Approximately EUR415 million of rated debt affected
Johannesburg, February 21, 2011 -- Moody's Investors Service today affirmed Foodcorp (Proprietary)
Limited's ("Foodcorp" or "the company")
B2 corporate family ("CFR") and assigned a B2 to the proposed
EUR415.0 million issuance of senior secured notes due 2018.
At the same time, Moody's changed Foodcorp's rating
outook to stable from negative.
Assignments:
..Issuer: Foodcorp (Proprietary) Limited
.... Probability of Default Rating,
Assigned B2
....Senior Secured Regular Bond/Debenture,
Assigned a range of 56 - LGD4 to B2
....Senior Secured Regular Bond/Debenture,
Assigned a range of 56 - LGD4 to B2
Outlook Actions:
..Issuer: Foodcorp (Proprietary) Limited
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
"The change in outlook recognizes Foodcorp's good operating
performance over the past year with gains in market share in many of its
product segments, improved operating margins and continued focus
on operating cash flow generation," explained Moody's
Vice-President Senior Analyst, Soummo Mukherjee. "Additionally,
the proposed new issuance will improve the company's debt maturity
profile and overall liquidity by addressing its EUR280 million 2012 bond
maturity also settling its current mark to market liability due to its
foreign exchange hedges," added Mukherjee.
The change in outlook; therefore, is based upon Foodcorp's
ability to successfully address its 2012 refinancing. In case this
transaction does not close as contemplated, the stable outlook assumes
that Foodcorp will find an alternative solution to address its bond maturity
in a timely manner.
The proposed senior secured notes will be issued by Foodcorp and guaranteed
on a senior secured basis by First Lifestyle Group (Proprietary) Limited,
a wholly owned subsidiary that together with Foodcorp account for virtually
all of the group's revenues, assets and cash flow.
The company expects to liquidate First Lifestyle and merge it fully with
Foodcorp following the closing of the transaction to simplify its corporate
structure, upon which First Lifestyle will cease to be a guarantor.
The proposed notes have provisions to be redeemed in part or in full from
March 2014 onwards, as well as partially redeemed prior to March
2014 based on certain prices and if the company decides to follow a public
equity offering.
The B2 rating (LGD 4, 56%) assigned to the EUR415 million
senior secured notes is at the same level as the B2 CFR. The rating
of the notes reflects its equal ranking to the company's ZAR140
million asset-based facility, ZAR200 million secured Nedbank
facility and ZAR100 million secured JP Morgan facility. The notes
will be secured by first ranking security interests on the shares of Foodcorp
and substantially all of its assets other than the trade account receivable
and certain other non-material assets.
The use of proceeds of the transaction will be to fully refinance the
EUR280 million outstanding senior secured notes due in 2012, settle
the company's current mark to market liability, redeem a portion
of the shareholder PIK notes and for general corporate purposes.
The B2 rating for the proposed notes are based on the assumption that
the planned financing is competed as presented to Moody's.
Additionally, the rating assume that there will be no material variation
to the draft legal documentation reviewed by Moody's and that these
agreements are legally valid, binding and enforceable.
Foodcorp's B2 rating continues to be supported by the company's
strong brands and leading market positions in the South African food industry,
its track-record of managing relatively stable and healthy operating
margins despite the inherent volatility of some of its input costs,
the growth prospects associated with the growing South African middle-class
as well as the growing export opportunities. However, the
rating is mainly constrained by the company's high leverage for
the rating category, exposure to foreign exchange and input commodity
price fluctuations, concentration of its client base where the top
six retailers represent approximately 50% of its revenues;
as well as, higher electricity costs over the next few years.
The stable outlook assumes that Foodcorp will be able to successfully
defend its market position in the South African market and continue to
report stable operating margins. The current outlook further assumes
that the company will focus its positive cash flow generation on reducing
its currently high leverage for its rating category closer towards or
below 5.5 times on a Total Debt to EBITDA basis. All metrics
are according to Moody's standard definitions and adjustments.
Negative pressure on the current outlook or rating is likely to arise
if Foodcorp experiences significant losses in market share across its
main product segments, sustainable decline in operating margin or
liquidity problems. Quantitatively, negative pressure could
arise if the company Total Debt to EBITDA or EBITA to Interest are sustained
above 6 times and below 0.5 times; or, if the company
fails to maintain positive free cash flow generation on a continuous basis.
A large debt-financed acquisition that causes an immediate deterioration
in current credit metrics is also likely to place negative pressure on
Foodcorp's rating.
Conversely, upward pressure on Foodcorp's rating would require
evidence of sustainable EBITDA margin improvement towards the 12%
range on a sustainable basis as well as leverage, as measured by
Net Debt to EBITDA below 5.0 times on a continued basis.
The principal methodology used in this rating was Global Packaged Goods
Industry published in July 2009.
Headquartered in Bryanston, Johannesburg, Foodcorp is one
of the leading food producers operating in the South African market,
with total revenue for the last-twelve months ended in November
2010 of ZAR 6.2 billion (EUR 624 million) and EBITDA of ZAR 616
million. Foodcorp comprises several business units including Grocery,
Milling, Beverage, Fishing, Baking and Pie divisions.
The company positions its products to appeal to the South African mass
market demand.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Johannesburg
Soummo Mukherjee
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
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London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service South Africa (Pty) Ltd.
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Moody's assigns B2 rating to Foodcorp's proposed EUR 415 million notes; outlook stable
