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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB- issuer rating on Pannonia Bio Zrt and assigned a Stable Outlook. Concurrently, Scope has affirmed the BB+ senior secured debt rating and the BB- senior unsecured debt rating. Consequently, the under-review status for a possible downgrade on the ratings has been resolved.

The rating actions follow 1) the waiver approval on the leverage covenant breach on certain bank loans at year-end 2024; 2) the revised net debt/EBITDA covenant for 2025 that has provided adequate covenant headroom; and 3) Scope’s unchanged view on Pannonia’s business and financial risk profiles since the previous rating action.

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+ (unchanged). The business risk profile continues to benefit from the company’s still-supportive profitability and its highly efficient production facility (ESG: credit-positive environmental risk factor) which, due to its large scale and favourable location, supports a competitive operating cost structure. Conversely, the business risk profile remains constrained by Pannonia’s significant exposure to commodity markets, weak asset and product diversification, and the absence of low-cyclicality specialty chemicals. In addition, high ethanol imports from outside the EU continue to weaken the effectiveness of market protection measures, thereby limiting Pannonia’s market position.

Based on audited financials, Scope-adjusted EBITDA* was around EUR 71m in 2024, with the EBITDA margin recovering to 13.5% from 6.2% in 2023. The improvement was primarily driven by enhanced operational efficiencies, underpinned by stable production volumes, increased traction for protein concentrates, and a reduction in energy cost pressures. However, profitability was partially constrained by weaker Q4 results, which were affected by higher supply costs stemming from challenging harvest conditions and delayed ethanol sales. Scope projects a gradual improvement in the EBITDA margin to a range of 14.5%–15.5% over the 2025–2027 period, supported by increased production volumes, premium pricing for advanced ethanol, and efficiency gains from ongoing energy-saving investments. Nonetheless, persistently high levels of imports and increasing volatility in input costs and harvest conditions continue to pose risks to profitability and add to overall market uncertainty.

Financial risk profile: BB+ (unchanged). Pannonia’s financial risk profile remains the main supportive factor for the issuer rating. While Scope expects a gradual recovery in credit metrics over the 2025–2027 period, the assessment reflects persistent sector-related risks and volatility, which continue to weigh on the visibility and sustainability of the recovery. The assessment also assumes full compliance with financial covenants over the forecast horizon.

Debt at YE 2024 (calculated applying a 25% haircut to cash and cash equivalents) declined to EUR 246m, with leverage (debt/EBITDA) improving to 3.5x from over 8.0x at YE 2023. This improvement was driven by a significant increase in cash flow generation, supported by margin recovery and asset disposals. Scope projects this gradual deleveraging trend to continue over the 2025-2027 period, underpinned by further debt reduction and margin improvement, with leverage forecasted to remain within a range of 1.5x to 3.0x. Nevertheless, some risk factors persist, including high import volumes and volatile corn yields. Lower-than-expected ethanol prices, combined with higher-than-expected corn prices, could compress crush margins and negatively impact Pannonia’s EBITDA and deleveraging trajectory. Additionally, Scope’s base case does not incorporate any potential significant increase in capex, which could also slow the pace of deleveraging.

As previously noted, Scope expects Pannonia’s deleveraging to be supported by ongoing cash flow generation. The agency therefore forecasts cash flow cover (free operating cash flow/debt) to remain positive over the next three years at between 10% and 37%, also based on the projected reduction in capex from over EUR 40m in 2025 to around EUR 19m annually in 2026–2027.

Regarding debt protection, despite an increase in net interest payments in 2024, EBITDA interest cover improved to 5.5x, supported by a rebound in EBITDA. Looking ahead, Scope expects interest cover to range between 6.0x and 10.0x, gradually improving as margins grow. Net interest payments are expected to remain broadly in line with the 2024 level, particularly in 2025, in light of the additional debt of around EUR 40m.

Liquidity: adequate (unchanged). Scope considers Pannonia’s liquidity to be adequate as demonstrated by the projected liquidity ratios of above 100% over the 2025-2027 period. Upcoming debt maturities (EUR 90m in 2025, EUR 86m in 2026 and EUR 83m in 2027; including around EUR 50m of working capital facility rolled over) are expected to be covered by unrestricted cash (EUR 32.5m as of March 2025), positive free operating cash flow, and around EUR 15m in undrawn committed credit lines as of March 2025.

Pannonia’s bank loans are subject to financial covenants relating to leverage, cash flow cover, gearing and liquidity. While all covenants were met in Q2 and Q3 2024, a breach of the leverage covenant occurred at YE 2024, which was subsequently waived by the lending banks in April 2025. For 2025, the leverage covenant thresholds were reset to 3.75x for Q2 and Q3, and 3.5x for the full year, providing adequate covenant headroom. Scope projects Pannonia to remain compliant with covenants over the 2025–2027 period, assuming a base case scenario of more stable, albeit still volatile, sector conditions.

Supplementary rating drivers: credit-neutral (unchanged). Scope views the company’s financial policy, peer group considerations, parent support and governance to be credit neutral overall.

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

Outlook and rating sensitivities

The Stable Outlook assumes sustainable compliance with all (financial) covenants after 2024. Scope expects leverage (debt/EBITDA) to remain within a range of 2.0x to 3.0x, supported by an EBITDA margin of around 15%. The Stable Outlook also reflects Scope’s expectation that competitive pressure from non-European import volumes, combined with volatile input costs, will continue to weigh on Pannonia’s business risk profile, limiting its market position and slowing the pace of profitability improvement.

The upside scenario for the ratings and Outlook is:

1. An improved business risk profile while leverage (debt/EBITDA) stays below 3.0x

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

1. Debt/EBITDA above 3.5x on a sustained basis
    
2. Repetitive failure to address potential breaches of loan covenants proactively

Debt ratings

Scope has affirmed the senior secured debt rating at BB+, two notches above the issuer rating. This is based on Scope’s recovery analysis that indicates an ‘excellent’ recovery for senior secured debt in the event of a corporate default. The recovery is based on an expected liquidation value in a hypothetical default scenario in 2026. While an excellent recovery rate on senior secured debt allows for up to three notches of uplift above the issuer rating, the two-notch uplift reflects Scope’s cautious stance regarding the volatility of some recovery rates such as on inventory and tangible fixed assets, which are subject to the evaluation at a time of liquidation.

Scope has affirmed the BB- rating on senior unsecured debt, including the HUF 15bn bond (ISIN: HU0000359112) issued under the Hungarian National Bank’s Bond Funding for Growth Scheme. This is based on Scope’s recovery analysis that indicates an ‘average’ recovery for this debt category. The recovery is based on an expected liquidation value in a hypothetical default scenario in 2026.

Environmental, social and governance (ESG) factors

Pannonia does not have a formal ESG strategy. However, it operates in a sector that requires compliance with stringent sustainability standards, including certifications for grain sourcing, biofuel production and carbon accounting. The company's adherence to these requirements ensures regulatory alignment and market access. Additionally, Pannonia’s large plant size, proximity to low-price corn-producing areas, good logistical infrastructure and continuous investment in efficiency initiatives make operating costs for the plant among the lowest in the European industry (ESG: credit-positive environmental risk factor).

All rating actions and rated entities

Pannonia Bio Zrt.

Issuer rating: BB-/Stable, affirmation

Senior secured debt rating: BB+, 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 these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; Chemical Rating Methodology, 16 April 2024), 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 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: Herta Loka, Associate Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 July 2019. The Credit Ratings/Outlook were last updated on 20 February 2025.

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, 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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.