Fitch Ratings has placed the ‘B-‘ Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) of Camposol Holding Ltd (Camposol) and its wholly-owned subsidiary Camposol S.A. on Rating Watch Negative. A complete list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
Rating Watch Negative
The placement of Camposol on Rating Watch Negative reflects Fitch’s concerns about the company’s tight cash flow situation. Refinancing risk persists for the Camposol’s remaining 9.875% notes due Feb. 2, 2017, whose holders did not participate in the company’s debt exchange offer. Following the settlement on April 25, 2016 of the debt exchange offer for the USD200 million existing 2017 notes, Camposol exchanged an aggregate principal amount of USD147,490,000, representing 73.75% of holders’ participation for the newly issued 10.5% senior secured notes due 2021. Participation was below the minimum level of 95% initially expected. If Camposol is not able to secure additional credit lines by September 2016, a downgrade could follow to reflect limited refinancing options for the existing notes due Feb. 2, 2017.
Shareholders’ Commitment and Support
Fitch factors into its ratings for Camposol the commitment and tangible support from shareholders, which was evidenced by an injection of USD5 million in March 2016. In addition, USD10 million of shareholder debt (subordinate to the remaining and new notes) was approved by the board to fund expansion capex of 540 Has for additional blueberry plantations. Following the debt exchange, Camposol also announced an additional working capital credit line of up to USD20 million committed by the shareholders to be used in case the company should require it.
Improvement of Operating Results
Camposol has improved its operating results with EBITDA of USD49 million as of LTM March 31, 2016. The increased from 2014 and 2015 (USD34 million and USD42 million, respectively) was mainly due to higher volumes of blueberry sales. In addition, the shrimp business reported positive EBITDA in 1Q16. Camposol’s blueberry segment has allowed the company to improve its EBITDA margin from 13% in 2014 to 15.6% and 18.4% in 2015 and LTM March 2016, respectively. The gross margin for blueberries is higher than 50% compared to 30% on average.
Camposol’s net leverage decreased to 4.3x in March 2016 from 5.3x in FYE15 due to higher EBITDA as well as debt reduction. Fitch expects FCF to be neutral to negative due to increased capex for new blueberry plantations while net leverage would decline to below 4.0x by the end of 2016. Fitch projects a reduction of net leverage as a result of growing EBITDA coming from increased yields by the company’s avocado and blueberry plantations, as only 63% of total planted areas have reached peak yields, and improvements in shrimp production.
2017 Senior Secured Notes
The outstanding amount of the 2017 senior notes is now secured. The 2017 notes benefit from the same collateral package on a pari passu basis as the 2021 secured notes. The 2017 notes and the new notes are secured on a first-priority basis by collateral consisting of land, biological assets, machinery and equipment and all licenses, including water licenses. These assets have an estimated immediate realization value of approximately USD300 million, which is equivalent to about half of the company’s total assets. Camposol’s Recovery Rating has been capped at ‘RR4’ reflecting average recovery prospects.
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 high-yield 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;
–Fixed costs at level reduced in 2015 (13% of revenues);
–Capex at USD36 million for 2016, USD25 million for 2017 and thereafter;
–No dividend payments;
–Successful refinancing of the remaining USD52.5 million notes due 2017;
–Shareholders’ tangible support;
–A strong ‘El Nino’ impact is not considered into base case assumptions.
Negative Rating Action: Factors that could lead to a rating downgrade include failure to increase credit bank lines over the next three months, further deterioration of Camposol’s liquidity without any tangible additional support from shareholders, and/or reduction in 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 and/or interest coverage declining to 1.5x or lower.
Positive Rating Action: Factors that could lead to Fitch removing the Rating Watch Negative and assigning a Stable Rating Outlook would be an increase of credit lines and no refinancing risk coupled with a material improvement in liquidity and cash flow generation.
As a result of the debt exchange offer, the company paid in cash around USD10 million mainly for accrued interest on tendered existing notes and a participation fee of 1.00% of the principal amount of existing notes tendered. Camposol’s available and used credit lines for short-term financing reduced from USD60 million in YE2014 to USD36 million in YE2015 and USD27.5 million as of March 31, 2016. Fitch expects Camposol’s cash position to be around USD24 million and short-term debt of USD70 million as of FY2016. The cash position would be further stressed if the company is not able to refinance the remaining 26.25% of the principal amount of existing notes (USD52,510,000) with new credit lines and/or shareholder funds.
FULL LIST OF RATING ACTIONS
Fitch has placed the following ratings on Rating Watch Negative:
Camposol Holding Ltd.
–Long-term foreign currency IDR ‘B-‘;
–Long-term local currency IDR ‘B-‘.
–Long-term foreign currency IDR ‘B-‘;
–Long-term local currency IDR ‘B-‘;
–Senior secured notes due 2017 ‘B-/RR4’;
–Senior secured notes due 2021 ‘B-/RR4’.
Corporate Rating Methodology – Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)