OREANDA-NEWS. Fitch Ratings has affirmed at 'B-' the foreign and local currency Issuer Default Ratings for Camposol Holding Ltd (Camposol) and its wholly-owned subsidiary Camposol S.A. In addition, Fitch has affirmed Camposol S.A.'s USD200 million senior unsecured existing notes at 'B-/RR4'and assigned a 'B-/RR4exp' rating to its five-year USD200 million proposed senior secured notes. The Rating Outlook was revised to Negative from Stable.

Camposol is proposing to exchange any and all of its outstanding USD200 million 9.875% notes due Feb. 2, 2017 for a 10.5% senior secured notes due 2021. The purpose is to extend the maturity of its existing notes. The exchange offer commences on April 11, 2016 and will expire at midnight on May 6, 2016. If the exchange offer does not consummate as expected, a multi-notch downgrade would follow to reflect limited refinancing options for the 2017 notes.

KEY RATING DRIVERS

Negative Outlook
The Negative Outlook reflects the company's tight cash flow situation. The company covered its interest expenses by only 1.7x during 2015 and ended the year with USD27 million of cash and USD46 million of short-term debt. Any unexpected downturn in prices or volumes would further tighten liquidity and would lead to financial stress higher at the existing 'B-' level.

Debt Exchange Neutral to Ratings
Fitch considers Camposol's debt exchange offer neutral for the existing bondholders because the new notes do not impose a material reduction in terms compared with the existing contractual terms of its outstanding senior unsecured notes. The debt exchange is done at par until April 22, 2016. The coupon is being increased to 10.5% from 9.875%. 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. The covenant package for the new notes will be the same as the existing notes and will provide capacity for any remaining existing notes to be secured by the same collateral package on a pari passu basis.

Shareholders Tangible Support
Fitch factors into its affirmation the shareholders' continued commitment to the company. In March 2016, USD5 million were injected by the shareholders. In addition, a shareholders's subordinated debt to the existing and new notes forUSD10 million was approved by the board to fund expansion capex of 540 Has for additional blueberry plantations. The subordinated debt will be drawn only if Camposol is not able to increase its lines of credit from banks.

Leverage to Improve
Camposol's net leverage was 5.3x as of YE 2015, which is lower than 6.7x during 2014 and Fitch's 5.6x projection. Higher prices for avocados and blueberries, as well as robust fourth quarter sales of blueberries were driving factors in the improvement. In contrast to asparagus and shrimp, the yield on blueberries was not impacted by El Nino. Fitch projects that the company's net leverage will decline to around 4.0x by the end of 2016. The deleveraging is due to a projected increase in EBITDA to USD54 million in 2016 from USD42 million in 2015. The growth in EBITDA is projected to come from increased yields by the company's avocado and blueberry plantations, as only 57% of total planted areas have reached peak yields, and improvements in shrimp production.

Strategy Focused on Profitability
Camposol has focused its strategy on expanding into the fresh and frozen segment where the company is more competitive. Fresh product sales accounted for 56% of total sales during 2015 and it is expected to increase in the next year as the company is exiting the preserved business. During 2015, avocado, blueberry and asparagus accounted for 19.7%, 17.6% and 15.7% of the company's sales, respectively. This differs from 2014 when asparagus accounted for 25.7%, while blueberries were only 3.8% of sales. Blueberry output will grow materially as 74% of 1,050 hectares of plantations are still in an unproductive phase. The company's goal is to double blueberry plantations as this crop has much higher margins than others. Sales of shrimp and other seafood products represented about 21% of revenues. The company expects to improve profitability in this business through investments in intensive ponds and the development of other seafood products to maximize utilization of processing plants.

Negative FCF for 2016
Free cash flow generation (FCF) for 2015 was positive due to lower capex and a better working capital management. This is explained by the reduction on inventories of preserved products given the company's focus on the fresh and frozen segments. Following years of intensive capex oriented to increase and diversify the product portfolio, capex for 2015 was USD28.6 million and it is expected to be around USD36.2 million in 2016. For 2016, FCF is expected to be negative due to increased capex for new blueberry plantations.

Exposure to Climatic Risks and International Prices
Camposol is exposed to seasonality, volatility on prices and external factors such as climatic events like the 'El Nino' or 'La Nina' phenomenon. The proliferation of existing or new crop diseases also poses risk. All of which could negatively impact production yields and cash flow generation. Camposol has faced multiple weather related changes during the last five years that have negatively impacted crop yields and caused higher mortality for the company's shrimp farms. For 2016, Fitch expects a recovery of seafood segment due to the conversion of shrimp semi-intensive ponds to intensive ponds.

High Product and Geographical Concentration:
Camposol's product, customer and regions are concentrated. 100% of production is located in the north of Peru. The company has been diversifying its production, but 50% of Camposol's revenues are based on three products (avocados, blueberries and asparagus). Any variation in prices, costs and volumes of these products have an important impact on the company's results. In addition, 90% of Camposol's revenues are originated in Europe (50%) and the United States (40%).

KEY ASSUMPTIONS
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 its USD200 million senior unsecured notes;
--Shareholders' tangible support;
--A strong 'El Nino' impact is not considered into base case assumptions.

RATING SENSITIVITIES
Negative Rating Action: Factors that could lead to a rating downgrade include failure to refinance by mid-2016, further deterioration of Camposol's liquidity without any tangible support from shareholders and/or 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. Shareholder-friendly actions such as aggressive dividend payouts and/or debt-funded acquisitions negatively affecting Camposol's credit profile could also lead to Fitch taking a negative rating action.

Positive Rating Action: Factors that could lead to Fitch reversing the outlook to stable would be successful on refinancing coupled with improvement in Camposol's cash flow generation leading to lower gross adjusted leverage at levels consistently below 5.0x and a material improvement in liquidity.

LIQUIDITY

Camposol's liquidity has deteriorated over the last year. As of December 2015, liquidity relies primarily on cash on hand of USD27 million while Camposol's debt is primarily composed of its USD200 million unsecured bond due on Feb. 2, 2017. The company is in process to refinance its bond prior to maturity. The interest coverage ratio (EBITDA/interest) was 1.7x in 2015 and it is expected to be more than 2.0x in 2016 following EBITDA improvement and successful on refinancing.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Camposol Holding Ltd.
--Long-term foreign currency IDR 'B-';
--Long-term local currency IDR 'B-'.

Camposol S.A.
--Long-term foreign currency IDR 'B-';
--Long-term local currency IDR 'B-';
--Senior unsecured notes 'B-/RR4'.

Fitch has assigned the following rating:

Camposol S.A.
--Senior secured notes 'B-/RR4exp'.