DBRS Morningstar Confirms and Discontinues Grupo Avintia’s Issuer Rating, Assigns New Issuer Rating of B (high) with a Stable Trend to Corporación Grupo Avintia, S.L.

At the request of the company, DBRS Ratings GmbH (DBRS Morningstar) confirmed Grupo Avintia’s Issuer Rating at B (high) with a Stable trend and then discontinued it and assigned a new Issuer Rating of B (high) with a Stable trend to Corporación Grupo Avintia, S.L. (Corporación Grupo Avintia or the Group).

On 27 December 2017, all the shares of the parent company Grupo Avintia, S.L. were transferred by Patrimonios Jivar 2000, S.L. to a new company incorporated under the name of Avigroup Investment Holding, SL. On 29 March 2019, Avigroup Investment Holding, SL. was renamed Corporación Grupo Avintia, S.L. As of 31 December 2020, Grupo Avintia, S.L. represented more than 99% of the assets and revenues generated by Corporación Grupo Avintia, S.L. DBRS Morningstar considers the change in the rated entity to be immaterial from a credit perspective.

KEY RATING CONSIDERATIONS
In 2020, Corporación Grupo Avintia continued to report weaker-than-previously-expected key credit metrics, as the COVID-19 pandemic caused the delay of the recognition of the earnings and cash flows expected from the Group’s property development business and the Group was unable to timely divest real estate assets to deleverage its balance sheet. The delay in the recognition of earnings and cash flows is attributable to a slowdown in the registration of property deeds due to notaries closures, slower bureaucracy, and increasing uncertainty regarding funding. That said, delayed earnings and cash flows have already started to materialise in the first five months of 2021, and DBRS Morningstar expects that the Group’s EBITDA and cash flow from operations will recover to pre-pandemic levels by the end of 2021.

In the first half of 2020, against the backdrop of the coronavirus pandemic, the Group took measures to strengthen its liquidity position and balance sheet, including a six-month extension of the maturity of the EUR 50 million 4.0% Senior Secured Notes (the Notes) issued by its subsidiary Avintia Proyectos y Construcciones, S.L. to 1 March 2021 from 1 September 2020 and raised an additional EUR 40 million of senior unsecured debt guaranteed at 70% by the Insituto de Credito Oficial (as part of a package of Government measures in response to the coronavirus crisis). In 2020, adjusted total debt was EUR 226.6 million. As of 31 May 2021, following the repayment of the Notes, adjusted total debt stood at about EUR 162.4 million and cash and cash equivalents amounted to EUR 61.1 million.

The Stable trend takes into account that, despite the significant challenges that Corporación Grupo Avintia has been facing as a consequence of the COVID-19 pandemic, the overall contribution from the property development and real estate businesses will improve and sustain the Group’s key financial metrics at a level consistent with the current rating category by the end of 2021. In addition, Corporación Grupo Avintia also benefits from a solid backlog in its construction segment of almost EUR 1.4 billion, providing a certain degree of visibility to earnings and cash flow generation.

RATING DRIVERS
DBRS Morningstar considers a rating upgrade to be very unlikely in the near term. However, a trend change to Negative or a rating downgrade could be considered if the Group’s financial risk profile materially weakens as a result of (1) unexpected losses and delays in the recognition of earnings and cash flows from the Group’s property development business, (2) the inability to timely divest real estate assets to deleverage and sustain the Group’s overall creditworthiness, and (3) the ineffectiveness of the Group’s industrialized construction strategy to improve profitability and margins.

RATING RATIONALE
Corporación Grupo Avintia is a partially vertically integrated construction group with activities primarily in the construction, property development, and real estate businesses. The Group’s creditworthiness is supported by its: (1) established project control processes; (2) focus on known markets and solid domestic market position; (3) modest single contract exposure; and (4) development of the industrialized construction business line. The Group’s creditworthiness is constrained by its: (1) high industry risk characterised by cyclicality, intense competition, and volatility; (2) aggressive growth strategy, increasing project complexity, and limited internal capability; (3) relatively small scale operations with geographic and product concentration; and (4) mostly fixed-price contracts.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are the Rating Companies in the Construction and Property Development Industry (20 November 2020), https://www.dbrsmorningstar.com/research/370316/, and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021), https://www.dbrsmorningstar.com/research/379424/, which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include annual reports and financial statements, interim financial statements, quarterly reports and financial statements, interim management statements, management projections and budgets, and external correspondence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/384200.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Giuseppe Fresta, Vice President
Rating Committee Chair: Charles Halam-Andres, Managing Director
Initial Rating Date: Grupo Avintia - 30 April 2019; Corporación Grupo Avintia - 9 September 2021.
Last Rating Date: Grupo Avintia – 9 September 2021; Corporación Grupo Avintia - Not applicable as there is no last rating date.

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-- Rating Companies in the Construction and Property Development Industry (20 November 2020), https://www.dbrsmorningstar.com/research/370316/.
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021), https://www.dbrsmorningstar.com/research/379424/.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.