The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has downgraded Ilija Batljan Invest AB’s (IB Invest) issuer rating to C from CCC/Negative and its senior unsecured debt rating to C from CC. Both ratings have been placed under review for a possible downgrade. The subordinated (hybrid) debt rating has been left unchanged at C.

Rating rationale

On 27.02.2024 IB invest announced its intention¹ to amend the terms and conditions of the 2021/2024 senior unsecured green bond (ISIN: SE0016101810). The intended restructuring contains the following key points:

1. the removal of the issuer's ability to make tap issues (currently possible up to SEK 2.5bn, outstanding SEK 1.34bn);
    
2. an extension of the maturity of the bonds up to 20 January 2026 (currently 15. December 2024);
    
3. the change in the interest rate structure from a floating rate to a PIK interest rate of 12% (currently Stibor 3m +325bp);
    
4. the introduction of an option for the issuer to make voluntary amortisation of the bonds;
    
5. a new commitment for the issuer to seek to divest non-core assets and use proceeds received from such divestments to amortize unsubordinated debt (subject to achieving commercially justified terms, not to act to the detriment of bondholders);
    
6. changes and tightening of the issuer's ability to provide new collateral, raise new debt (including opportunities to issue new market loans), lend money and to make dividends or other distributions of value to shareholders (including subordination requirements for shareholder loans);
    
7. imposing restrictions on the issuer's ability to make investments and acquisitions without the consent of the bondholders; and
    
8. a new undertaking for the issuer to repurchase bonds in the amount of at least SEK 300m up to and including the date that falls six months after the approval of the written procedure.

Bondholders are asked to give written consent on the proposal to the company’s Agent (Nordic Trustee & Agency AB) until 15. March 2024. If such written consent from a simple majority of bondholders (50%) is achieved before the deadline, the written procedure may be terminated in advance. The result of the written procedure is expected due no later than 15. March 2024.

The rating action is a direct consequence of the planned bond restructuring, as Scope perceives the bond restructuring as an early measure to avoid a potential payment default at maturity in December 2024. Further, the bondholders’ recovery expectations might diminish relative to their original claims, as the annual coupon would be capitalised until the new maturity. Thus, Scope assesses the potential restructuring as a distressed exchange that may constitute a selective default in the agency’s rating definitions (Scope’s Credit Rating Definitions).

Under review for a possible downgrade

The rating has been placed under review for a possible downgrade and reflects heightened downside risk with a near-term debt restructuring posing a potential risk of being assessed as a distressed exchange, which may warrant a selective default under the agency’s rating definitions.

A downgrade to a selective default could occur if IB Invest’s proposed amendment of terms is achieving a majority consent of bondholders and upon such approval is assessed by the agency as a distressed debt exchange.

An upgrade could be achieved if the restructuring plan is abandoned or amended in a way to not fulfil the agency’s definitions of a distressed exchange.

An affirmation is seen unlikely.

Long-term debt ratings

As of Q4 2023, IB Invest had SEK 56m in unsecured bank debt (ranking structurally ahead of the senior unsecured bonds) in addition to SEK 1.34bn in outstanding senior unsecured bonds. Those rank ahead of the SEK 750m in subordinated perpetual floating-rate callable capital notes.

In light of the proximity of a distressed exchange on the senior unsecured bonds, the senior unsecured debt rating is aligned with the issuer rating and thereby downgraded to C from CC.

The subordinated (hybrid) debt rating remains unchanged at C.

Rating driver references
1. Intention to amend bond terms

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, 16 October 2023; Investment Holding Companies Rating Methodology, 19 May 2023), are available on https://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 https://www.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 https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-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 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 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 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 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: Thomas Faeh, Executive Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The issuer and senior unsecured debt Credit Ratings/Outlook were first released by Scope Ratings on 28 May 2021. The Credit Ratings/Outlook were last updated on 11 September 2023.
The subordinated debt (hybrid) Credit Rating was first released by Scope Ratings on 1 June 2021. The Credit Rating was last updated on 11 September 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.