Fitch Ratings has downgraded to 'B-' from 'B' the foreign and
local currency Issuer Default Ratings for Camposol Holding Ltd
(Camposol) and its wholly-owned subsidiary Camposol S.A. In
addition, Fitch has downgraded Camposol S.A.'s USD200 million
senior unsecured notes to 'B-/RR4' from 'B/RR4'. The Rating Outlook
is Stable.
The downgrade of Camposol's ratings reflects the company's
deteriorated credit profile. Camposol's gross leverage is above 5x
due to weaker operating performance than initially anticipated and
increased refinancing risk for its USD200 million unsecured notes
maturing on Feb. 2, 2017. The company intends to refinance the debt
early next year by accessing the bond market or through a
syndicated credit loan. Fitch believes Camposol's improvement of
its results and reduction of leverage may be delayed should adverse
climatic conditions continue. Camposol's gross leverage remains
high due to negative free cash flow generation (FCF) given the
group's expansion plan coupled with low operating cash generation;
completion of the expansion plan should aid financial recovery.
The ratings incorporate Camposol's leading position in the
Peruvian agribusiness industry as a producer of asparagus and
avocado, its vertical integration and strategic location, and its
potential growth in new crops (blueberries) and businesses
(shrimp). Camposol's valuable unencumbered land-bank and potential
cash support from shareholders are also positively factored into
the ratings.
Constraining factors for Camposol's ratings are its limited size
and recent track record on launching new products as well as its
vulnerability to climatic changes and price volatility. The
'B-/RR4' rating on Camposol's unsecured public debt reflects
average recovery prospects in the event of a default.
KEY RATING DRIVERS
Weak Operating Performance:
Since third-quarter 2014 (3Q'14), Camposol has been reporting
weak operating results. This was due to lower prices for avocados
because of overproduction and higher fixed costs due to
inefficiencies in the distribution system in 2014. In 2015, the
volume of asparagus and shrimp yields were negatively impacted by
the 'El Nino' phenomenon. For LTM ended June 2015, EBITDA was USD20
million (USD34 million and USD43 million in 2014 and 2013,
respectively). For 2015, Fitch expects a recovery of the
performance in the second-semester due to seasonality of the
production (60% of Camposol's sales is concentrated in the second
half of the year) and better performance from avocados as a large
portion of the production is now sold directly to retailers. For
YE2015, Fitch projects an EBITDA similar to 2014. For the next
years, Fitch expects revenues and EBITDA to recover thanks to
increased blueberries and avocado production as new planted
hectares are entering into more maturity phases (57% of planted
areas are in mature fields). Fitch also expects improvements on
shrimp yield production due to investments in intensive ponds.
Increased Leverage:
Camposol's gross and net leverage ratios were at 13.5x and 11.9x
respectively as of June 2015, showing an upward trend since 2014.
Leverage increased because of the deterioration on operating cash
flow generation while the company continued executing its business
plan oriented to increase and diversify its product portfolio. As
of LTM ended June 2015, FCF was negative US$32 million mainly due
to capex allocated to improve the packing facility and asparagus
fields and increase the size of its blueberry plantations.
Additionally, in November 2014, Camposol acquired three seafood
processing plants and doubled its shrimp ponds. For 2015 and 2016,
Fitch expects FCF to be slightly negative or neutral as major
investments have been done while gross leverage should reduce
toward 5x following higher production and operating cash flow
recovery.
Exposure to Climatic Risks and International Prices:
Camposol is exposed to seasonality, volatility on prices and
external factors such as climatic events like 'El Nino' or 'La
Nina' phenomenon and/or proliferation of existing or new plagues.
All of which could negatively impact production yields and cash
flow generation. In the last five years, Camposol has faced several
'El Nino' phenomena (every one or two years) that have negatively
impacted asparagus crops as well as shrimp yields due to higher
mortality. Despite doubling its ponds for shrimp farming,
Camposol's gross profit of this activity significantly reduced in
the first-semester of 2015 (1S'15) due to lower yields and price
reduction.
High Product and Geographical Concentration:
Camposol's product, customer and regions are concentrated. 100%
of production is located in the north of Peru. The company has been
diversifying its production, but 40% of Camposol's revenues are
still based on two products (asparagus and avocado). Any variation
in prices, costs and volumes of these products have an important
impact on the company's results. In addition, 90% of Camposol's
revenues are originated in Europe (40%) and the United States
(50%).
Leading position in Peru:
Camposol is a leading agro-industrial vertically integrated
company in Peru, offering fresh, preserved and frozen products. It
is also involved in the harvest, processing and marketing of
agricultural products such as avocado, asparagus and blueberries
and farming of shrimp. Camposol's competitive advantages are due to
its vertical integration on production and strategic location as
well as its owned-valuable land-bank. Camposol also benefits from
the worldwide trends toward the consumption of healthy products and
the opening of the U.S. market for the Peruvian Hass avocado since
2011.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer
include:
--Increasing production mainly in blueberries and avocados as
new plantations are entering into mature phases;
--Recovery in shrimp production and processing other seafood
products in order to maximize utilization capacity of new
facilities;
--Three-year average prices for most agriculture products and
price reduction for shrimp as it increased at high levels in the
last two years due to diseases in Asia production;
--Fixed costs reduction at about 20% in 2015 following the
company's efforts toward savings and efficiencies;
--Improvement of working capital due to inventories
reduction;
--Capex at around USD30 million for 2015 and USD15 million per
year for 2016 and 2017;
--No dividend payments;
--Successful refinancing of the USD200 million senior unsecured
notes prior to maturity;
--Shareholders' tangible support if needed;
--A strong 'El Nino' impact is not considered into base case
assumptions.
RATING SENSITIVITIES
Negative Rating Action: Factors that could lead to a rating
downgrade include failure to refinance by mid-2016, further
deterioration of Camposol's liquidity without any tangible support
from shareholders and/or profitability as a result of lower
production volumes and yields due to climatic events. Another
potential detriment to Camposol's ratings would be a decline of
product prices due to lower demand for its key markets resulting in
gross leverage levels consistently above 6.0x. Shareholder-friendly
actions such as aggressive dividend payouts and/or debt-funded
acquisitions negatively affecting Camposol's credit profile could
also lead to Fitch taking a negative rating action.
Positive Rating Action: Factors that could lead to Fitch taking
a positive rating action would be successful refinancing coupled
with improvement in Camposol's cash flow generation leading to
lower gross adjusted leverage at levels consistently below 5.0x and
a solid liquidity.
LIQUIDITY
Camposol's liquidity has deteriorated over the last year. As of
June 2015, liquidity relies primarily on cash on hand of USD30
million which only covers 0.5x the adjusted short-term debt of
USD57 million. The interest coverage ratio (EBITDA/interest)
deteriorated to 0.8x as of LTM June 2015 from 1.5x in 2014 and 2.2x
in 2013. Fitch expects this situation to improve in the second-half
of this year following improved avocado sales. The company intends
to refinance its bond early next year. Camposol's debt is mainly
composed of its USD200 million unsecured bond due on Feb. 2, 2017.
Fitch expects cash support would be provided by shareholders if
liquidity deteriorates further.
FULL LIST OF RATING ACTIONS
Fitch has downgraded the following ratings:
Camposol Holding Ltd.
--Long-term foreign currency IDR to 'B-' from 'B';
--Long-term local currency IDR to 'B-' from 'B'.
Camposol S.A.
--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.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Parent and Subsidiary Rating Linkage (pub. 10 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869363
Recovery Ratings and Notching Criteria for Non-Financial
Corporate Issuers (pub. 12 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867275
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990308
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990308
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150902006485/en/
Fitch RatingsPrimary AnalystJohnny Da Silva,
+1-212-908-0367DirectorFitch Ratings, Inc.33 Whitehall StreetNew
York, NY 10004orSecondary AnalystJosseline Jenssen,
+511-372-0681DirectororCommittee ChairpersonDaniel R. Kastholm,
CFA, +1-312-368-2070Regional Group Head - Latin AmericaorMedia
RelationsAlyssa Castelli, +1-212-908-0540 (New
York)alyssa.castelli@fitchratings.com