DBRS Morningstar Places the B (high) Issuer Rating of Corporación Grupo Avintia, S.L. Under Review With Negative Implications

DBRS Ratings GmbH (DBRS Morningstar) places the Issuer Rating of Corporación Grupo Avintia, S.L. (Avintia or the Group) Under Review with Negative Implications. This credit rating action is being taken due to heightened concerns regarding the visibility of future financial performance caused by delays in receiving timely information provided by the Group to DBRS Morningstar.

To date, DBRS Morningstar has only received audited financials for Avintia Proyectos Construcciones, S.L., the construction arm of the Group. While this entity accounts for the majority of Group revenues, the credit rating is on the consolidated entity, and therefore, DBRS Morningstar requires additional information at the Group level. Based on the limited information received to date, the credit quality of the issuer remains below expectations. In addition, the restatement made in the 2021 annual audited financial statements that have been received had a significant impact on EBITDA, cash flow from operations, profitability and equity for the same year, and consequently, it has the potential to impact the key Group-level consolidated financial metrics for the coming years. DBRS Morningstar will continue to monitor the situation and assess the potential impact of the restatement on the credit rating once the required information is provided. Should DBRS Morningstar not receive additional requested information in a timely manner, DBRS Morningstar will endeavour to resolve the Under Review with Negative Implications status, taking into account the heightened probability of default resulting from the lack of visibility regarding future operating performance. Subsequent to resolving the Under Review status, DBRS Morningstar may consider discontinuing the rating if it believes there is insufficient information to maintain a rating.

CREDIT RATING DRIVERS
DBRS Morningstar considers a credit rating downgrade to be very likely in the near term. However, a confirmation of the previous credit rating could be considered if, upon receipt of the most recent audit and other financial information, DBRS Morningstar gains comfort that key financial metrics are improving and likely to continue to do so.

CREDIT RATING RATIONALE
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) track record and focus on known markets and solid domestic market position and (2) development of the industrialised construction business line. The Group’s creditworthiness is constrained by its (1) high industry risk characterised by cyclicality, intense competition, low profitability and volatility; (2) aggressive growth strategy, increasing project complexity, and limited internal capability; (3) relatively small scale of operations with geographic and product concentration; and (4) partially fixed-price contracts.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
There were no Environmental factor(s) that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factor(s) that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factor(s) that had a relevant or significant effect on the credit analysis.

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/416784 (4 July 2023).

Notes:
All figures are in euros unless otherwise noted.

DBRS Morningstar applied the following principal methodology:

-- “Global Methodology for Rating Companies in the Construction and Property Development Industry” (24 November 2022) - https://www.dbrsmorningstar.com/research/405710.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The primary sources of information used for these credit ratings include interim consolidated financial statements, audited individual accounts, management information and external correspondences. DBRS Morningstar considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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

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

This credit rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. DBRS Morningstar reviews and credit 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: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/422446.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Laura Gutierrez, Assistant Vice President.
Rating Committee Chair: Timothy O’Brien, Managing Director.
Initial Rating Date: 9 September 2021.
Last Rating Date: 12 September 2022.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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