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Rating Action:

Moody's downgrades Agrokor's rating to Caa2; negative outlook

11 Apr 2017

London, 11 April 2017 -- Moody's Investors Service has downgraded Croatian retailer and food manufacturer Agrokor D.D.'s corporate family rating (CFR) to Caa2 from Caa1 and its probability of default rating (PDR) to Ca-PD from Caa1-PD. The outlook on the company's ratings remains negative.

"Our decision to downgrade Agrokor's rating reflects its filing for restructuring under Croatian law, which in our view makes a default highly likely," says Vincent Gusdorf, a Vice President -- Senior Analyst at Moody's. "It also takes into account uncertainties around the restructuring process, as creditors' ability to get their money back hinges on numerous factors that will become apparent over time."

Moody's has also downgraded the senior unsecured rating assigned to the notes issued by Agrokor due in 2019 and 2020 to Caa2 from Caa1.

RATINGS RATIONALE

Today's downgrade reflects Agrokor's decision to file for restructuring on 7 April 2017 in accordance with the Croatian Law on Extraordinary Management Proceedings in Companies of Systemic Significance. In Moody's view, this course of action implies a high likelihood of default that could have negative effects for existing creditors, although the details of the process are not yet known. The company has also changed its CEO as well as part of the management board.

These decisions follow a deterioration of Agrokor's relationships with suppliers which has significantly impaired its liquidity. The HRK2,286 million (EUR307 million) of cash and cash equivalents reported at the end of September are not sufficient to finance even a portion of payables, which amounted then to HRK16,197 million (EUR2,175 million) at that time.

To address these liquidity issues, Agrokor is seeking additional loans from banks. The company is currently negotiating with its lenders to obtain secured financing, which would create subordination for existing unsecured debt holders.

Recovery prospects on Agrokor's existing debt will depend on a variety of factors. Strained relationships with suppliers could affect the company's market shares and earnings generation. Moody's will also monitor upcoming changes in the capital structure. The CFR could be downgraded further if future developments in the restructuring process lead to lower recovery prospects for creditors.

Although Agrokor has no debt maturity before September 2018, when EUR150 million of bank debt will become due, it must service the interest of its debt. This includes the coupons of its bonds, which are scheduled on 1 May for the EUR300 million notes maturing in 2019 and on 1 August for the EUR325 million and $300 million notes due in 2020. A missed interest payment would represent a default under Moody's definition.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The negative outlook reflects the high risk of default arising from the company's decision to restructure its debt. It also factors in the uncertainties around the form that the restructuring would take, its timing, and its impact on Agrokor's earnings. This creates significant downside risk for the recovery prospects of creditors, although its magnitude will become apparent over time.

Further downward pressure could materialize if Agrokor fails to service the interest on its debt or if Moody's believes that there will be a greater loss for creditors than is currently assumed.

Upside potential is unlikely at this time. In the longer term, Moody's could upgrade Agrokor's rating if it is able to restore an adequate liquidity profile and improve its financial structure by reducing its debt.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Vincent Gusdorf
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yasmina Serghini
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
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JOURNALISTS: 44 20 7772 5456
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