CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings assigned to Arcor S.A.I.C.
(Arcor). The Rating Outlook is Negative. A full list of rating actions
follows at the end of this press release.
KEY RATING DRIVERS
Arcor's ratings reflect its strong business position as a leading Latin
American producer of confectionary and cookie products, supported by its
exports to over 120 countries as well as its conservative capital
structure and manageable liquidity. These factors have enabled Arcor to
maintain its stable performance despite the weak macroeconomic
environment in the region, specifically Argentina which contributes 90%
of consolidated EBITDA.
Arcor's local currency Issuer Default Rating (IDR) of 'B+' reflects the
company's strong brand recognition in Argentina due to its comprehensive
distribution network and its presence in the country for more than 60
years. The company also has a presence in Brazil and Chile. Together,
these three markets account for more than 90% of its total sales. The
local currency IDR is two notches above its foreign currency IDR due to
its strong capital structure. The close correlation of its cash flow
with the strength of the Argentine economy and its exposure to
variations in commodity prices, prevent the company from being rated
higher despite its strong capital structure and solid business position.
Arcor's operations abroad, as well as its exports from Argentina and
Mexico, allow the company's foreign currency IDR of 'B-' to be rated one
notch higher than Argentina's country ceiling of 'CCC'.
Exports Operations Abroad/ Foreign Currency Revenues
Revenues generated outside of Argentina accounted for approximately 31%
of total consolidated revenues at year-end 2014. This has remained
relatively unchanged since last year and includes revenues generated
outside Argentina and exports from Argentina.
Argentine Operations Generate Majority of EBITDA
While Arcor's operations in investment-grade countries such as Brazil
and Chile account for approximately 31% of its consolidated revenues,
the contribution to cash flow from operations in those countries is
still low. Operating cash flow is generated in Argentina and the
majority of consolidated EBITDA is concentrated in that country (89% at
December 31, 2014).
Financial Access in Chile and Brazil
The revenue generation in Chilean and Brazilian currency together with
the assets holdings in those countries provides Arcor with financial
access in those countries which may be used to cover the conversion and
transferability risk of Argentina.
Conservative Capital Structure
Leverage is low for the rating category. Arcor had a total
debt-to-EBITDA ratio of 2.3 times (x) and net debt-to-EBITDA ratio of
1.8x as of Dec. 31, 2014. These ratios increased slightly during the LTM
ended March 31 to 2.6x and 2.0x, respectively.
Strong Business Position
Arcor is a leading Latin American producer of confectionary products and
cookie products. Arcor enjoys strong brand equity in Argentina due to
its comprehensive distribution network and its presence in the country
for more than 60 years.
Fitch's key assumptions within the rating case for Arcor include the
--Revenue growth in line with inflation;
--EBITDA margin remains between 8% - 9%;
--Senior unsecured notes are refinanced in 2016;
--Capex steadily increases from ARS1 billion in 2015.
Arcor's ratings could be negatively affected by a combination of the
following: further economic decline leading to a sustained deterioration
of credit metrics; and/or a change in management's goal of maintaining a
conservative capital structure.
A positive rating action is unlikely in the short- to medium- term.
Arcor's liquidity risk was moderate as of the March 31 LTM; the company
had USD155 million of cash and equivalents compared with USD293 million
in short-term debt. The company ended 2014 with USD138 million in cash
and USD663 million in total debt. Arcor has proven access to bank
financing, though it has uncommitted credit limits. It has available
limits for approximately USD200 - 250 million. The majority (76%) of
Arcor's total debt is in the short-term, reflecting the availability of
the type of financing that is currently available in the Argentine
market. Fitch expects that the company will be able to refinance the
majority of this debt. About 85% of Arcor's total debt is denominated in
Argentine Pesos and U.S. Dollars; the remaining balance (about 15%) is
split between Brazilian Reals, Chilean Pesos, and Euros.
Fitch affirms the following:
--Foreign currency IDR at 'B-';
--Local currency long-term IDR at 'B+';
--Senior unsecured notes at 'B-/RR4'.
The Rating Outlook is Negative.
Additional information is available on www.fitchratings.com
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 28 May 2014)
Country-Specific Treatment of Recovery Ratings (pub. 28 Jun 2013)
Rating Non-Financial Corporates Above the Country Ceiling (pub. 02 Feb
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