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Rating action

Scope Ratings GmbH (Scope) has today affirmed its B+/Stable issuer rating on Lexholding Zrt. Scope has also affirmed the senior unsecured debt rating at B+.

The affirmation is supported by the moderate financial risk profile, driven by the solid credit metrics in 2024. The issuer rating is still constrained by Lexholding's portfolio sustainability, with the top three holdings generating most of the recurring cash income, low portfolio liquidity and by the complex organisational structure, composed of different businesses, cross-ownerships and financing structures.

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 portfolio’s diversification is supportive, though its sustainability and liquidity remain constraints.

The business risk profile benefits from the moderate portfolio diversification. The investment portfolio is well-balanced, with limited concentration across sectors (real estate, business services and financial services) and by gross asset value (top holding, Inforg Zrt., accounts for 21% of gross asset value as of YE 2024). Net investment volume is expected to increase by around HUF 4.9bn until 2026. Of this, HUF 2.6bn is to be invested in real estate, which would increase the sector’s share within the portfolio but not enough to lead to significant concentration.

However, the limited geographical diversification is a credit constraint. Lexholding's core holdings mostly operate in Hungary, which exposes the company to market-specific factors such as economic shifts and regulatory changes. The high concentration of cash inflows also poses a risk. The top three holdings – BAV Zrt., Inforg Zrt. and Fötaxi Zrt. – contributed 95% of cash income in 2024, similar as in 2023; BÁV Zrt. alone accounted for 67% of the total. Any adverse financial performance by BAV Zrt. could therefore have a significant impact on Lexholding's cash flow stability and overall portfolio sustainability. Portfolio liquidity is also limited by Lexholding's investment focus on unlisted assets. This is because such assets typically have limited trading platforms, making it more difficult to sell positions quickly, potentially hindering the issuer’s ability to adjust the portfolio or address unexpected cash flow requirements.

Financial risk profile: BB+ (unchanged). Lexholding's financial risk profile remains the strongest element of the issuer rating.

Total cost coverage* increased to 1.4x in 2024 from 1.3x in 2023 due to rising recurring cash income from the pledge loan and valuables division (BÁV Zrt. and its subsidiaries). Scope estimates that total cost cover will remain above 1.0x over the next few years, supported by the relative stability of management fees paid by core holdings. Further factors supporting cost cover are: i) the broadly stable net interest on shareholder loans; ii) the gradually increasing dividend payments from core portfolio companies (i.e. pledged loans, ground transport); and iii) no significant expected increase in dividend payouts, as bond covenants set the maximum interest at 50% of profit before tax.

The LTV remains comfortable at around 38% as of YE 2024. The metric slightly increased from previous year (36%) due to continuous investment into long-term financial assets without drawing on additional debt. Almost one-third of cash proceeds from bonds is not expected to be allocated until 2026. Based on a gradual use of the bond proceeds, Scope expects the LTV to remain at around 40% within the next two years, though flags the limited visibility on the use of the proceeds and the exact timing of the investments.

Liquidity: adequate (unchanged). Due to the absence of short-term debt, with free operating cash flow of HUF 0.9bn forecasted for 2025 and a cash buffer of around HUF 0.6bn as of YE 2024, there are no refinancing risks that would necessitate the sale of any shareholdings.

Scope highlights that Lexholding's senior unsecured bond issued under the Hungarian National Bank's Bond Funding for Growth Scheme has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 15.0bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 90 days). Such a development could adversely affect the company's liquidity profile. The rating headroom to entering the grace period is zero notches. Given the limited rating headroom, the company must at least maintain its current credit profile to avoid triggering the rating-related covenant.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers are credit-neutral. Nevertheless, Scope notes the lack of transparency driven by intra-company transactions, cross-ownerships and a complex organisational structure (credit-negative ESG factor). While this has not led to any supplementary rating driver adjustment, it is reflected in Scope’s conservative assessment of the company’s financial risk profile.

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

Outlook and rating sensitivities

The Stable Outlook reflects the expectation that Lexholding’s credit metrics develop in line with Scope’s forecast with gradually improving cash inflows from portfolio companies translating into a total cost cover of above 1.0x and an LTV of around 38% in the medium term.

The upside scenario for the ratings and Outlook is:

1. An improved business risk profile through either better portfolio liquidity or portfolio sustainability (remote)

The downside scenario for the ratings and Outlook is:

1. Total cost cover sustained below 1.0x

Debt rating

Scope has affirmed the senior unsecured debt rating at B+, including the HUF 15.0bn bond (ISIN HU0000359955).

Scope’s analysis is based on a hypothetical default scenario of the company in 2026, which assumes outstanding senior unsecured debt of HUF 15.0bn with no senior secured loans. The ’excellent’ recovery expectation is based on the higher liquidation value upon the full allocation of the bond proceeds, expected by 2026.

Scope has constrained the debt category rating to the same level as the issuer rating given the risk that Lexholding could raise higher-ranking debt that would dilute the recovery for senior unsecured debtholders. 

Environmental, social and governance (ESG) factors

The credit-negative corporate structure is reflected in the lack of transparency driven by cross-ownerships and intra company transactions. While this has not led to any supplementary rating driver adjustment so far, it has been reflected in the conservative assessment of company’s financial risk profile.

All rating actions and rated entities

Lexholding Zrt.

Issuer rating: B+/Stable, affirmation

Senior unsecured debt rating: B+, 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; Investment Holding Companies Rating Methodology, 16 May 2025), 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, 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 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: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Ratings: Marlen Shokhitbayev, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 6 July 2020. The Credit Ratings/Outlook were last updated on 5 June 2024.

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
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