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Rating action

Scope Ratings GmbH (Scope) has today downgraded the issuer rating of Hungary-based Pannon-Work Zrt. (Pannon-Work) to CCC from B and maintained the Negative Outlook. Scope has also downgraded the senior unsecured guaranteed bond (ISIN: HU0000360052) rating to B- from B.

The downgrade is indicative of weaker EBITDA generation compared with Scope’s previous forecast, leading to a severe deterioration in credit metrics and increased pressure on liquidity, which Scope now views as inadequate. Management has taken steps to mitigate these pressures, including placing cash in an escrow account to service the bond that will begin amortizing in October 2026. However, the bond is subject to financial covenants requiring repayment if net debt/equity exceeds 2.5x, and the available headroom against this threshold remains tight.

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+). Over the past two years, Pannon Work’s profitability has collapsed, exposing fundamental weaknesses in its business risk profile, particularly its pronounced sensitivity to macroeconomic conditions due to concentration risks. In Scope’s base case, Scope-adjusted EBITDA* is forecasted at around HUF 140m in 2025, down from HUF 311m in 2024 and from HUF 1,138m in 2023. These forecasts assume a yearly EBITDA contribution of HUF 350m from solar plants, while the core Human Services segment is expected to remain loss-making.

The business risk profile remains underpinned by the company’s established position as one of the five largest personnel providers in Hungary. Its market share has held broadly steady, as the industry-wide downturn affected all major peers. Revenue declined by -12.4% in 2024 and are projected to reduce by another -3.3% in 2025. Despite the comparatively moderate top-line erosion, EBITDA margins are expected to compress to 0.5% in 2025, indicating underlying structural cost rigidity, concentration risk with a key customer, and high margin sensitivity to demand.

Samsung SDI, historically the group’s largest client with sales contribution previously peaking at 42%, has significantly reduced its personnel demand due to weaker economic activity in the region. This operational adjustment reflects that the company’s business risk profile is further constrained by its single-country operating footprint and customer concentration.

Pannon-Work offers a range of HR services that comprises temporary staffing, payroll, and administrative support. This provides convenience and complementarity for clients. However, the offering remains only moderately integrated because the company primarily supplies low-cost, unspecialized, or semi-skilled labor, and its involvement in client operations is largely reactive, driven by industry needs and project cycles rather than embedded in long-term HR strategies. Consequently, its services are commoditized, limiting pricing power.

To mitigate these structural limitations and reduce reliance on cyclical demand, the company has diversified into solar power generation. This strategic move not only broadens the revenue base but also ensures predictable cash flows, as the projects operate under Hungary’s KÁT feed-in-tariff system. The scheme guarantees a fixed long-term purchase price for electricity, significantly reducing market volatility and supporting consistent profitability over time.

Financial risk profile: CCC (revised from B-). Debt/EBITDA is expected to peak at around 40x in 2025 before moderating to roughly 16x in 2026–2027. Scope’s base case remains conservative, assuming a 3.3% revenue contraction in 2025 followed by broadly flat performance over the subsequent two years. This prolonged period of elevated leverage and muted earnings recovery materially increases refinancing risk. The capital structure consists of a HUF 3.5bn bond structured with an amortization that starts in October 2026 and a final maturity on October 30, 2030, and HUF 2.3bn in loans, the majority of which are short-term, further amplifying refinancing and liquidity risks.

Scope forecasts an EBITDA interest coverage of 0.8x in 2025 (2024: 19.1x) improving to around 2x in 2026 and 2027. The Free operating cash flow to debt is forecasted -4% in 2025 reflecting negative cash generation from the HR/recruiting segment. The ratio is expected to turn slightly positive in 2026, supported by gradual improvement in operating performance and lower investments. Nevertheless, the recovery remains modest and dependent on stabilizing the core HR business.

Looking ahead, Scope believes that a turnaround above this level is possible. However, its magnitude will depend largely on external economic conditions. As a result, Scope’s base case remains conservative and primarily reflects the cost-rationalization measures implemented by management, notably headcount reductions. The benefits of these initiatives should become visible from 2026 onward, while 2025 results will continue to be affected by severance-related expenses.

Liquidity: inadequate (-1 notch, revised from adequate). A major credit consideration is liquidity which the agency now assesses as inadequate. The bond amortization starts on October 30, 2026. While Scope recognizes the management efforts to save cash in an escrow account in order to ensure they service amortization and coupon payment, the agency still views a non negligeable liquidity risk for 2026. Additionally, the bond is subject to financial covenants requiring bond repayment if net debt/equity exceeds 2.5x or if net debt/balance sheet size surpasses 60%, based on year-end consolidated financial statements. To date, there have been no covenant breaches, but as of year-end 2024, the debt to equity stood at 2.2x reflecting tight headroom to covenants for 2026.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers have no impact on the issuer rating. However, Scope notes weak predictability of the business plan, loose forecasting and some intransparencies regarding investments and financials (ESG factor: credit-negative).

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

Outlook and rating sensitivities

The Negative Outlook reflects persistent liquidity pressures stemming from a significant decline in profitability, which constrain the company’s ability to meet scheduled bond amortizations in 2026 and 2027. In Scope’s view, this ability remains highly dependent on more favourable external conditions, despite recent management initiatives to improve performance. Furthermore, concerns persist regarding the adequacy of the capital structure and the refinancing risk if leverage remains elevated.

The upside scenario for the ratings and Outlook is:

• Significant improvement of the liquidity profile

The downside scenario for the ratings and Outlook is:

• Further deterioration of the liquidity profile

Debt ratings

Scope assesses Pannon-Work’s senior unsecured bond (ISIN: HU0000360052) guaranteed by Gamax Kft. at B-, one notch above the issuer rating. While the issuer rating has been lowered to CCC, reflecting a materially increased probability of default, the issue rating is primarily based on expected recovery prospects rather than the issuer’s standalone credit strength.

The recovery analysis is based on a hypothetical default scenario in 2026 and assumes outstanding senior secured bank loans would rank ahead of the senior unsecured bond. Scope’s analysis assumes a liquidation scenario given the significant asset balance, including fixed assets with high recoverable values (solar plants and account receivables). Hence, this scenario has an ‘above average’ recovery for holders of senior unsecured bond.

The recovery also reflects the bond's ranking below senior secured loans and the unchanged debt in absolute terms. Furthermore, Scope sees the guarantee of Gamax Kft. as credit neutral.

Environmental, social and governance (ESG) factors

Concerns regarding Pannon-Work’s transparency have been factored into Scope's assessment of the company’s financial risk profile, which also affects the issuer rating.

The regulatory environment around temporary staffing is fairly negative socially, as staff can be laid off easily and leased workers usually have less rights than employees. While this may seem to benefit Pannon-Work in the short term, Scope believes it poses some regulatory risk for the future and is therefore maintaining a credit-neutral view for now.

Pannon-Work has built up 6MW of renewable power generation with strong cash flow generation, which supports the rating.

All rating actions and rated entities

Pannon-Work Zrt.

Issuer rating: CCC/Negative, downgrade

Senior unsecured (guaranteed) debt instrument (HU0000360052) rating: B-, downgrade

*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 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: Sabrine Boudella, Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 14 August 2020. The Credit Ratings/Outlook were last updated on 18 June 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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