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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB issuer rating of Hungarian chicken meat producer Baromfi-Coop Kft. and revised the Outlook to Negative from Stable. Scope has also downgraded to BB- from BB the rating on the senior unsecured bonds issued by Baromfi-Coop and guaranteed by its subsidiary Master Good Kft. (ISINs: HU0000359294, HU0000359302, HU0000360706). This is due to the introduction of senior secured debt ranking ahead of unsecured bonds.

The Outlook revision is mainly driven by Scope’s expectation that the new investment-heavy phase, beginning in 2026, will lead to a deterioration in Baromfi-Coop’s credit metrics and overall financial risk profile in the near term.

The issuer’s rating affirmation also takes into account the correction of previous calculation errors in some financial metrics. The errors relate to the calculation of Scope-adjusted interest*, EBITDA, funds from operations, free operating cash flow (FOCF) and liquidity. Following a review of the errors, Scope has concluded that the corrections had no impact on the ratings.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BB (unchanged). Baromfi-Coop’s business risk profile is driven by its leading position in Hungary, solid product quality and developing brand, leading to a moderate market share and brand strength assessment. Profitability is in the double-digit range with low-to-medium volatility. Low diversification in terms of product categories and the locations of production assets continue to constrain Scope’s assessment.

Baromfi-Coop is one of the largest food producers in Hungary with revenues of HUF 245bn (EUR 0.6bn, up 3.4% YoY), in 2024. The group is responsible for over 40% of all poultry produced in the country, with the majority being raised on its own farms. This is mainly thanks to a very high level of integration and security compared to peers, as the group oversees all the processes from farming to the finished product. Baromfi-Coop controls the production of grain to be used to feed livestock, the hatchery processes and the monitoring of the genetic pool of birds. It also has high-end technology and biosecurity systems (ahead of industry standards) for slaughtering processes to avoid contamination or disease outbreaks (ESG: credit-positive).

Baromfi-Coop holds approx. 1.5% of the market In Europe and approx. 5% in Central and Eastern Europe. Other large chicken producers, such as the French European leader LDC Group (the majority owner of Tranzit Food Kft.), typically have farms and slaughterhouses in larger regions and several countries. A significant production growth is limited by its sole location in eastern Hungary (ESG: credit-negative) and concentration in one product category. However, Scope notes that setting up a new location with a circular economy takes time.

Baromfi-Coop products are well known on the market, especially in the B2B segment. This results in strong relationships with and sales to all of Hungary’s significant retailers (Tesco, Aldi, Lidl, Spar, etc.), as well as major international anchor buyers such as OSI Food (McDonald’s) and Iceland Foods. While the company is a domestic market leader, its exports are also strong, accounting for 37% of revenues in 2024. Scope expects exports to remain at similar levels in the short term.

Operating profitability has been in double digits at 11%-15% over the last three years (Scope-adjusted EBITDA margin at 14.7% in 2024) with low-to-medium volatility. In Hungary, this is generally only achieved by consumer product players with full vertical integration. Nominal EBITDA increased to HUF 36bn in 2024. This was driven by price increases (the group is already operating at full capacity) and improved efficiency, which brought operating costs down by 2% YoY. Going forward, Scope expects margins to continue ranging between 13% and 15%.

Financial risk profile: BB- (revised from BB). Scope expects the group’s financial risk profile to be weakened by negative FOCF. This is due to the capex-intense nature of the industry and owner-management’s growth aspirations. Moderate leverage and interest cover, thanks to robust EBITDA and fixed-rate debt instruments, of which a large portion is issued in euros, should remain supportive of the group’s financial risk profile.

In 2025, the group announced the construction of a new slaughterhouse facility and the expansion of farms over the next three years, to be partially financed by debt issuance. Baromfi-Coop expects to double its current production capacity and nearly double revenues by the time the investment is concluded. Scope expects debt/EBITDA to rise from 1.9x in 2024 to 3.0x by 2027 and funds from operations/debt to decline from 51% to 29% as a result of the increased debt levels (up to HUF 112bn by 2027) and cost of debt while EBITDA levels remain stable (approx. HUF 35bn yearly). However, Scope notes management’s good track record with regard to large-scale investments, as demonstrated for the modernisation of facilities concluded in 2023.

FOCF/debt has historically been weak. This is due to the group’s focus on continuously expanding the business, while achieving full vertical integration and a circular economy, which requires high capex and working capital. By 2027, Scope expects FOCF to be negative HUF 18bn driven by a high capex. The rating agency also expects government subsidies to continue to partially offset this pressure. As part of the new expansion, the group has again secured state support amounting to HUF 41bn for the 2026-2028 period. Moreover, high nominal EBITDA, the high level of automation in existing facilities and the low volatility of operating profitability (coupled with the reinvestment of profits) allow Baromfi-Coop to stay on its ambitious growth path (ESG: credit-negative) without sharply increasing leverage.

Baromfi-Coop operates with a high share of fixed interest rate debt facilities, which offer significant debt protection. The strong EBITDA growth and high interest received on cash deposits resulted in EBITDA/interest cover of 71x in 2024 (up from 48x in 2023). Going forward, Scope expects this metric to gradually decline to 7.3x by 2027. This is because debt is being issued at higher interest rates and cash reserves are likely to decline as they are spent on growth capex and debt servicing.

Liquidity: adequate (unchanged). Scope foresees liquidity at around 200% in 2025-2027. Although negative FOCF is expected in 2026-2027, Baromfi-Coop retains a robust cash balance, amounting to HUF 22bn in 2024. Debt maturing in 2026 (HUF 14bn) has been refinanced in 2025 and the next maturity is in 2028 (HUF 14.5bn), when the company concludes its new investments.

In 2025, the group has issued a new senior secured bond amounting to EUR 140m (approx. HUF 56bn). The bond is to refinance the HUF 14bn bond maturing in 2026 and partially finance planned investments in capex over the next three years. The new bond starts amortising at HUF 11.2bn yearly from 2028 until maturity in 2033.

Furthermore, the company has access to an undrawn aggregated amount of HUF 2.7bn in credit facilities/unused overdraft lines (total amount of HUF 12.8bn) and all of Baromfi-Coop’s cash is available.

Scope highlights the fact that Baromfi-Coop’s senior unsecured bonds, guaranteed by subsidiary Master Good and 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 51.5bn as of YE 2024) if the debt rating of the bonds stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 30 days). Such a development could adversely affect the company’s liquidity profile. Following the downgrade of the unsecured debt instruments, the rating headroom to entering the grace period is one notch. 

In addition to the rating deterioration covenant, bond covenants include change of control. Financial covenants in bank agreements include net debt/EBITDA of max. 3.5x. Scope therefore sees no imminent risk of this covenant being triggered and/or enforced in the short term.

Supplementary rating drivers: credit-neutral (unchanged). Scope sees parent support and financial policy as credit-neutral. This is based on owner-management’s commitment to keeping net leverage below 3.5x and the dividend payout capped at 20% of profit after tax. During investment heavy cycles, management has shown ability to preserve cash flows by reducing or cancelling dividend payments and not executing M&As, as well as focusing on efficiency measures. A complex corporate structure, the non-consolidation of all the companies owned in the value chain, and the lack of a Tier 1-2 auditor for the group’s size are constraints, which are partially mitigated by its investor presentations and public disclosures.

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

Outlook and rating sensitivities

The Negative Outlook reflects Scope’s expectation that the new investment-heavy cycle will put significant pressure on credit metrics, with FOCF turning negative and debt/EBITDA increasing to around 3x over the next few years.

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

1. Neutral or positive FOCF
    
2. Debt/EBITDA kept below 3.0x

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

1. Negative FOCF
    
2. Debt/EBITDA at or above 3.0x

Debt ratings

Scope has downgraded to BB- from BB the rating of the following unsecured debt instruments: HU0000359294, HU0000359302, and HU0000360706. These unsecured bonds are guaranteed by subsidiary Master Good, which is majority owned by Baromfi-Coop and fully consolidated.

Scope’s recovery analysis indicates a ‘low’ recovery for the senior unsecured guaranteed bonds in a hypothetical default scenario based on a liquidation value at YE 2027. The downgrade reflects the introduction of a senior secured bond (HU0000365630), ranking ahead of unsecured bonds in the event of default in 2027. The secured loan pledges over the assets of the company, which are the main sources in the liquidation scenario.

Environmental, social and governance (ESG) factors

Baromfi-Coop contributes to the circular economy through its vertical integration. It has its own agricultural activity, livestock farms and a highly automated slaughterhouse and by-product facilities. Furthermore, the company is able to mitigate the rise in energy costs through its own solar energy production.

The company has an ambitious growth strategy, characterised by large capex cycles. While this increases efficiency and supports business growth, it also introduces execution and financial risks. Nevertheless, the company has a track record on the execution of large-scale investments.

The group is also exposed to moderate physical risks inherent to the industry (e.g. diseases outbreaks) and the concentration of assets in one location. However, its strict adherence to EU operation standards and high level of biosecurity systems in place, with very modern facilities, minimises the likelihood of such events occurring.

All rating actions and rated entities

Baromfi-Coop Kft.

Issuer rating: BB/Negative, Outlook change

Senior unsecured guaranteed debt instrument ratings (ISINs: HU0000359294, HU0000359302, HU0000360706): BB-, downgrade

*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; Consumer Products Rating Methodology, 31 October 2025), are available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 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: Lucas Nathan Pozza Pessoa, Senior Analyst
Person responsible for approval of the Credit Ratings: Marlen Shokhitbayev, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 19 September 2019. The Credit Ratings/Outlook were last updated on 19 November 2024.

Potential conflicts
See 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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