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Rating action

Scope Ratings GmbH (Scope) has today downgraded Hungarian Daniella Kft.’s (Daniella) issuer rating to B from B+ and placed it under review for a possible downgrade. At the same time Scope has downgraded the rating on the issuer’s senior unsecured debt to B+ from BB- and placed it under review for a possible downgrade.

The downgrade is driven by continued distressed operating performance at Daniella, resulting in weaker credit metrics than Scope had previously expected. The under-review status for a possible downgrade primarily reflects the risks associated with future negotiations regarding the modification of the covenants applicable to the HUF 3.5bn bond issued under the Hungarian National Bank’s Bond Funding for Growth Scheme. If the planned modification of the debt restrictive bond covenant is not accepted, Daniella could face liquidity issues from 2026 onwards.

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+ (unchanged). Daniella's business risk profile is characterised by weak market share, diversification and operating profitability. While the company benefits from its robust market share and widespread network of stores in Hungary, its absolute size (revenue of HUF 46.0bn in 2024), high geographic concentration and niche focus remain significant constraints.

Although Daniella’s operating profitability showed a slight recovery in 2024 compared to 2023 with the company’s Scope-adjusted EBITDA margin* increasing to 3.5% from 3.1%, it continued to be negatively impacted by the unfavourable market conditions in Hungary. The underlying construction market remains sluggish with significant price competition between market players restricting price margin increases in the short term. Evidence of this can be seen in Daniella’s performance in H1 2025 when the company generated HUF 452m reported EBITDA (compared to HUF 494m in 2024H1), resulting in a slight decrease in the reported EBITDA margin to 1.9% from 2.2%.

Daniella’s operating profitability is expected to improve in H2 2025 as the company has implemented cost-saving measures, primarily staff layoffs. However, Scope does not expect significant improvement, forecasting EBITDA margin to increase to 4.2% in 2025E, primarily due to the above-mentioned cost-saving measures. In the medium term the operating profitability is expected to gradually increase to 4.5% by 2027E, however this remains below the 5.5% historical average of the past five years.

Financial risk profile: B+ (revised from BB-). In H1 2025 Daniella’s HUF 944m Baross Gabor subsidised loan has matured and starting in 2026 the company’s HUF 3.5bn bond will begin its amortisation with HUF 700m due annually until its maturity in 2030. The company plans to refinance upcoming maturities, however for this to happen, Daniella must first either modify its bond covenants or obtain a waiver. Scope notes that negotiations with bondholders have not yet been initiated creating uncertainty around the company’s business plan. The new proposed bond covenant would allow Daniella to take on maximum debt of HUF 5.5bn during the bond’s term.

Due to the slower-than-expected recovery of the operating profitability and the planned increase in debt, Daniella’s credit metrics are forecast to weaken compared to Scope’s previous expectations. In 2025E the company’s debt/EBITDA will remain at above 4.0x before gradually decreasing to 3.5x by 2027E. Other credit metrics follow a similar trend: funds from operations/debt will gradually increase from 17% in 2024 to above 20% in the medium term. Meanwhile free operating cash flow/debt became negative in 2023 and is forecast to remain so until 2026E after which it is expected to oscillate around break-even.

EBITDA interest cover remains the strongest credit metric, benefiting from the bond’s fixed coupon. However, the cost of debt is forecast to increase significantly with the newly planned loans as interest rates remain high in Hungary. The new retail methodology assesses a modified interest cover that incorporates the company’s lease payments, as Daniella’s estimated lease obligations constitute a significant proportion of its tangible assets. Despite the expected improvement of the EBITDA margin, the retail-specific interest cover is expected to remain around 2.0x in the forecasted years.

Liquidity: adequate (unchanged). Scope considers liquidity to be adequate despite forecasted internal and external liquidity ratios of below 100% for the forecasted years. Although the company’s cash levels and operating cash flow do not fully cover the upcoming amortising bond tranches of HUF 700m in 2026 and 2027, the company plans to fully refinance these debts, having demonstrated the ability to do so with its recent HUF 944m maturing loan with a new facility over HUF 487m from OTP Bank. The adequate assessment is also supported by (1) the company’s uncommitted short-term credit line of HUF 300m which is assumed to be automatically renewed as Daniella holds good banking relationships and (2) Daniella’s inventory levels that can also be considered as an alternative source of liquidity.

Daniella stated, that if the bond covenant modification is not accepted, the company will not take on additional debt. However, Scope highlights the potential liquidity issues that the company could face, as it forecasts that the company will not generate enough cash flow from its normal course of business to repay the first tranche of bond amortisation due in July 2026. Therefore, if an agreement is not reached, Scope may reassess liquidity as inadequate, which could result in a downgrade of the issuer rating by at least one notch.

Scope notes that Daniella’s senior unsecured bond, issued under the Hungarian National Bank’s Bond Funding for Growth Scheme, has covenants requiring the accelerated repayment of the outstanding nominal debt amount (HUF 3.5bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within sixty business days) or if additional debt is contracted exceeding the authorized financial debt (as defined in the bond prospectus). Such developments could adversely affect the company’s liquidity profile.

Supplementary rating drivers: -1 notch (unchanged). Daniella previously transferred ownership of the warehouse financed by the Funding for Growth Scheme bond to HAD Real Estate, which was spun out in 2022. The spinoff has had no impact on Daniella’s credit rating since the entity was not incorporated and the transaction had no effect on cash flow. However, it implies that bond recovery proceeds would become unavailable to investors in a bankruptcy-like event. This is seen as credit-negative (ESG factor: credit-negative governance factor), leading Scope to lower the issuer rating by one notch.

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

Outlook and rating sensitivities

Daniella’s ratings have been placed under review for a possible downgrade due to upcoming discussions regarding the modification of bond covenants, specifically the debt restrictive covenant. Scope expects Daniella to reach an agreement with its bondholders to amend the covenants in a way that would prevent a potential liquidity shortfall in 2026. If no agreement is reached, Scope may reassess liquidity as inadequate, which could result in a downgrade of the issuer rating by at least one notch. Scope aims to resolve the under-review status as soon as possible, with negotiations expected to conclude before year-end 2025.

The upside scenario for the ratings and Outlook is:

1. The ratings could be affirmed if Daniella is able to reach an agreement with the bondholders, allowing the issuer to modify the debt restrictive covenant.

The downside scenario for the ratings and Outlook is:

1. A downgrade of at least one notch is possible if the issuer is unable to reach an agreement with the bondholders to modify its debt restrictive covenant or obtain a waiver, which could lead to an inadequate assessment of liquidity.

Debt rating

Scope has downgraded Daniella’s senior unsecured debt to B+/under review for a possible downgrade from BB-, including the HUF 3.5bn bond (ISIN: HU0000359872). This reflects the downgrade of the issuer rating to B and the expectation of a ‘superior’ recovery for senior unsecured debt in a hypothetical event of company default. The recovery analysis is based on a hypothetical default scenario in 2027, which assumes outstanding senior secured debt of around HUF 1.2bn and senior unsecured debt of HUF 3.5bn. Although the recovery analysis indicates a high recovery for senior unsecured debt, the uplift was limited to one notch due to the company’s small scale and the risk that it raises higher-ranking debt that dilutes the recovery for senior unsecured debt holders.

Following the rating action on the issuer rating, Scope has also placed the B+ senior unsecured debt rating under review for a possible downgrade.

In July 2020, Daniella issued a HUF 3.5bn senior unsecured bond through the Hungarian central bank’s Bond Funding for Growth Scheme. The bond proceeds were used for warehouse capex and debt refinancing. The bond has a tenor of 10 years and a fixed coupon rate of 3%. Bond repayment is in five tranches starting from 2026, with 20% of the face value payable yearly. Scope notes that the senior unsecured bond has an accelerated repayment clause. The clause requires Daniella to repay the nominal amount (HUF 3.5bn) in case of a rating deterioration (two-year cure period for a B/B- rating; repayment within 60 business days after the bond rating falls below B-, which could have default implications). The rating headroom to entering the grace period is 1 notch, therefore Scope sees no significant risk of the rating-related covenant being triggered. Other bond covenants in addition to the rating deterioration covenant include non-payment, insolvency proceedings, cross-default, pari passu, negative pledge, change of control, dividend payment and additional indebtedness covenants.

Environmental, social and governance (ESG) factors

Overall, ESG factors have a negative impact on this credit rating action. The rating reflects a negative one-notch adjustment pertaining to the significant credit risk posed by weaknesses in the issuer’s governance as after the spinout of HAD Real Estate in 2022 from the group, there is a high likelihood that the bond proceeds would become unavailable to investors in a bankruptcy-like event.

All rating actions and rated entities

Daniella Kft.

Issuer rating: B/Under review for a possible downgrade, downgrade and under review placement

Senior unsecured debt rating: B+/ Under review for a possible downgrade, downgrade and under review placement

*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, (General Corporate Rating Methodology, 14 February 2025; Retail and Wholesale Rating Methodology, 25 June 2025), are available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA):registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation   YES
With access to internal documents                                       YES
With access to management                                                 YES
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: Vivianne Anna Kápolnai, Associate Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 11 May 2020. The Credit Ratings/Outlook were last updated on 10 September 2024.

Potential conflicts
See 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.