December 19, 2017 / 8:02 PM / a year ago

Fitch Upgrades Mastellone's IDRs to 'B'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, December 19 (Fitch) Fitch Ratings has upgraded Mastellone Hermanos Sociedad Anonima's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B-'. The senior unsecured notes are upgraded to 'B/RR4' from 'B-/RR4'.The Rating Outlook is Stable. A full list of rating actions follows at the end of this press release. The upgrade of Mastellone's ratings is due to the company's solid liquidity position and vastly improved credit metrics as a result of the USD35 million capital injection from Arcor SAIC's (B+/Positive) and Bagley Argentina S.A., Arcor's subsidiary, during 2017. This capital increase further solidifies Mastellone's position as a long-term strategic investment for Arcor. The upgrade also reflects the expected improvement in Mastellone's operating performance because of improved operating performance and the expectation of the continuation of the Macri government's pro-business economic policies following the recent election. More than 90% of Mastellone's sales were made in Argentina during 2017 and the company is highly reliant upon producers of raw milk in the country. KEY RATING DRIVERS Shareholder Support: Fitch factors into Mastellone's rating the financial support from Arcor and Bagley. In December 2015, the two paid USD50 million for a 20.2% stake in Mastellone. Later in that year they increased their participations to 25%. This stake was increased to 38.4% in early 2017 based on a USD35 million capital increase from Arcor and Bagley and further transactions with the Mastellone family. Arcor has a call option for the outstanding corporate stock of Mastellone starting in 2020 and is expected to continue to increase its stake in the company. Low Leverage: The company's credit metrics are strong for the 'B' rating category. Fitch expects gross leverage to decline to 2.5x by 2018 from 3x in 2016 due to increased EBITDA related to price increases, low volume growth, and improved operating efficiencies. The company opened a new dry plant in Trenque Lauquen in 2017 after a total investment of about USD22 million. Fitch expects Mastellone to generate positive FCF despite increased investments in process automation, productivity, packaging, and capacity. Geographical Concentration: Mastellone generates most of its sales in Argentina. Sales outside Argentina as of Sept. 30, 2017 were about 7% in Brazil and Paraguay domestic markets and 1% from exports. The company is exposed to double-digit inflation in Argentina and other direct and indirect sovereign-related risks, including devaluation. Exposure to Currency Risk: Mastellone's debt is USD-denominated and creates currency risk, as company sales are mainly in Argentine pesos. The company has not entered into any agreements to hedge its debt exposure to devaluation risk. Volatility of Raw Milk Production: Mastellone's business is divided between sales to the Argentine and Brazilian and Paraguay domestic markets and exports; the excess between raw milk supply and domestic sales is exported. A shortage of raw milk production could lead to interruption of the company's export and foreign business or an increase in production costs. Strong Business Position: Mastellone is the largest dairy company and the leading processor of dairy products in Argentina. It is first in the fluid milk market regarding physical volume with a market share of approximately 66%. The company maintains the first- and second-place market position in most of its product lines. Its strong market shares allow it to benefit from economies of scale in the production, marketing, and distribution of products. Mastellone purchases about 16% of raw milk production in Argentina, which provides it with a degree of negotiating power. DERIVATION SUMMARY Mastellone is the largest dairy company and the leading processor of dairy products in Argentina. The concentration of Mastellone's operations in Argentine (B/Positive) is a constraining factor for the rating, as is its size. Mastellone displays a weaker position in terms of scale, product diversification, profitability and geographical diversification compared to its international peers such as Fonterra Co-operative Group Limited (A/Stable), Nestle SA (AA/Stable), Sigma Alimentos, SA de C.V. (BBB/Stable) or to Arcor (B+/ Positive) in Argentina. Mastellone's gross leverage is low for the 'B' rating category and compares favorably with its peers. During 2016, the median gross leverage ratio was 5.1x for the 'B' rating category in Latin America. The 'B' rating relative to leverage levels of around 3x reflect the weak economic environment in Argentina and risks in that country such as high inflation. Industry risks also have resulted in a more conservative rating than leverage metrics would indicate. KEY ASSUMPTIONS Fitch's Key Assumptions Within Our Rating Case for the Issuer --Revenues grow driven by domestic price increase above inflation in 2017; --EBITDA margin close to 6% in 2018; --Capex of around USD23 million in 2017; --Debt/ EBITDA to 2.5x in FYE18. Key Recovery Rating Assumptions Fitch believes that a debt restructuring would likely occur under stressed economic conditions in Argentina and/or external shocks such as climatic events or lack of access to certain export markets Therefore, Fitch has performed a going-concern recovery analysis for Mastellone that assumes the company would be reorganized rather than liquidated. Key Going-Concern Assumptions --Mastellone would have going-concern EBITDA of about ARS729 million. This figure is conservative at 40% below the company's LTM EBITDA of ARS1.2 billion, and takes into consideration factors such as climatic events, changes in raw material costs, sourcing and logistic issues, potential strikes or a shutdown of exports markets; --A distressed multiple of 6.5x due to strong brand and dominant position the Argentina dairy business; --A distressed enterprise value of ARS4.3 billion (after 10% of administrative claims); --Total debt of ARS3.5 billion. The recovery performed under this scenario resulted in a recovery level of 'RR1', consistent with securities historically recovering 91%-100% of current principal and related interest. Because of the Fitch's 'RR4' soft cap for Argentina, which is outlined in our criteria, Mastellone's Recovery Rating has been capped at 'RR4', reflecting average recovery prospects. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action --Sustained gross leverage of 3.0x or lower could lead to an upgrade of the LC IDR --Sustained gross leverage of 3.0x or lower plus an upgrade of the 'B' Country Ceiling of Argentina could lead to an upgrade of the FC IDR and senior unsecured notes --Increased ownership above 50% in Mastellone by Arcor and Bagley could result in positive rating actions on the LC IDR, FC IDR and senior unsecured notes Developments That May, Individually or Collectively, Lead to Negative Rating Action --A downgrade of Argentina's country ceiling rating; --Weak liquidity; --Debt to EBITDA above 4x. LIQUIDITY Mastellone liquidity is strong. The company reported cash and equivalents and short-term investments of about ARS1.6 billion compared to short-term debt of ARS155 million as of Sept. 30, 2017. The total debt of ARS3.5 billion as of the same date is mainly composed of the 12.625% senior unsecured notes (USD200 million) due on July 3, 2021. The notes are callable at 50% of the outstanding principal on July 3, 2018. FULL LIST OF RATING ACTIONS Fitch has upgraded the following ratings: Mastellone Hermanos Sociedad Anonima --Long-Term Foreign Currency IDR to 'B' from 'B-'; --Long-Term Local Currency IDR to 'B' from 'B-'; --Senior unsecured notes to 'B'/RR4' from 'B-/RR4'. The Rating outlook is Stable. Contact: Primary Analyst Johnny Da Silva Director +1-212-908-0367 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Jose Vertiz Director +1-212-908-0641 Committee Chairperson Joe Bormann, CFA Managing Director +1-312-368-3349 Summary of Financial Statement Adjustments - Fitch adjusts cash and cash-equivalents and short-term investments by applying advance rates in line with Fitch's Corporate Rating criteria. Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Exposure Draft: Corporate Rating Criteria (pub. 14 Dec 2017) here Rating Non-Financial Corporates Above the Country Ceiling Rating Criteria (pub. 15 Feb 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below