KronosNet (Kronos/Konecta; 80% owned by ICG), is a Spain-based business process outsourcing (BPO) and customer relationship management (CRM) provider.

Overview: Free cash flow and interest coverage remained constrained in 1H26, reflecting elevated exceptional costs and continued investment in the adaptation of services to generative AI. In addition, successive ECB rate hikes drove cash interest costs higher, adding further pressure on credit metrics. While management continues to guide for improvement over the remainder of 2026 via cost savings, a further easing of exceptional costs, and growing digital and AI-related revenue (incl. pipeline growth), the company’s long-running underperformance leaves little headroom for further slippage.

Key credit challenges for Konecta include tightening liquidity (vs FY25 and 1Q25) driven by persistent negative free cash flow FCF generation, elevated and recurring Katalyst 2028 (a three-year business plan concentrated on higher-margin GenAI/digital growth) transformation-related restructuring costs, rising cash interest and elevated capex relative to earnings, tight interest coverage, and FX headwinds (34.6% of 1H26 revenue from LatAm).

The B3/B rated, E+575bps EUR 945m syndicated senior secured TLB, maturing October 2029, is currently indicated (per Markit) at approximately 46 (down from 65 at end-March and 70 at end-December), yielding 26.4%, reflecting the aforementioned risks and continued market scepticism over the FCF recovery trajectory given lingering doubts over the medium-to-long-term viability of the business model. That said, at current levels we believe the TLB continues to price in significant execution risk and offers a reasonable risk/reward for investors with a high risk appetite, even as the underlying business keeps burning cash and the path to sustainable profitability remains uncertain. At an indicative price of 46, the TLB is trading closer to our base-case distressed recovery estimates (see recovery table below) than to any going-concern valuation outcome. This is despite our sensitivities suggesting near-full TLB recovery even at a 3.5x EV multiple. The disconnect highlights the market’s continued caution over the durability of any operational recovery, amid elevated execution risk, fierce competition, and a challenging macroeconomic and geopolitical environment.

Konecta’s credit challenges are partially offset by an 11th consecutive period of LTM EBITDA growth, a contracted pipeline of EUR 2.7bn as of 2Q26 (up from EUR 2.6bn at 1Q26; EUR 2.3bn at FY25; EUR 1.6bn at FY24; EUR 0.4bn at FY23), of which 56% is now from Digital and NextGen services (1Q26: 41%); total contract value (TCV) won reached EUR 292m in YTD 2026, up 38% YoY (EUR 211m in YTD 2025), on a broader base of mid-sized deals rather than large single transactions, adding greater revenue visibility over the next twelve months (NTM). Portfolio diversification is progressing alongside: Telco accounted for just 20% of new YTD bookings, down from historical levels, as continued expansion in BFSI (financial services), Retail and Technology is projected to keep reducing Telco concentration further by year-end. Although Konecta has sizable short-term debt facilities at operating subsidiaries which need to be permanently rolled over, there no material senior debt maturities until 2029, providing runway for Katalyst 2028 to demonstrate improvement in FCF generation and leverage. Sponsor ICG also demonstrated its support through the EUR 75m equity injection in 1Q25.

However, we note that failure to deliver sufficient EBITDA growth over 2026-28 (1H26 EBITDA was 4.7% behind 1H26 budget) and continued pressure on FCF generation could tighten liquidity further and heighten refinancing risk ahead of the 2029 debt maturities. Konecta continues to face a structural disconnect between an improving YoY LTM EBITDA trend (11 consecutive periods of LTM EBITDA growth, despite FX headwinds; table below) and persistently negative FCF generation, which has deteriorated further this period.

Total available liquidity as of 30 June 2026 declined further to EUR 132.0m from EUR 167.2m at 1Q26 (EUR 221.1m at FY25 year-end), driven primarily by ongoing cash burn rather than incremental RCF drawings. As a result, net liquidity adjusted for short-term debt (including leases) is negative. There are, however, no other material senior debt maturities until 2029, when the RCF and term loan come due.

1H26 vs 1H25: EBITDA behind budget, significantly FCF negative: 1H26 reported revenue of EUR 1,001.2m declined 1.3% YoY on a reported basis, including a EUR 13.2m FX headwind, with underlying constant-currency (CCY) growth broadly flat YoY, missing budget by 1.0% (narrower than the 1.5% miss at 1Q26). Revenue growth turned positive in 2Q26, versus a decline of 2.9% in 1Q26, as LatAm returned to CCY growth on new business in Financial Services and Retail that helped offset the telecom-related volume pressure weighing on 1Q26, while French-Speaking Markets remained under pressure from soft macro conditions and the loss of a large contract, and Italian-Speaking Markets softened on lower Telecom/Media volumes. LTM 2Q26 revenue of EUR 1.975bn has stabilised after declining sequentially since 2Q25, edging up marginally from EUR 1.973bn at 1Q26 – the first such uptick in four quarters – with the EUR 2.7bn contracted pipeline supporting the case for continued improvement over NTME (next twelve months’ expected).

Reported 1H26 EBITDA of EUR 137m (4.7% behind budget) grew +0.4% YoY (+1.6% CCY), with margin improving to 13.7% (+0.3p.p. YoY, though below the 14.2% 1H26 budget), driven by the growing contribution of higher-margin Digital Services (+20.5% YoY to EUR 82.8m) and continued efficiency gains (FTE count down 3k versus Dec-25), more than offsetting an extraordinary 24% minimum wage increase in Colombia ahead of presidential elections. 1H26 marked the 11th consecutive period of LTM EBITDA growth (LTM 2Q26: EUR 283.4m, from EUR 283.2m at 1Q26), as Digital Services delivered 20.5% YoY growth and GenAI deployment now covers 63% of the top 10 regional accounts (1Q26: 42%; FY25: 34%).

Konecta’s FCF has remained persistently negative due to high cash interest, lease payments, capex, and cash taxes relative to earnings, as well as elevated one-off costs linked to GenAI implementation, integration, and severance. Cash burn over 1H26 was EUR 97m, up from EUR 86m in 1H25 due to higher YoY cash interest, capex, and working capital outflows. The 1H26 working capital outflow of EUR 58.7m (1H25: EUR 51.7m) was primarily driven by the extraordinary Colombia minimum wage increase creating a lag in pass-through invoicing and collections, which management expects to partially reverse through 2H26.

Following on, LTM FCF before financing and FX was negative EUR 103m, deteriorating further from negative EUR 99m over LTM 1Q26 (FY25: negative EUR 92m; FY24: negative EUR 51m). This is despite LTM non-operating costs easing to EUR 55.1m (LTM 1Q26: EUR 62m), back toward the FY25 run-rate of EUR 55.7m, as rising cash interest following the ECB’s back-to-back June and September 2026 rate hikes and a wider working capital outflow more than offset that improvement.

Consolidated net secured leverage stood at 3.3x on LTM 2Q26 adj. EBITDA of EUR 320.7m, which includes EUR 37.3m in addbacks for strategic initiatives across Iberia, LatAm and other markets. Net secured leverage is higher at 3.7x on unadjusted LTM reported EBITDA, and overall net leverage stands at 5.0x unadjusted (this excludes up to EUR 303.5m of factoring facility, of which EUR 191m was in use as of December 2025, which if fully used raises net leverage by another turn).

Structure: The TLB is a EUR 945m bullet repayment due October 2029, with no scheduled amortisation (the EUR 200m April 2029 RCF remains EUR 142.5m drawn). The TLB and RCF rank pari passu, secured by pledges over shares, bank accounts and intercompany receivables, and guaranteed by a group of subsidiaries representing at least 80% of the consolidated group’s adjusted EBITDA as defined in the senior facilities agreement – a security package rating agencies have characterised as more akin to unsecured debt in practice. This maturity profile continues to provide runway for the Katalyst 2028 strategy to demonstrate FCF improvement. Refinancing risk would, however, increase materially should FCF generation remain deeply negative through 2026-28, limiting any natural deleveraging ahead of the refinancing window (given the RCF’s April 2029 maturity creates a concentrated dual maturity event alongside the TLB).

Generative AI continues to sit at the centre of both Konecta’s investment thesis and its principal structural credit risk.

On the opportunity side, management targets 70% automation of complaint responses and a 5%-11% gross margin improvement from GenAI deployment across the portfolio; productivity gains continue to build, with GenAI now covering 63% of the top 10 regional accounts and 400+ projects in production, more than 150 of which started in 1H26 alone (1Q26: 42% and 200+ respectively). The Group further strengthened its technology ecosystem in 1H26, activating a NICE partnership in LatAm (now extending to EMEA, with discussions underway to broaden the alliance to Cognigy for conversational AI), launching a Salesforce partnership in Spain and LatAm, and advancing its Anthropic partnership to Level 1 certification (10+ certified architects), positioning Konecta among the first registered partners in the CX industry. The Group also achieved ISO 42001 certification in June 2026, integrated into its trust portal, and linked to the go-live of its proprietary Kolibri agentic AI platform, which generated EUR 2.1m of confirmed 2026 revenue from consulting and CX use cases. NextGen deals carrying around 30% margins versus the LTM group average of 14.3% demonstrate that the higher-value digital services model remains commercially viable at scale, with Digital Services now operating at an 18%-20% EBITDA margin (4-5 percentage points above traditional BPO) and accounting for 41% of TCV won YTD 2026. The EUR 2.7bn contracted pipeline as of June 2026, with 56% now consisting of Digital and NextGen opportunities (1Q26: 41%), reinforces the indication that clients are actively purchasing AI-enabled CX solutions rather than eliminating outsourced customer service entirely, supporting the bull case that GenAI augments rather than displaces the BPO model.

However, the bear case remains credible. BPO clients in emerging markets are increasingly AI-competitive, with the capability to automate customer interactions in-house at declining cost – a trend that could accelerate volume attrition in Konecta’s highest-revenue region (LatAm: 34.6% of 1H26 revenue, up from 33% at 1Q26). This dynamic continues to be reflected in the SaaS/IT sector’s declining EV/EBITDA multiples. Furthermore, competing effectively in AI-enabled services requires sustained capex and opex investment, at a time when FCF generation remains deeply negative and has deteriorated further this period. The risk therefore remains circular: Konecta must keep investing heavily in AI to protect its revenue base, yet that investment continues to perpetuate negative FCF generation.

Outlook and forecast: 

The 1H26 budget miss of 1.0% is narrower than 1Q26’s 1.5% and FY25’s 6.0%, and LTM revenue has stabilised, edging up quarter-on-quarter for the first time since 2Q25, though stronger growth and margins over NTME are required to reach FCF breakeven. Client retention at 96% and a pipeline of EUR 2.7bn as of June 2026 provide revenue visibility into NTME. However, a history of below-budget delivery and AI-driven attrition risk in emerging markets continue to warrant conservatism. We forecast low single-digit revenue growth over NTME and NTME+1. See forecast table below for details of assumptions.

Key credit challenges:

• A substantial improvement in operating performance is required to reach FCF breakeven over the next 12-24 months. FCF generation remains negative and deteriorated further in 1H26, (as detailed above). Sustained cash burn strains liquidity further and increases reliance on external sources of funding (debt or equity), rising refinancing risk for the TLB and RCF due 2029.
• Liquidity has tightened from 1Q26 and FY25 and could tighten further driven primarily by persistent cash burn.
• Net reported leverage of 5.0x at 30 June 2026 (4.4x adjusted) is unlikely to deleverage organically. De-leveraging will be required to support refinancing ahead of the 2029 maturities.
• Non-recurring/exceptional costs remain elevated, though LTM levels have eased back toward the FY25 run-rate (as explained above); further normalisation is expected over the next 12-24 months.
• Sector competition and AI challenges: uncertainties relating to the impact of AI on BPO/CRM business models, as well as competitive pressures, as explained above.
• Structural FX headwinds, with LatAm exposure continuing to rise (as noted above).

Key mitigants:

• Although execution risk remains high (as noted above), EBITDA margins and FCF generation should improve over the next 12-24 months, driven by new contract wins, productivity gains from GenAI adoption, cost savings, and a continued reduction in exceptional costs toward the EUR 35m-EUR 40m medium-term target range; LTM non-operating costs have already eased to EUR 55.1m from EUR 62m at 1Q26.
• No senior debt maturities until 2029 – as noted above. However, the company has sizable short-term debt facilities at operating subsidiaries, which need to be permanently rolled over.
• Digital and NextGen services pivot generating tangible commercial momentum, as explained above. Konecta also has longstanding relationship with blue-chips clients and a leading market position in the Spanish-speaking customer relationship management market.
• RCF 7.5x net leverage covenant: the EUR 200m RCF is subject to a springing net leverage covenant of 7.5x, tested when 40% or more of the facility is drawn. The RCF remains 71% drawn (up from 44% at FY25), but covenant headroom remains adequate, with net secured leverage at 3.3x (3.7x unadjusted) and overall net leverage at 4.4x (5.0x unadjusted).
• Factoring facility provides contingent liquidity: Konecta has up to EUR 303.5m of factoring arrangements, of which EUR 191m was in use as of December 2025 (previously reported at EUR 276m facility size / EUR 153m drawn as of FY23). Further utilisation could be limited by the size of eligible trade receivables (EUR 477m at 2Q26, up from EUR 456m at 1Q26), but the undrawn portion still represents contingent liquidity not reflected in the headline figure.
• GenAI upside potential – as detailed above.
• Sponsor support: ICG injected EUR 75m of equity in 1Q25 to fund cash burn and pay down the RCF.

Current valuation in normal trading environment: Publicly traded peers shown in the comparable companies table above trade at an average EV/NTME EBITDA multiple of 4.5x, reflecting the continued sector-wide de-rating driven by AI-related uncertainty around SaaS/BPO/CRM business models. Konecta’s margins (14.3%) run slightly above the peer average (13.9%), but its significantly higher leverage, persistently negative FCF generation, and smaller scale relative to peers Teleperformance and Concentrix continue to justify a discount to the peer average multiple. However, as noted in the Overview above, even at a conservative 3.5x EV/NTME EBITDA multiple (as shown in the recovery table below), the senior secured debt stack (incl. the TLB) remains nearly fully covered at 98%. Only at a much lower 2.0x EV multiple does coverage fall to 58%, closer to current trading levels (46.0). The primary sensitivity in the going-concern scenario remains not the EV multiple itself, but the trajectory of forecast EBITDA and FCF generation and the long-term sustainability of the business model – specifically, whether: 1) Katalyst 2028 is executed efficiently and restructuring costs decline as guided beyond 2026, 2) AI-driven client attrition in emerging markets erodes the revenue base, and 3) ICG sponsor support continues to bridge the gap between operating cash generation and debt service obligations ahead of the 2029 dual maturity event. Continued sponsor support could remain a credible near-term mitigant – the EUR 75m equity injection in 1Q25 demonstrates ICG’s willingness to fund the business through a period of sustained cash burn – but should not be assumed indefinitely. Should the sponsor become unwilling or unable to provide further capital, the credit story could shift quickly from one anchored on an equity cushion toward a more creditor-led outcome.

Recovery values in a distressed scenario (around 38%-45% for the senior secured debt stack): In a deeply distressed scenario, which has a moderate (but not negligible) probability given the persistent cash burn, the ever-present risk of AI-driven competitive threats, and the TLB already trading at deeply distressed levels, we assume a 2.5x EV multiple in the base case and a 40% haircut to NTME EBITDA. In such a scenario, recovery value for the senior secured debt stack is around 41% in the base case (with a range of 38%-45%; current TLB price is 46.0, implying the market is already pricing in material impairment). After taking haircuts to cash and forecast EBITDA, assuming persistent one-off restructuring costs, less upside from GenAI than management targets, loss of key customers particularly in AI-competitive emerging markets, and cost inflation compressing margins – estimated recovery for the senior secured debt ranges from 38%-45% depending on assumptions (see recovery table above). Unsecured debt recovery is nil in most distressed scenarios. There are two structural caveats that could further pressure recovery values. First, the legal complexity of multiple operating jurisdictions (France, Italy, Iberia, and the Americas) and local debt of EUR 220m that could rank ahead of the senior secured stack in certain jurisdictions creates meaningful recovery uncertainty not captured in a simple EV waterfall. Second, the EUR 303.5m factoring facility, if fully utilised (and assuming it crystallises alongside other secured debt), reduces distressed recovery values by approximately 10%.

Business description: KronosNet (Kronos/Konecta; 80% owned by ICG), is a Spanish business process outsourcing (BPO) and customer relationship management (CRM) provider. Konecta operates across 26 countries with approximately 105,000 employees, supporting 500+ blue-chip clients across 30+ languages. Konecta was formed through the merger of Konecta and Comdata in September 2022, creating the sixth-largest player in the CX BPO market with approximately EUR 2bn of revenue, and subsequently strengthened its English-speaking market position through the acquisition of Bespoke in 1H24. Segment details below.

Disclaimer

This report should not be relied upon to make investment decisions. Furthermore, this report is not intended and should not be construed as investment advice. ION Analytics does not provide any investment advice, and clients should consult with their own financial advisor for matters requiring investment advice. All information is sourced from either the public domain or ION Analytics data or intelligence, and ION Analytics cannot and does not verify or guarantee the adequacy, accuracy or completeness of any source document. No representation is made that it is current, complete or accurate. The information herein is not intended to be used as a basis for investing and does not constitute an offer to buy or sell any securities or investment strategy. The information herein is for informational purposes only and ION Analytics accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein.