The downgrade of KGAL GmbH & Co. KG’s underlying issuer rating mainly reflects a change in Scope Hamburg’s assessment of corporates under the methodologies introduced on 2 May 2022.
Scope Hamburg GmbH (Scope Hamburg) has downgraded the issuer rating of physible GmbH to BB / Stable from BBB- / Stable and likewise the unsecured bond issue rating of physible GmbH to BB+ from BBB. The downgrade follows a review of the underlying issuer rating of KGAL GmbH & Co. KG after the introduction of changed rating methodologies at Scope Hamburg on 2 May 2022.
physible GmbH’s business risk profile, assessed at BB, and financial risk profile, assessed at BB, are very tight linked to i) the underlying business and financial risk profiles of KGAL GmbH & Co. KG (KGAL), ii) physible GmbH’s limited finance mandate to ensure KGAL’s expansion and repayment of issued ‘Inhaber-Teilschuldverschreibungen’ including interests to the bondholders, and iii) the unconditional and irrevocable guarantee of KGAL to repay the bond and accrued interests on time.
Underlying KGAL group’s (EUR 51m unrestricted cash) and physible GmbH’s liquidity are adequate as at 31 August 2022. Interest income for the interest-bearing loan as result of transferred cash from the issued bond to KGAL is exclusively used to cover administration and interest costs of physible GmbH. Considering no dividend payments to its shareholder, this is leading to expected very narrow discretionary cash flows in 2022-2023E. Financial maturities in 2023E consist of physible GmbH’s bullet bond (EUR 30m) due, guarantee-backed by its 100% shareholder KGAL. The bond repayment is projected to be covered with the guarantor’s (KGAL) projected unrestricted cash and undrawn committed credit lines of EUR 30m.
The underlying credit quality of KGAL reflects the higher expected leverage, lower real asset valuation and negative expected free operating cash flow generation from 2023E. KGAL’s issuer rating is leading to full equalisation of physible GmbH’s issuer rating (BB) linked to i) the very tight integrated and closely controlled role as a pure financing entity, ii) the high relevance of its finance mandate for KGAL’s investment fund growth, and iii) the sufficient capacity and willingness for extraordinary support in the event of financial distress (‘issued unconditional and irrevocable guarantee’) if needed.
Outlook and rating-change drivers
The stable outlook reflects Scope Hamburg’s expectation that KGAL maintains its credit metrics at levels projected by 2024E.
A positive rating action is tied to an upgrade of the KGAL’s issuer rating.
A negative rating action is tied to a negative rating action on KGAL’s issuer rating.
Long-term and short-term debt ratings
In 2018 KGAL’s 100% subsidiary physible GmbH has issued a senior unsecured bullet bond (”Inhaber-Teilschuldverschreibungen” of EUR 30m; ISIN DE000A2LQST9) due on 15 October 2023. The net proceeds were used by KGAL to expand in real assets and investment fundraising (AIF) of real estate, renewable energy infrastructure and aviation.
Scope Hamburg calculated an above average recovery rate of 50-70% (+1 notch) for the senior unsecured debt instrument. This leads to an issue rating of the physible GmbH’s bond of BB+.
Stress testing & cash flow analysis
No stress testing was performed. Scope Hamburg performed its standard cash flow forecasting for the company.
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 15 July 2022), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Scope Ratings GmbH, Scope Ratings UK Limited and Scope Hamburg GmbH apply the same methodologies/models and key rating assumptions for their credit rating services. Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Basic Principles for Assigning Credit Ratings and Other Services 8 June 2022’, published on https://scopehamburg.com/seiten/SH_Basic_Principles_July_2022.pdf. Historical default rates of the entities rated by Scope Hamburg can be viewed in the ‘Credit Rating Transition and Default Study ’ at https://scopehamburg.com/seiten/Default_Study_2022_Scope_Hamburg.pdf. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Hamburg’s definitions of default and Credit Rating notations can be found at https://scopehamburg.com/seiten/SH_Basic_Principles_July_2022.pdf. 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 shareholder of the Rated Entity 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, and Scope Hamburg’s internal sources.
Scope Hamburg considers the quality of information available to Scope Hamburg on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Hamburg considers to be reliable and accurate. Scope Hamburg 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 were not amended before being issued.
These Credit Ratings and/or Outlook are issued by Scope Hamburg GmbH, Ferdinandstraße 29-33, D-20095 Hamburg, Tel +49 40 524724-170.
Lead analyst: Karl Holger Möller, Senior Analyst
Person responsible for approval of the Credit Ratings: Werner Stäblein, Managing Director
The Credit Ratings/Outlook were first released by Scope Hamburg or its predecessor on 3 August 2018. The Credit Ratings/Outlook of underlying KGAL GmbH & Co. KG were last updated on 2 May 2022.
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.
Conditions of use/exclusion of liability
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