OREANDA-NEWS. August 04, 2015. Fitch Ratings has affirmed the ratings assigned to Arcor S.A.I.C. (Arcor). The Rating Outlook is Negative. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Arcor's ratings reflect its strong business position as a leading Latin American producer of confectionary and cookie products, supported by its exports to over 120 countries as well as its conservative capital structure and manageable liquidity. These factors have enabled Arcor to maintain its stable performance despite the weak macroeconomic environment in the region, specifically Argentina which contributes 90% of consolidated EBITDA.

Arcor's local currency Issuer Default Rating (IDR) of 'B+' reflects the company's strong brand recognition 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 local currency IDR is two notches above its foreign 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.

Arcor's operations abroad, as well as its exports from Argentina and Mexico, allow the company's foreign currency IDR of 'B-' to be rated one notch higher than Argentina's country ceiling of 'CCC'.

Exports & Operations Abroad/ Foreign Currency Revenues

Revenues generated outside of Argentina accounted for approximately 31% of total consolidated revenues at year-end 2014. This has remained relatively unchanged since last year and includes revenues generated outside Argentina and exports from Argentina.

Argentine Operations Generate Majority of EBITDA

While Arcor's operations in investment-grade countries such as Brazil and Chile account for approximately 31% of its consolidated revenues, the contribution to cash flow from operations in those countries is still low. Operating cash flow is generated in Argentina and the majority of consolidated EBITDA is concentrated in that country (89% at December 31, 2014).

Financial Access in Chile and Brazil

The revenue generation in Chilean and Brazilian currency together with the assets holdings in those countries provides Arcor with financial access in those countries which may be used to cover the conversion and transferability risk of Argentina.

Conservative Capital Structure

Leverage is low for the rating category. Arcor had a total debt-to-EBITDA ratio of 2.3 times (x) and net debt-to-EBITDA ratio of 1.8x as of Dec. 31, 2014. These ratios increased slightly during the LTM ended March 31 to 2.6x and 2.0x, respectively.

Strong Business Position

Arcor is a leading Latin American producer of confectionary products 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.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Arcor include the following:

--Revenue growth in line with inflation;
--EBITDA margin remains between 8% - 9%;
--Senior unsecured notes are refinanced in 2016;
--Capex steadily increases from ARS1 billion in 2015.

RATING SENSITIVITIES

Arcor's ratings could be negatively affected by a combination of the following: further economic decline leading to a sustained deterioration of credit metrics; and/or a change in management's goal of maintaining a conservative capital structure.

A positive rating action is unlikely in the short- to medium- term.

LIQUIDITY

Arcor's liquidity risk was moderate as of the March 31 LTM; the company had USD155 million of cash and equivalents compared with USD293 million in short-term debt. The company ended 2014 with USD138 million in cash and USD663 million in total debt. Arcor has proven access to bank financing, though it has uncommitted credit limits. It has available limits for approximately USD200 - 250 million. The majority (76%) of Arcor's total debt is in the short-term, reflecting the availability of the type of financing that is currently available in the Argentine market. Fitch expects that the company will be able to refinance the majority of this debt. About 85% of Arcor's total debt is denominated in Argentine Pesos and U.S. Dollars; the remaining balance (about 15%) is split between Brazilian Reals, Chilean Pesos, and Euros.

Fitch affirms the following:

Arcor S.A.I.C.
--Foreign currency IDR at 'B-';
--Local currency long-term IDR at 'B+';
--Senior unsecured notes at 'B-/RR4'.

The Rating Outlook is Negative.