Foodcorp debt downgraded
Posted on 11. Mar, 2010 by admin in News-Food, Uncategorized
Standard & Poor’s Ratings Services said today that it lowered its
long-term corporate credit rating on South African food manufacturer
Foodcorp (Proprietary) Ltd. to ‘B-’ from ‘B’. The outlook is stable.
At the same time, the senior secured debt rating on the company’s EUR280
million Eurobond was lowered to ‘B-’ from ‘B’ and the recovery rating on
the same instrument was revised to ’4′ from ’3′, reflecting our
expectation of average (30%-50%) recovery for senior secured lenders in
the event of a payment default.
“The downgrades reflect our view of the implications for Foodcorp’s
leverage of the primarily debt-financed buyout, on March 9, 2010, of the
69.73% controlling shareholding formerly held by Pamodzi Investment
Holdings (Proprietary) Ltd. (Pamodzi),” said Standard & Poor’s credit
analyst, Philip Temme.
“Pamodzi’s stake has been purchased by a consortium comprising
management and a staff trust (who now own 51.0%), U.K. fund manager Blue
Bay Asset Management PLC (44.4%), and South African private equity
investor Capitau SA Partnership (4.6%). The downgrades also reflect our
view that Foodcorp’s liquidity has been weakened by cash outflows
associated with the buyout and by the significant cash costs associated
with the recent foreign exchange hedge re-strike.”
The buyout of Pamodzi was effected through an investment by Foodcorp in
South African rand (ZAR) 111.9 million of preference shares issued by a
new holding company, and the issue to BlueBay and Capitau by that same
company of ZAR495.5 million euro-denominated payment-in-kind (PIK) notes
and ZAR30 million PIK preference shares.
Lease- and hedge-adjusted net debt to EBITDA was 5.8x and adjusted
EBITDA interest coverage 1.9x in November 2009. Consolidation of the new
PIKs increases pro forma adjusted leverage well above 6.0x, even after
allowing for the positive leverage effects of the recent foreign
exchange hedge re-strike. Given that Foodcorp is currently projecting
higher capital expenditure (capex) of ZAR248 million in financial 2010,
future deleveraging ahead of the bond refinancing due in 2012 is likely
to be limited in our view.
We now consider Foodcorp’s liquidity to be less than adequate. Although
the company has secured an increase to ZAR200 million from ZAR50 million of its committed Nedbank working capital facility, availability and
headroom under the covenants for the other ZAR100 million facility are
tightening, and the company anticipates increasing capex year on year.
Consequently, we anticipate that cash held at the financial year-end in
August 2010 will be significantly lower than in the prior year, leaving
Foodcorp with less room for maneuver in the event of adverse
working-capital developments.
In our view, operating performance will remain satisfactory as South
African consumer demand continues to recover from the recession.
However, we anticipate that margin recovery will remain only gradual and
that Foodcorp’s net adjusted leverage will remain above 6.0x at
financial year-end 2010.
We would view adjusted leverage of about 6.0x and high single-digit
EBITDA growth as commensurate with the current ratings. Any evidence of
liquidity stress or slowing EBITDA growth could trigger a change of
outlook or a further downgrade.