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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB-/Stable issuer rating on Hungarian waste management company Global Refuse Holding Zrt.(GRH), resolving the under review status. Subsequently, Scope has withdrawn the issuer rating on GRH due to business reasons.

The affirmation of the issuer rating reflects the broadly unchanged credit profile following the divestment of the industrial waste management segment (subsidiaries Alteo Circular Kft., Eltex SR Kft. and Peregium Green Zrt.). The transaction is deemed to have a negative effect on the business risk profile, resulting in weaker diversification in terms of service offering, geographies and customers. At the same time, the transaction is anticipated to have a favourable impact on the financial risk profile, resulting in substantial deleveraging and a net cash position by year-end 2025.

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). The business risk profile is supported by its established local market position and moderate operating profitability, while being constrained by small absolute size and weakening diversification.

The group’s cash flows are protected by the exclusive subcontractor agreement with MOHU, a contract which expires in 2025, with a high likelihood of being renewed for the medium term, given its strong position in the service territory and possession of key infrastructure. At this juncture, we assume full renewal of the contract in terms materially identical to current terms. Taking into consideration the quasi-monopolistic position of GRH in the field of municipal waste management, revenue stability and predictability are deemed supportive to the business risk profile.

The business risk profile is constrained by the limited diversification. In terms of service offering GRH is highly focused on household waste management, although within this subsegment, the GRH deals with a wide range of activities (collection, transportation and sorting of municipal waste, operation of waste disposal sites, additional services related to municipal waste management such as customer service and complaint management). Following the divestment of the industrial waste management segment, geographical diversification has become more constrained, focusing solely on the Southeastern part of Hungary. As a municipal waste management company, GRH serves three counties which contain 349 municipalities.

Service integration is high, deemed as an essential service for households (in a similar manner to public utilities), and provided by GRH and its subcontractors on an exclusive basis. Additionally, there is increasing need for recycling, especially of industrial waste, in line with global sustainability megatrends towards a circular economy (positive ESG factor). Scope highlights that the sustainability of landfill – the group’s highest margin activity – is questionable due to its many adverse environmental effects (negative ESG factor).

Financial risk profile: A- (revised from BBB+). The financial risk profile is supported by the robust debt protection and strong leverage, while the volatile cash flow cover remains a constraint.

GRH’s leverage, as measured by Scope-adjusted debt/EBITDA* has historically remained between 1.0x and 2.0x, with the level of financial debt remaining relatively stagnant. Following the repayment of the HUF 3.5bn senior unsecured guaranteed bond, GRH retained only minimal financial debt (around HUF 100m). While Scope considers the proceeds from the divestment as restricted cash, GRH is expected to reach a net cash position in 2025.

Debt protection, measured by EBITDA interest cover remains the strongest element of the financial risk profile. Following the repayment of the bond, interest expense is expected to decrease significantly from 2026.

Cash flow cover, measured by free operating cash flow (FOCF)/debt is projected to remain volatile in the medium term, heavily impacted by the capital expenditures and the changes in working capital.

Liquidity: adequate (unchanged). Liquidity is deemed adequate, as GRH has no short-term debt maturities. Sources (HUF 2.4bn unrestricted cash at YE 2024) fully cover the uses (negative FOCF of HUF 1.2bn forecasted for 2025).

Supplementary rating drivers: -1 notch (unchanged). GRH’s limited size and outreach compared to other entities rated in the BB rating category hinder its issuer rating, which is reflected by a negative one-notch adjustment on the standalone credit assessment. Scope notes that GRH has not been able to provide audited consolidated financial statements, resulting in increased uncertainties regarding transparency of financial disclosures (negative ESG factor) leading to a low emphasis of the improved financial risk profile within the credit assessment.

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

Outlook

The Stable Outlook reflects Scope’s expectation that GRH’s financial risk profile can be sustained at a good level, with minimal financial debt after the repayment of the senior unsecured guaranteed bond. GRH is expected to reach a net cash position in 2025, while generating consistently positive FOCF from 2026. This goes along an improved revenue generation capacity driven by the company’s prominent position as a regional municipal waste management coordinator in the Hungarian waste management system as a subcontractor.

Environmental, social and governance (ESG) factors

Scope considers resource management is a positive ESG factor due to GRH’s importance towards a circular economy in Hungary, which strengthens the issuer’s competitive position.

However, we also highlight the negative effects of using landfills. Due to the stringent EU policies and the high regulatory expenses associated with such landfills, the robustness of the landfill revenue streams is questionable, making this a credit-negative ESG factor.

Scope also highlights the lack of transparency as a credit-negative ESG factor, pertaining to i) lack of consolidated audited financial statements: ii) limited insight to financial planning, dividend policy and growth strategy of GRH.

All rating actions and rated entities

Global Refuse Holding Zrt.

Issuer rating: BB-/Stable, affirmation, withdrawal

*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 this Credit Rating, (General Corporate Rating Methodology, 14 February 2025; European Business and Consumer Services Rating Methodology, 15 January 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 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 Rating: 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 the Credit Rating 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 Rating and the principal grounds on which the Credit Rating are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Rating: Karl Yuan Pettersen, Managing Director
The Credit Rating/Outlook was first released by Scope Ratings on 20 December 2021. The Credit Rating/Outlook was last updated on 22 January 2025.

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
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