Fitch Affirms Camposol's IDR at 'B-'; Outlook Stable
KEY RATING DRIVERS
The Stable Outlook reflects Fitch's view that Camposol will improve its leverage and repay the remaining amount of its 9.875% notes due Feb. 2, 2017, whose holders did not participate in the company's debt exchange offer. In May 2016, Camposol exchanged an aggregate principal amount of USD147.5 million notes due 2017, representing 73.75% of holders' participation for the newly issued 10.5% senior secured notes due 2021. Fitch expects the company to repay the remaining USD52.5 million notes due in 2017 with a medium-term committed bank loan of USD15 million, a USD 10 million shareholder's subordinated loan and cash flow generation.
Shareholders' Commitment and Support:
Fitch factors into Camposol's ratings the tangible support from its shareholder, which was evidenced by a capital injection of USD5 million in March 2016. Also, the shareholder is committed to providing a subordinated loan of USD10 million and a working capital credit line of up to USD20 million should the company need it. Shareholder commitment is also reflected by the capex of USD33 million being executed in 2016.
Improvement of Operating Results:
Camposol has improved its operating results with EBITDA of USD48 million as of LTM ended June 30, 2016. The EBITDA increased from 2014 and 2015 (USD34 million and USD42 million, respectively) was mainly due to higher volumes of blueberry sales. Camposol's blueberry segment has allowed the company to improve its EBITDA margin from 12.9% in 2014 to 15.6% and 18.3% in 2015 and LTM June 2016, respectively. The gross margin for blueberries is higher than 50% compared to 30% on average. The shrimp business reported positive EBITDA in the first half of 2016.
Leverage Reduction and Positive FCF:
For LTM June 2016, free cash flow generation (FCF) was positive due to lower capex and improvements in working capital management explained by the reduction in inventories of preserved products given the company's decision to focus on the fresh and frozen segments. Following years of intensive capex oriented to increase and diversify the product portfolio, capex for 2016 will be USD33 million mainly allocated in new blueberry plantations. Higher operating cash flow generation coming from higher yield phases of avocado and blueberry plantations (only 51% of total planted areas have reached peak yields) and improvements in shrimp production would allow the company to maintain a positive FCF and reduce leverage.
Fitch expects net leverage would decline to below 3.5x by the end of 2016. Camposol's net leverage decreased to 4.2x in June 2016 from 5.3x in FYE15 due to higher EBITDA as well as debt reduction. As of June 2016, Camposol's total debt was USD228 million (USD251 million as of December 2015) mainly explained by its USD147.5 million notes due 2021 and the remaining USD52.5 million note due February 2017. The debt is secured by land, biological assets, machinery and equipment and all licenses, including water licenses. The company still has unencumbered assets consisting of the seafood business.
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' phenomenon that have negatively impacted asparagus crops as well as shrimp yields due to higher mortality. The company is investing in intensive shrimp ponds to reduce its exposure to environmental issues. Camposol has decided to exit the asparagus business as yields decreased due to fields reaching mature stages. The 474 hectares used to plant asparagus will be dedicated to blueberry plantations.
High Product and Geographical Concentration:
Camposol's production is originated in the north of Peru. The company has been diversifying its production, but 40% of its revenues are still concentrated on two products (avocado and blueberry). Any variation in prices, costs and volumes of these products would have an important impact on the company's results. 90% of Camposol's revenues are sold in Europe (50%) and the United States (40%).
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 USD33 million for 2016 and USD25 million for 2017;
--No dividend payments;
--Payment of the remaining USD52.5 million notes due 2017;
--Shareholders' tangible support of USD10 million subordinated loan already committed;
--A strong 'El Nino' impact is not considered into base case assumptions.
Negative Rating Action: Factors that could lead to a rating downgrade include 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 a positive rating action would be an improvement in Camposol's financial flexibility following the repayment of the notes as well as an increase in cash flow generation while maintaining a good liquidity and a sustainable gross leverage below 4.0x.
Following debt exchange, Camposol's available credit lines for short-term financing would increase to USD38 million by YE2016 from its lowest level of USD23 million as of June 30, 2016. This increase is explained by new credit lines from banks and does not include the additional shareholders' credit line of USD20 million for working capital if required. Camposol's credit lines had reduced to USD36 million in 2015 from USD60 million in 2014.
Fitch expects Camposol's cash position to be around USD60 million as of YE2016. This amount considers cash position of about USD30 million as of June 2016, new mid-term and subordinated loans already committed and own cash generation during the second half of the year when 60% of production is concentrated. Fitch expects these funds to be enough to repay the notes due February 2017. Working capital management has been improving since 2015 when the Company decided to exit the preserved business. After the debt repayment, Camposol expects to maintain its minimum cash target of USD20 million.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Camposol Holding Ltd.
--Long-term foreign currency IDR at 'B-';
--Long-term local currency IDR at 'B-'.
Camposol S. A.
--Long-term foreign currency IDR at 'B-';
--Long-term local currency IDR at 'B-';
--Senior secured notes due 2017 at 'B-/RR4';
--Senior secured notes due 2021 at 'B-/RR4'.
The Outlook is Stable.