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Rating action

Scope Ratings GmbH (Scope) has today assigned a BB+/Stable issuer rating to BLS Bikeleasing GmbH and Co. KG (BLS). Scope has also assigned a BB+ senior unsecured debt rating.

Rating rationale

The issuer rating reflects Scope’s view of BLS’ successful business concept in the rapidly developing German bike-leasing market, which Scope categorises as business services. Key determinants of Scope’s business risk assessment are the company’s ability to achieve a market share of about 20% only six years after its founding as well as its good profitability in its core segment of bike-lease contract brokerage.

At the start of 2021, BLS acquired one of its leasing partners, Hofmann Leasing (HL), for about EUR 11m, marking BLS’ entry into the financing market. While this comes with additional risk, it also improves product diversification, in line with management’s medium-term goal to expand its scope of leasing products and lessens financing risk. HL’s integration is thus neutral for BLS’ business risk profile.

In June 2021, BLS was acquired by financial investor Brockhaus Capital Management (BCM). BCM will eventually take over 60% of BLS’ share capital from its two founders. The founders will reinvest the proceeds to gain 40% in BCM’s acquisition vehicle (BCM Zweite Beteiligungs GmbH). Scope understands that BCM will finance most of the BLS takeover with equity, while BCM Zweite will finance the residual EUR 30m with debt. Despite this and the impact of HL’s financial debt which is now consolidated, BLS’ financial risk profile is likely to remain solid, which is reflected in the rating. The very low leverage is likely to continue in our view as the company was debt-free before, now supported by free cash flows providing significant funds in the near future. Furthermore, the high double-digit growth available can now be funded both by the traditional forfaiting of receivables and increasingly by the securitisation of leasing receivables to investors via its new financing platform.

With regard to BLS’ business risk profile (assessed at BB), market shares and profitability are the main strengths. Based on BLS’ sales volume of about 70,000 bikes in 2020, its market share in Germany is about 25%, which is significant given that the company was founded only in 2015. With regard to profitability, Scope believes that BLS' adjusted EBITDA margin is sustainable as it is much higher than business services peers. Including HL’s leasing business, the EBITDA margin is above 40%, reflecting the asset-light service business and underlying growth potential. BLS’ operating profits contain provision income from the leasing and insurance companies as well as from leasing receivables sold. An additional benefit is that the business concept enables superior visibility over future sales, which can be estimated very accurately based on new firms contracted and the number of employees eligible for a bike order.

Diversification is assessed the lowest among the business risk elements. However, diversification might benefit from the HL acquisition and last year’s entry into Austria. The HL acquisition will allow BLS to expand its product offering beyond one product (bikes) via the ownership of crucial customer leasing data. The entry into the Austrian market has expanded the geographical presence beyond just Germany. However, given the very recent nature of the two changes, the diversification assessment is unchanged until relevant growth can be demonstrated. The underlying markets might be large, but the competitive environment is still evolving, for example, Volkswagen Financial Services announced its entry into the bike-leasing segment recently. Thus, while we hold a positive view of customer diversification (30,000 corporate customers and about 1.2m employees under contract) and the exposure to specialist bike retailers (about 5,000), both regional and market segment diversification are still holding back BLS’ diversification score.

BLS’ financial risk profile (assessed at A) is presently much stronger from a ratings perspective compared to its business risk profile. This is because the business model has little cash absorption in a capital-light industry. BLS’ main investments in its early years were for IT equipment, key personnel and office equipment, and no large capital expenditures are necessary in general. Working capital is more important, though, as i) the bikes need to be pre-financed; and ii) the underlying bike business is aligned with weather patterns. Free operating cash flow will be significant as working capital will likely soon release cash, based on the pre-funding of bike purchases via receivables sold and provision income received as well as from the ramping-up of profits. Scope thus projects free operating cash flow to Scope-adjusted debt at a very high level of more than 100%. BLS’ operational set-up was funded without any financial debt and thus 100% by equity.

Scope expects the significant growth in bike leasing to continue through the rating horizon (ie until 2023), assuming BLS can continue to finance this growth while maintaining sufficient liquidity. The latter is likely to benefit from increasing annual free operating cash flow generation to EUR 20m-30m, which is very high compared to EBITDA. Liquidity is adequate, benefiting from the small short-term financial debt balance (except for the EUR 10m bridge financing bearer certificates in 2021) while cash generation continues to ramp up.

Scope did not adjust the rating for supplementary rating drivers. The bearer certificate documentation stipulates a leverage covenant of below 2x.

One or more key drivers of the credit rating action are considered an ESG factor. The company’s promotion of greater bike use contributes to less pollution and fosters individual health (ESG factor: credit-positive environmental and social factors).

Outlook and rating-change drivers

The Outlook is Stable and reflects Scope’s expectation that BLS’ balance sheet will continue to reflect the small amounts of financial debt and its ability to finance significant growth without jeopardising liquidity.

A positive rating action could result from a successful execution of growth plans and a meaningful contribution of the funding platform. It could also be supported by improved diversification through the expansion into other leasing products.

A negative rating action could result from increased leverage to above 2.5x on a sustained basis. This could be caused by BLS’ inability to increase the platform’s use to about a third of total refinancing volumes and lessen its dependence on traditional financing via the forfaiting of receivables.

Long-term debt rating

Scope has assigned a senior unsecured debt category rating of BB+, taking into account the issuance of a EUR 10m bearer bond. This rating reflects the ‘average’ recovery expected by Scope. The recovery assessment is based on a hypothetical default scenario reflecting the likelihood that the amount of senior secured bank debt collateralised through receivables could increase materially in future in the company’s envisioned growth process. This could weaken the position of senior unsecured debt lenders.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodology used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 6 July 2021), is available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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 https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. 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://www.scoperatings.com/#!methodology/list.
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 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 Ratings: public domain, the Rated Entity, the Rated Entities' Related Third Parties 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 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 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: Olaf Tölke, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 14 October 2021.

Potential conflicts
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. Scope provided the following ancillary services to the rated entity and/or its agents within two years preceding this credit rating action: Credit Estimate*

* Editor’s note: This sentence was added on 19 April 2022. It was erroneously omitted upon publication of the credit rating action on 14 October 2021.

Conditions of use/exclusion of liability
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