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Rating action

Scope Ratings GmbH (Scope) has affirmed its B+/Stable issuer rating on Hungary-based investment holding company LP Portfólió Kft (hereafter ‘LPP’). The senior unsecured debt rating has been affirmed at BB-.

The affirmation reflects credit metrics in line with Scope’s rating guidelines, underpinned by a steady increase in portfolio value from completed investment projects, stable indebtedness as well as the collection of dividends and interest on shareholder loans.

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). LPP’s weighted average industry portfolio risk, portfolio diversification and investment philosophy are credit supportive. However, its business risk profile is constrained by concerns around portfolio liquidity and portfolio sustainability due to high concentration.

LPP's weighted average industry portfolio risk has reduced its exposure to the construction segment, as reflected in the income-based weighted average industry risk. The proportion of dividend income from renewable energy assets is increasing, accounting for 19% in 2024 compared to 14% in 2023, as more assets become operational and generate cash (positive ESG factor).

The company’s largest exposure by asset values remained the real estate and construction segments in 2024, at close to 48%. This reflects portfolio growth in the fair value of new projects, such as Almassy Invest (residential, hotel) and the EDU Campus.

The rating is still held back by portfolio sustainability concerns arising from concentration risk in recurring income. As of 2024, LPP’s asset base comprises four dividend-paying entities, with the top core holding accounting for 50% of total income and the top three holdings contributing over 95%. Solar FM’s share of dividend income is gradually declining due to dividend payments from nearly all of the company’s core holdings. However, the concentration of overall dividend income from Solar FM is still projected to remain high in 2025, at approximately 77% of total dividend income.

Portfolio diversification is constrained by LPP’s main exposure to the Hungarian market, as the dividend-paying undertakings generate all their revenues in Hungary. The top three holdings (EDU Campus, Helios Solar Kft and Solar FM) are well balanced and accounted for around 65% of the total portfolio at YE 2024 (61% at YE 2023). While sector concentration by asset value remains relatively balanced, real estate continues to be LPP’s largest sector exposure. Exposure rose to 39% at end-2024 from 34% at end-2023. This was driven by significant appreciation of the EDU Campus project, supported by high occupancy rates and long-term contracts with tenants.

Scope believes the successful execution of projects in 2024 – highlighted by the completion, handover, and operation of the 5 MW Dombóvár solar project – demonstrates management’s efficiency and strategic execution capabilities.

Despite ongoing investment projects at the core holding level (specifically the capacity expansion of the Solar FM manufacturing unit and the construction of an additional solar power plant), management has confirmed to Scope that no additional funding will be required at the holdings level. At the same time, Scope believes that management would remain committed to maintaining a strong buffer in line with the rating’s cost cover requirements if funding needs arise.

Financial risk profile: BB (unchanged). LPP's financial risk profile is constrained by moderate leverage (as measured by LTV*), but total cost cover is credit-supportive.

Scope expects stronger-than-anticipated operating performance in FY 2025 to be driven by higher-than-expected dividends from Solar FM, supported by robust underlying demand. Although this demand is projected to remain steady, dividend inflows from Solar FM are expected to decline as the company enters a growth phase.

Scope expects total cost cover to stay at around 2.0x over the next few years, supported by: i) the relatively stable nature of management and service fees as a recurring income source at holding level; and ii) fixed interest payments on the outstanding bonds.

LPP’s LTV remains comfortable at 30% as of FY 2024 (34% as of FY 2023). The LTV has decreased slightly compared to the previous year due to the increasing value of the holdings while indebtedness was broadly stable.

Liquidity: adequate (unchanged). Liquidity continues to be adequate. Due to the absence of short-term debt, along with positive free operating cash flow and a significant cash buffer of around HUF 85m as of YE 2024, there are no refinancing risks that would necessitate the sale of any shareholdings.

Scope notes that LPP’s senior unsecured bonds issued under the Hungarian National Bank’s Bond Funding for Growth Scheme have a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 5.4bn) if the debt rating of the bonds stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 15 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is two notches. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Supplementary rating drivers: -1 notch (unchanged). The ratings are affected by a negative one-notch adjustment for the holding company’s small size in a peer context. Governance is deemed critical in the context of key person risk (negative ESG factor), which is reflected in Scope’s conservative standalone credit assessment.

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

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that LPP’s business risk and financial risk profiles will not change significantly in the next one to two years. The rating further reflects Scope’s forecast of total cost cover of at least 1x on a sustained basis. It also incorporates the expectation that further investment portfolio growth will not be funded via additional bank debt.

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

• Improved business risk, particularly with regard to concentration risks related to dividend income
   
• Significant growth of investment portfolio size

The downside scenario for the ratings and Outlook is:

• Total cost cover dropping to 0.8x on a sustained basis

Debt rating

The senior unsecured debt rating has been affirmed at BB-, including the HUF 2.5bn (ISIN HU0000359427), HUF 1.1bn (ISIN HU0000360144), and HUF 1.5bn (ISIN HU0000360789) bonds, one notch above the issuer rating, reflecting above-average recovery prospects for senior unsecured debt in a hypothetical default scenario.

Scope’s recovery analysis is based on significant asset haircuts of 50% on LPP’s HUF 18bn in gross asset value. Scope has continued to evaluate these conservatively, partly using book values (equity), as none of the subsidiaries are quoted. The recovery rate was very high despite the increased debt and the use of only half of the assets (valued on a net basis, i.e. deducting their bank debt) as recoverable. Nevertheless, Scope has maintained its former approach of limiting the uplift to one notch.

Environmental, social and governance (ESG) factors

Overall, ESG factors were neutral for the rating. This reflects a positive product innovation assessment (E) for LPP’s large exposure to renewable energy as well as negative assessments with regard to key person risk under management and supervision (G), leading to a conservative assessment of credit metrics and the financial risk profile.

All rating actions and rated entities

LP Portfólió Kft.

Issuer rating: B+/Stable, 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 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 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 Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Zurab Zedelashvili, Senior Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 9 October 2019. The Credit Ratings/Outlooks were last updated on 8 August 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, 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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