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Greece-Based Fage Dairy Industry Upgraded To 'B' from 'B-' On Improved Credit Metrics; Outlook Stable
Publication date: 10-Feb-2012 11:49:58 EST
We see Greek dairy company Fage Dairy Industry's 2012 perform remaining
sound, with its U.S. operations driving future growth and mitigating
pressure from the group's domestic activities.
We therefore think that Fage will be able to generate positive free cash
flow and sustain the improvement in its credit metrics.
We are raising our long-term corporate credit and issue ratings on Fage
to 'B' from 'B-'.
The stable outlook reflects our opinion that Fage should be able to
generate positive free cash flow in 2012, while keeping its adjusted
EBITDA-to-interest ratio above 2.0x and debt-to-EBITDA ratio below 5.0x.
MADRID (Standard & Poor's) Feb. 10, 2012--On Feb. 10, 2012, Standard & Poor's
Ratings Services raised its long-term corporate credit rating on Greek dairy
company Fage Dairy Industry S.A. (Fage) to 'B' from 'B-'. The outlook is
stable.
We also raised our issue rating on Fage's senior unsecured bonds to 'B' from
'B-'.
The upgrade primarily reflects our view that Fage will continue to perform
solidly over the next 12 months, which should enable the group to keep
adjusted leverage below 5.0x and generate positive free operating cash flow in
2012.
We anticipate that Fage's credit metrics, with adjusted leverage at 4.7x and
an EBITDA-to-interest ratio of 2.4x for the last 12 months to Sept. 30, 2011,
will continue to improve over the next 12 months--despite a sustained high
level of capital expenditures--because we anticipate solid performance to
continue in 2012.
We think that Fage's revenue growth rate will be in the low teens and that
EBITDA margins will increase to 15%-16% in 2012.
The stable outlook reflects our opinion that Fage should be able to generate
positive free cash flow in 2012, while keeping its adjusted EBITDA-to-interest
ratio above 2.0x and its debt-to-EBITDA ratio below 5.0x; which we view as
commensurate with a 'B' rating.
We could lower the ratings if Fage's performance weakened, with the group's
metrics falling outside the level outlined above, or if the company's
liquidity deteriorated. We calculate that this could occur if current margins
declined by 100 basis points or more, while revenues remained flat. This could
result from a persistent spike in milk and packaging prices, which we view as
Fage's main operating risk.
We could raise the ratings if Fage performed above our base case, leading to
consistent annual discretionary cash flow generation in excess of €25 million.
We consider that such a level of discretionary cash flow would make Fage's
2015 refinancing easier. In addition, we believe that reducing and maintaining
adjusted debt leverage closer to 4.0x, and improving the EBITDA-to-interest
ratio to above 2.5x on a sustainable basis could be consistent with a higher
rating.
