The credit rating of LEGENDA LLC (hereinafter, the Company) is based on medium assessments of operational risk profile and business size, low leverage, high coverage, very high profitability, and strong liquidity. The rating is constrained by the very high industry risk (residential construction). The credit rating outlook has been changed in view of the Agency’s expectations that the Company’s leverage will decrease and coverage will improve.
LEGENDA LLC is a residential developer that focuses on residential projects, mostly in the upper price segment, in St. Petersburg and Moscow. According to the Company, the volume of its current construction-in-progress as of June 2024 is over 400,000 sq. m of the total floor area.
Key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the industry, high amount of overdue payments, and substantial number of companies that have defaulted over the last five years. Therefore, industry risk is a strong factor that limits the Company’s credit rating.
The medium assessment of the operational risk profile is a result of medium assessments of the Company’s market position and business profile, high assessment of corporate governance, and very strong assessment of geographic diversification. According to the Agency's estimates, the Company is a successful player in the moderately concentrated primary housing markets of St. Petersburg and Moscow, and it is also a leader in the high-price segment of the housing market in St. Petersburg. All current and planned projects of the Company are located in St. Petersburg and Moscow. The Agency considers these markets as the most capacious, stable and highly marginal, and therefore the geographic diversification, according to ACRA’s methodology, is assessed as high.
The Company’s portfolio of projects is well diversified in terms of their number, but in general, the Agency estimates the diversification of projects as below medium, since in 2024–2026, in ACRA’s opinion, the largest project will account for about 50% of sales. The Company subcontracts construction work and acts as an ECPM contractor and technical supervisor. A significant competitive advantage is the Company’s own design capabilities. A wide variety of planning solutions, in its turn, allows the Company to satisfy a greater range of consumers, which has a favorable effect on profitability. The terms and conditions of project implementation are assessed at a high level.
In the Agency’s opinion, the Company's strategy is successful, consistent and allows it to strengthen its market positions. The management structure is assessed as strong. Risk management and financial transparency received adequate assessments. The group structure is moderately complicated, which reflects the specifics of the housing construction industry. The Company discloses its IFRS financial statements semiannually and maintains strong investor relations; therefore, the financial transparency is assessed as high.
The Company’s very high profitability is ensured by the high product quality, cost control at all project stages, and a thorough analysis of potential project sites. The weighted average FFO before net interest and taxes margin for the period from 2021 to 2026 is estimated by the Agency at 26.6%; at the same time, ACRA notes a gradual decline of the SG&A to sales ratio along with the growing business size.
Low leverage and high coverage assessments. To estimate the ratio of net debt to FFO before interest and taxes, ACRA adjusts the total debt by the amount of project finance debt secured by buyers’ escrow accounts. The leverage also includes sureties issued by the Company for loan obligations of associates. In 2022–2023, the Company’s leverage peaked against the background of significant investments in new projects, including those related to entering the Moscow market. At the same time, growing sales in new projects will contribute to a noticeable increase in the Company's revenue and FFO, which will push down the relative indicators of the leverage. The weighted average ratio of adjusted net debt to FFO before net interest for 2021–2026 is estimated by the Agency at 2.7x. The quality assessment of the leverage is very high due to a comfortable debt repayment schedule and high diversification of the portfolio of lenders. The weighted average ratio of FFO before net interest to net interest for 2021–2026 is estimated by ACRA at 5.9x.
The strong liquidity assessment is based on the comfortable debt repayment schedule, an expected growth of cash inflow due to release of escrow accounts, and a significant volume of undrawn credit lines.
Key assumptions
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Projects completion and sales as planned.
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ACRA's estimates include only projects being constructed and designed in accordance with the Company’s current plans.
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No significant decline in prices in the primary real estate markets of St. Petersburg and Moscow in 2024–2026.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Weighted average ratio of adjusted net debt to FFO before net interest declining below 2.0x, and weighted average ratio of FFO before net interest to net interest exceeding 8.0x.
A negative rating action may be prompted by:
- Weighted average ratio of adjusted net debt to FFO before net interest exceeding 3.5x, and weighted average ratio of FFO before net interest to net interest declining below 5.0x.
Rating components
SCA: bbb.
Support: none.
Issue ratings
Bond of LEGENDA LLC, series 001P-04 (RU000A102Y66); maturity date: April 8, 2025, issue volume: RUB 4 bln — BBB(RU).
Bond of LEGENDA LLC, series 002P-01 (RU000A1067H4); maturity date: May 6, 2027, issue volume: RUB 3 bln — BBB(RU).
Credit rating rationale. The issues represent senior unsecured debt of LEGENDA LLC (hereinafter, the Company). Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the recovery rate for unsecured debt belongs to category I, and therefore, the credit rating of the issues is BBB(RU), i.e. on par with the credit rating of the Company.
Regulatory disclosure
The credit ratings of LEGENDA LLC and bond issues (RU000A102Y66, RU000A1067H4) of LEGENDA LLC have been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above bond issues.
The credit ratings of LEGENDA LLC and bond issues (RU000A102Y66, RU000A1067H4) of LEGENDA LLC were published by ACRA for the first time on August 24, 2023, March 22, 2024, and March 22, 2024, respectively. The credit rating of LEGENDA LLC and its outlook, and the credit ratings of the bond issues (RU000A102Y66, RU000A1067H4) of LEGENDA LLC are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by LEGENDA LLC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and LEGENDA LLC participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no ancillary services to LEGENDA LLC. No conflicts of interest were identified in the course of credit rating assignment.
