default, as there would be limited time to launch a second bond restructuring proposal that could be implemented before the bond matures on 14 May 2025.

Outlook and rating sensitivities

Scope will closely monitor the developments relating to the debt restructuring. Scope's objective is to remove the under-review status as soon as there is clarity on the outcome of the bondholders' voting process.

The upside scenario for the ratings and Outlook is:

• an orderly execution of the proposed debt restructuring, which is not seen as a Selective Default, providing relief to the company on its liquidity and refinancing pressure

The downside scenario for the ratings and Outlook is:

• the failure to reach an agreement with the bondholders in advance of the upcoming bond maturity on 14 May 2025 which would increase the likelihood for a (Selective) Default

Debt rating

Following the rating action on the underlying issuer rating, the CC rating on the senior unsecured debt has also been placed under review for a developing outcome.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action. Scope views the CO2 tax as a change in policy stance rather than a penalty for increased pollution by the company.

All rating actions and rated entities

Nitrogénművek Zrt.

Issuer rating: CC/Under review for a developing outcome, Under-review placement

Senior unsecured debt rating: CC/Under review for a developing outcome, Under-review placement

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, (Chemicals Rating Methodology, 16 April 2024; General Corporate Rating Methodology, 14 February 2025), 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, the Rated Entities' Related Third Parties 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: Sebastian Zank, Managing Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 2 July 2020. The Credit Ratings were last updated on 23 September 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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.