Rating agency Fitch has affirmed the long-term Issuer Default Rating (IDR) of Bulgarian insurance and energy group Eurohold at B with a stable outlook and removed it from Rating Watch Negative (RWN).
The decision comes as a result of the change in group structure and financial profile, with the bulk of the company’s business shifting to energy from insurance following its completed debt-funded acquisition of the former units of Czech electricity group CEZ.
The statement from the agency said that the rating also reflects Eurohold’s weak liquidity at the parent level with reliance on short-term debt. The new assessment reflects the agency’s expectation that Eurohold will divest its car selling and leasing businesses by the end of 2022. Following the acquisition of energy assets, Eurohold will focus on the utilities business, which will be the dominant contributor to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) around 65 – 70 %, and on insurance (around 30 %), with the small remaining contribution to EBITDA from asset management and brokerage.
The agency forecasts a moderate EBITDA growth at Eurohold in the next three years, with capex averaging 46.5 million euros per year between 2022 and 2026. Net acquisitions are projected to total close to 87.5 million euros in the current year, decreasing to an average of 35 million euros in the 2023-2026 period.
Fitch rates Eurohold using a consolidated approach but excluding the insurance business’s EBITDA and net debt (the deconsolidated group profile). This is because access to the insurance business’s cash flow is limited, due to regulatory requirements to keep a minimum solvency ratio at insurance companies. Eurohold’s IDR is notched down two levels below the deconsolidated profile given its structural subordination. Eurohold’s debt service capacity is contingent on dividend income streams from intermediate holding companies and operating subsidiaries (assuming covenant compliance) and does not have direct access to the underlying operating cash flows.
