MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Sigma Alimentos, S.A. de C.V.'s (Sigma) ratings as follows:
--Foreign currency Issuer Default Rating (IDR) at 'BBB-';
--Local currency IDR at 'BBB-';
--USD450 million senior notes due 2018 at 'BBB-';
--USD250 million senior notes due 2019 at 'BBB-'.
In addition, Fitch has upgraded the following ratings to 'AA(mex)' from 'AA-(mex)':
--Long-term national scale rating;
--MXN1,000 million Local Certificados Bursatiles due 2014;
--MXN635 million Local Certificados Bursatiles due 2014;
--MXN1,000 million Local Certificados Bursatiles due 2018;
--MXN500 million Local Certificados Bursatiles due 2018.
The Rating Outlook is Stable.
The upgrade in the national scale ratings reflects a solid operating performance, lower financial leverage, and a stronger cash flow generation and liquidity position. These factors have strengthened Sigma's credit profile, resulting in the upgrade, and solidly position it in the 'BBB-' rating category.
KEY RATING DRIVERS
Sigma's ratings are supported by its important size, scale and leading positions within the Mexican processed food industry, strong brand recognition and diversified portfolio as well as its extensive distribution network. The ratings also consider the company's stable operations, diversified revenue base with approximately 32% of its sales coming from the U.S. and other regions, and positive free cash flow (FCF) generation.
Strong Business Position
The ratings reflect the company's business strategy which is oriented toward increasing its footprint in the processed food categories (processed meat, cheese, yogurt and other frozen meals) where Sigma operates, as well as to maintain its leading position across its recognized product portfolio. During 2013, the company acquired the operations of Empresas Monteverde, S.A. (Monteverde) which produces and sells cheese in Costa Rica, and Comercializadora Mexicana, S.A. de C.V. (Comnor) in Mexico which processes and sells beef, poultry and pork to the foodservice segment in Mexico. Fitch considers that both acquisitions will enhance the company's product portfolio and support future growth in the mid-to-long term.
Stable Operating Performance
Sigma's ratings incorporate a stable operating performance across the economic cycles. For the last 12 months as of June 30, 2013 consolidated sales and EBITDA grew around 5% and 19%, respectively, when compared to the same figures last year. The increase in sales was mainly due to better volume and average prices in processed meats and dairy products, while the EBITDA growth was supported by efficiencies obtained in the the U.S. and Mexico operations, as well as a favorable exchange rate in pesos from the raw materials based in U.S. dollars.
Adequate Credit Metrics
Fitch expects total debt-to-operating EBITDA to be maintained in the 2.2x range or less over the intermediate term even after incorporating small- to mid-size acquisitions. Since the acquisition of Bar-S in 2010, the company has been reducing its leverage gradually, supported by higher EBITDA generation and modest debt reduction. As of June 30, 2013, Sigma's total adjusted debt/EBITDA ratio was 2.2x and the net adjusted debt/EBITDA ratio was 1.9x, compared with 2.2x and 1.8x, respectively, at year-end 2012.
Strong Liquidity and Manageable Refinancing Risk
Sigma's liquidity position is strong and refinancing risk can be handled as a result of significant FCF generation and committed credit facilities. As of June 30, 2013, the company had cash and marketable securities of MXN2 billion and had an undrawn committed credit facility of USD100 million. In addition, Sigma's FCF annual generation after capital expenditures and dividends has been positive in the last four years, averaging around MXN1 billion.
Fitch believes that Sigma has enough resources to pay its 2014 maturities of MXN2.8 billion; however, it is likely that at least a portion of these maturities can be refinanced. Total debt as of June 30, 2013 was MXN14.3 billion, out of which only MXN75 million was short-term debt. Fitch believes that Sigma has ample access to credit via bank loans or capital markets.
RATING SENSITIVITIES
A combination of debt reduction or higher operating income and cash flow generation leading to a gross leverage ratio below Fitch's expectation would be viewed as positive to credit quality. Conversely, the ratings could be pressured by a continuous deterioration of total debt-to-EBITDA above 3.0x which is a result of a decline in its operating performance and cash flow generation.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Packaged Food, Non-Alcoholic Beverages and Consumer Companies' (Aug. 9, 2012).
--'National Ratings Criteria' (Jan. 19, 2011);
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating Packaged Food, Non-Alcoholic Beverages and Consumer Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682339
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=798216
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