London, 18 April 2012 -- Moody's Investors Service has today assigned a provisional (P)B2
rating to the EUR300 million worth of senior notes issued by Agrokor d.d.
(Agrokor) due 2019. The outlook on Agrokor's ratings remains
stable.
Moody's issues provisional ratings in advance of the final sale of debt
instruments and these ratings reflect the rating agency's preliminary
credit opinion regarding the transaction only. Upon a conclusive
review of the final documentation, Moody's will endeavour to assign
a definitive rating to the debt. A definitive rating may differ
from a provisional rating.
The proceeds of the notes will be used to repay indebtedness under some
of Agrokor's short-term bilateral facilities.
RATINGS RATIONALE
"The (P)B2 rating on Agrokor's new senior unsecured notes
is at the same level as the company's corporate family rating and
existing EUR550 million worth of senior unsecured notes,"
says Tanya Savkin, a Moody's Vice President --
Senior Analyst. "This reflects their pari-passu status
and the absence of liabilities ranking ahead of the notes in the company's
capital structure."
Moody's notes that, as part of the refinancing, Agrokor
has also renegotiated the covenant levels under its EUR352 million senior
facilities agreement, reducing the minimum coverage ratio to 2.4x
from 2.75x and increasing the maximum leverage level to 4.5x
from 4.0x, with subsequent step-downs.
Agrokor has publicly released the financial policy guidelines established
by its Board at the beginning for 2012. Moody's believes
that the policy has positive implications for the company's ratings.
In particular, the policy contains a target balance-sheet
net leverage ratio of between 3.5x and 3.75x, which
implies that the company will deleverage from its current level via improving
profitability, disposing of non-core assets and businesses
and maintaining a prudent capital expenditure policy.
"The refinancing improves the maturity profile of the company and
we expect that it will result in improved covenant headroom,"
explains Ms Savkin. "However, prior to taking any positive
rating action, we will wait to see evidence that Agrokor has improved
its covenant compliance, deleveraged in accordance with its financial
policy, and refinanced its remaining bank debt due in 2012-13."
Moody's notes that Agrokor has recently demonstrated solid financial
performance despite a challenging economic environment. During
the 12 months ended December 2011, Agrokor reported year-on-year
growth in sales of 9.6% and growth in EBITDA of 10.7%,
supported by a strong tourist season in Croatia and positive performance
across both the Retailing and Wholesale, and the Food Manufacturing
and Distribution divisions.
Although following the bond issuance Agrokor will have significantly reduced
its short-term liabilities compared with its long-term debt,
Moody's believes the company will still need to refinance some of
its bank loans in 2012-13. Moody's expects that Agrokor's
free cash flow (as defined by the rating agency) will remain negative
and notes that the company continues to rely on undrawn short-term
facilities for its operations. Therefore, Agrokor's
liquidity profile is dependent on the company's ability to refinance
these bank loans in a timely manner, something Moody's anticipates
the company plans to do on a rolling basis."
The stable outlook reflects Moody's expectation that Agrokor will
maintain sound financial metrics despite challenging economic conditions.
What Could Change the Rating Up / Down
Moody's could upgrade the rating if (i) improved operational performance
and financial discipline were to lead to covenant headroom being sustained
above 10%, combined with adjusted debt/EBITDA of around 4.5x;
and (ii) Agrokor were to refinance its remaining near-term debt
maturities. Conversely, negative pressure could arise if
Agrokor's adjusted debt/EBITDA were to move towards 5.25x
as a result of a deterioration in the company's operating performance
or debt-financed acquisitions. Negative rating pressure
could also arise if Moody's were to have any concern about the company's
liquidity profile, including the headroom under its covenants and/or
its ability to repay or roll over in a timely fashion its short-term
bank facilities.
PRINCIPAL METHODOLOGY
The principal methodology used in rating Agrokor D.D. was
the Global Retail Industry Methodology published in June 2011.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Based in Zagreb, Agrokor is the largest company in the Adria region,
with operations in food and beverages, as well as food retailing.
Beyond Croatia, the company also operates in Serbia, Bosnia
and Herzegovina, Montenegro, Slovenia, Macedonia and
Hungary.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
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uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
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the lead rating analyst and to the Moody's legal entity that has issued
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Tanya Savkin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
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Chetan Modi
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
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Moody's assigns (P)B2 to Agrokor's new notes; stable outlook
