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Rating action

Scope Ratings GmbH (Scope) has today affirmed the issuer rating of Hungarian waste management company Alteo Circular Kft. (Alteo Circular) at BB-/Negative, resolving the review for a possible upgrade. The senior unsecured debt rating has been affirmed at BB-.

The affirmation of the issuer rating reflects the closing of the rated issuer’s acquisition by Hungarian utility Alteo Nyrt. (rated BBB-/Stable by Scope) and Scope’s view on Alteo Circular’s strategic importance for its new majority owner. Alteo Circular’s integration in terms of strategy, operations and processes is expected to be finished in 2026, though visibility on its eventual level of operational independence is currently limited.

The Negative Outlook reflects the increasing pressure on credit metrics due to worsening operating profitability, as seen in the H1 2025 interim results, showing a Scope-adjusted EBITDA margin* of around 3%, well below 6%-7% historically. This is caused by weaker end-market demand (especially from automotive, machinery and battery manufacturing segments) and might result in leverage (debt/EBITDA) being sustained above 3.0x in the medium term.

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 (revised from B+). The business risk profile is supported by the moderate service strength with low churn rates and long-term customer contracts, on top of the strong domestic market position and well-diversified customer portfolio. The shrinking top line, weak geographical diversification and deteriorating operating profitability are constraints.

Revenues continued to decrease by 21% YoY, reaching HUF 27.1bn in 2024. The main driver was weak demand in the battery maker segment, with major customers such as Samsung SDI and SK Battery seeing lower output, exacerbated by weak demand in machinery and automotive (Bosch Group) and weaker-than-anticipated revenues from the concessions business. Scope highlights the fact that despite the shrinking revenues, the issuer’s domestic market share is unchanged as the lower revenues are part of the market’s pro-cyclical nature. Nevertheless, the issuer’s absolute size in terms of revenues remains small in both a global and a European context.

Alteo Circular has a zero-landfill policy, which is positive for the assessment (credit-positive ESG factor), yet it is exposed to environmental risk as hazardous waste recycling accounts for around 10% of its total sales on average (credit-negative ESG factor).

The EBITDA margin deteriorated substantially as per H1 2025 to around 3%, well below the historical levels of 6%-7%. This reflects that the issuer’s business model is highly exposed to changes in the macroeconomic environment. Profitability is expected to reach its lowest point in 2025, at around 4.5%, before improving gradually above 5%, driven by the stimulated demand resulting from growing domestic GDP and the benefits of synergies within the Alteo group.

In H2 2023, pressure on the EBITDA margin increased after the slowdown in several segments led to lower demand and higher operating costs. In 2024, management launched a new strategy focused on improving margins, replacing the growth-based sale approach. At the same time, it undertook significant investment that resulted in more value-added, high-margin waste management services. These initiatives helped the EBITDA margin improve slightly to around 7% in 2024 from 6.3% in 2023, despite the lower revenues.

Financial risk profile: BB+ (revised from BBB-). The financial risk profile is supported by the strong debt protection and adequate liquidity, but constrained by increasing leverage and volatile free operating cash flow generation. Scope also notes that management forecasts provide limited predictive power, which significantly reduces visibility and could obscure signs of a quick deterioration of credit metrics (credit-negative ESG factor).

Leverage as measured by debt/EBITDA deteriorated to 2.6x in 2024 from 2.3x in 2023. Scope expects the ratio to jump to 4.4x in 2025, principally through significantly lower EBITDA, before improving in line with debt amortisation (around HUF 700m a year) and recovering EBITDA.

Debt protection, as measured by EBITDA interest cover, remains the strongest element of the financial risk profile. Scope expects the metric to dip towards 7.0x in 2025, driven by weaker EBITDA, then improve through lower financial debt and the fixed coupon rate of its senior unsecured bond.

Free operating cash flow (FOCF) generation has been volatile in recent years, influenced heavily by capex in any given year. Although capex was low in 2024, FOCF remained close to break-even due to higher cash absorption of working capital, mainly from lower accounts payable. Scope anticipates that working capital volatility will decrease and capex will be maintained at around HUF 600m. Consequently, Scope expects FOCF to turn positive from 2025 despite weaker EBITDA.

Liquidity: adequate (unchanged). Liquidity is adequate, as sources (HUF 1.1bn cash as of YE 2024 and HUF 479m FOCF forecasted for 2025) fully cover the uses (HUF 1.5bn short-term debt) over the next 12 months.

The liquidity ratio is expected to stay below 100% but Scope notes that short-term debt also includes a revolving credit facility renewed yearly. Refinancing risk is low based on the long-term relations with the financing banks, the high level of unpledged fixed assets, and the potential guarantee or letter of comfort by Alteo Nyrt.

Scope highlights that Alteo Circular’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 2.45bn) if the debt rating of the bonds 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 (revised from credit-neutral). Since July 2025 Alteo Circular has been fully consolidated into the Alteo group. The group’s main operating entity, Alteo Nyrt., is rated BBB-/Stable by Scope.

The one-notch uplift to the standalone credit assessment of B+ reflects the parent support from Alteo Nyrt., which is expected to enhance Alteo Circular’s financial stability, governance and risk management.

Within the Alteo group, waste management is a strategic pillar alongside energy generation and energy trading. The consolidated revenue of Alteo Nyrt. was HUF 116bn in 2024, to which Alteo Circular will contribute around HUF 30bn from 2025, making the rated issuer strategically significant within the group. Scope notes, however, the issuer’s eventual strategic and financial independence is unclear as the integration is currently ongoing.

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

Outlook and rating sensitivities

The Negative Outlook reflects the risk of a persistent deterioration in operating profitability, shown by an EBITDA margin remaining at around 5%. This could ultimately result in a weaker financial risk profile, with debt/EBITDA at or above 3.0x and a deterioration in medium-term liquidity, which might necessitate the refinancing of maturing debt. However, Scope currently views refinancing risk as low, considering the high balance of unpledged assets and the potential guarantee from parent Alteo Nyrt.

The upside scenario for the ratings and Outlook is:

1. Debt/EBITDA remaining below 4.0x into the medium term

The downside scenarios for the ratings and Outlook are (individually):

1. Debt/EBITDA moving to or above 4.0x in the medium term
    
2. Deterioration of the liquidity profile in the medium term

Debt rating

Scope has rated senior unsecured debt at BB-, in line with the issuer rating, which includes the HUF 2.45bn bond issued under the Hungarian National Bank’s programme.

Scope expects an ‘excellent’ recovery for senior unsecured debt. Scope has, however, refrained from granting an uplift as the recovery level is very sensitive to applied advance rates, especially those related to tangible assets. The issuer’s ability to raise additional external debt ranking above senior unsecured debt might also affect the recovery rate significantly. Thus, this recovery expectation translates into a BB- rating for the senior unsecured debt category, in line with the issuer rating.

Scope’s recovery expectations are based on an anticipated liquidation value in a hypothetical default scenario at the end of 2027. Short-term and long-term debt (excluding the bond issue) raised from financial institutions, undrawn committed medium- and long-term facilities as well as payables rank higher than senior unsecured debt in terms of repayment.

Environmental, social and governance (ESG) factors

The issuer aims to return waste to the circular economy and create resource efficiencies through the addition of value-adding treatment processes. It acquires waste from the cleanest sources, i.e. production lines. Handling all recyclable materials on-site is beneficial both environmentally and economically (ESG factor: credit-positive).

Concerns related to weak predictability of the business plan and loose forecasting have been factored into Scope's conservative assessment of the company’s financial risk profile, which also affects the issuer rating. (ESG factor: credit-negative).

All rating actions and rated entities

Alteo Circular Kft.

Issuer rating: BB-/Negative, affirmation

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 this Credit Rating and/or Outlook, (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.
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 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/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: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Ratings: Karl Yuan Pettersen, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 20 October 2020. The Credit Ratings/Outlook were 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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