CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings of Arcor S.A.I.C. (Arcor):
--Foreign currency Issuer Default Rating (IDR) at 'B'; Outlook Negative;
--Local currency IDR at 'B+'; Outlook Negative;
--USD200 million senior unsecured notes due 2017 at 'B/RR4'.
KEY RATING DRIVERS
Arcor's 'B+' local currency IDR reflects the company's strong business position as a leading Latin American producer of confectionary and cookie products. Arcor enjoys strong brand equity in Argentina due to its comprehensive distribution network and its presence in the country for more than 60 years. The company also has a presence in Brazil and Chile. Together, these three markets account for more than 90% of its total sales.
The company's local currency IDR is two notches above Argentina's 'B-' local currency IDR due to its strong capital structure. The close correlation of its cash flow with the strength of the Argentine economy and its exposure to variations in commodity prices, prevent the company from being rated higher despite its strong capital structure and solid business position.
As of the last 12 months ended June 30, 2013, Arcor recorded sales of USD3.1 billion and EBITDA of USD287 million. The company generated USD58 million of cash flow from operations and had free cash flow of USD11 million. While Arcor's operations in investment-grade countries such as Brazil and Chile account for approximately 33% of its consolidated revenues, the contribution to cash flow from operations in those countries is still low. About 85% of Arcor's operating cash flow is generated in Argentina.
Arcor's operations abroad, as well as its exports from Argentina, allow the company's foreign currency IDR of 'B' to be rated one notch higher than Argentina's country ceiling of 'B-.' Arcor's capital structure is conservative and its leverage is low for the rating category. As of June 30, 2013, Arcor had a total debt-to-EBITDA ratio of 2.0 times (x) and a net debt-to-EBITDA ratio of 1.7x. Dollar-denominated debt was approximately USD318 million as of June 2013, about 70% of total debt. The company's liquidity is manageable. As of June 2013, the company reported cash and marketable securities of USD80.5 million and short-term debt of USD234 million.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's expectations that Arcor will manage its balance sheet to a targeted ratio of debt-to-EBITDA of around 2x. Under a conservative scenario, Fitch estimates the company's interest coverage to be above 4x. Without an upgrade in the sovereign rating of Argentina, Arcor's ratings will likely not be upgraded. The company will likely not be downgraded unless the sovereign ratings are downgraded.
Additional information is available 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Country-Specific Treatment of Recovery Ratings' (June 28, 2013);
--'Rating Non-Financial Corporates Above the Country Ceiling' (Jan. 25, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Country-Specific Treatment of Recovery Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710859
Rating Non-Financial Corporates Above the Country Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699771
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809396
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