Rating Action: Moody's assigns first-time Ba3 rating to Amaggi and its proposed notes; stable outlook
Global Credit Research - 14 Jan 2021
New York, January 14, 2021 -- Moody's Investors Service, ("Moody's") has assigned a first-time Ba3 corporate family rating to André Maggi Participações S.A. (Amaggi). At the same time Moody's assigned a Ba3 rating to the proposed senior unsecured notes to be issued by Amaggi Luxembourg International S.à r.l., unconditionally and irrevocably guaranteed by André Maggi Participações S.A., Agropecuária Maggi Ltda. and Amaggi Exportação e Importação Ltda. The outlook for the ratings is stable.
The use of proceeds will be to finance or refinance new or existing eligible projects as part of a liability management initiative by Amaggi. Eligible projects include the following categories: renewable energy; environmentally sustainable management of living natural resources and land use; preservation of natural resources and biodiversity; socio-economic advancement and empowerment, climate change mitigation, and employment generation; programs designed to prevent and/or alleviate unemployment; and food security and sustainable food systems.
The rating of the proposed notes assumes that the issuance will be successfully completed and that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date. It also assumes that these agreements are legally valid, binding and enforceable.
André Maggi Participações S.A.
- Corporate family rating: Ba3
Amaggi Luxembourg International S.à r.l.
- Proposed Gtd senior unsecured notes: Ba3
André Maggi Participações S.A., outlook assigned at Stable
Amaggi Luxembourg International S.à r.l., outlook assigned at Stable
Andre Maggi Participações S.A. (Amaggi)'s Ba3 corporate family rating reflects its position as one of the largest commodity trading companies in Brazil. The company is also one of the largest agricultural producers in Brazil, with a large and diversified domestic logistics footprint, and additional revenue from small hydroelectric plants. The verticalization of the business mitigates the volatile and low margins of the trading segment. The sustained growth prospects for Brazilian agricultural crops will benefit Amaggi because of its presence in the largest soybean, corn and cotton producing state in Brazil, with favorable weather patterns and stable yields. Amaggi has a conservative financial policy with the use of derivatives tied directly to its physical positions.
Constraining the ratings is the geographical concentration of Amaggi's production and origination in Brazil, which increases the company's susceptibility to agricultural event risks, including weather, policy and trade constraints, supply-demand imbalances and highly volatile prices. The trading and agricultural businesses are highly cyclical with strong working capital needs during harvest, which require favorable access to export financing lines, usually advance on foreign exchange contracts (ACC) and export prepayment (PPE). The high working capital needs and extensive use of derivatives require Amaggi to have a sound risk management and conservative cash position. The company holds a minimal cash buffer of $400 million in excess of its operational needs, which we estimate at $100 million-$200 million.
Moody's adjusted consolidated EBITDA for Amaggi 2017 through 2019 was an average $403 million with an average margin of 8.7%. EBITDA contribution in 2019 was 26.1% from trading, 38.5% farming, 28.7% logistics and 6.8% energy. We believe in 2020 EBITDA will increase 30.1%, compared to 2019, to $480 million with a higher contribution of the trading and farming segments. These segments were specially benefited from record volumes of exports from Brazil, higher commodity prices and export premiums which will boost agricultural profitability and trading margins locally. The core trading business has very low and volatile margins and we believe will average 2.5% to 3.5% in 2021 through 2024. The farming business presents higher margins which we believe will average 25% to 35%. The logistics and energy businesses generate a stable EBITDA stream which we expect to average $80 million and $16 million, respectively. Moody's adjusted net leverage in the last three years has averaged 3.5x, as measured by total adjusted debt (minus 40% of readily marketable inventory) over EBITDA, and we expect it to range between 2.8x to 3.5x in the next 4 years.
Amaggi has a long operational track record and a commitment to running a sustainable business, which is an important rating consideration. The agriculture sector in Brazil is an activity with relevant environmental impact and there are increasing concerns regarding soybean production and origination in Brazil and its possible links to deforestation. Amaggi has been working to mitigate this risk at least since 2006 with its adherence to the Soy Moratorium. We expect Amaggi to continue to adhere to its commitment to promote a grain supply-chain that is free from deforestation, as stated in its "Global Sustainability Positioning Towards a Deforestation and Conversion Free Grain Chain", updated in 2019.
Amaggi has an adequate liquidity. As of September 2020, it had a cash position of $918 million, with $146 million in debt coming due in 2020 and $979 million in 2021, of which $936 million related to export financing lines. Readily marketable inventory at cost was at $497 million including corn, cotton lint and soy complex. Until the end of January 2021, we expect Amaggi to extend its average debt maturity profile and diversify its funding sources by raising at least $330 million in bank loans and additional resources through its proposed bond issuance. Amaggi has a financial guideline to sustain an indebtedness of around 70% in the long term and 30% in the short term. Amaggi's debt totaled $2.4 billion in 2020, of which 85% was denominated in US dollars. In the nine first months of 2020, 85% of its total revenue was generated in the foreign market. Except for the energy segment, all of Amaggi's companies have US dollar as their functional currency because their revenue is denominated in US dollar.
André Maggi Participações S.A. is a holding company that directly controls the operational companies, Agropecuária Maggi Ltda. and Amaggi Exportação e Importação Ltda, which in their turn hold the participation of a series of subsidiaries, including those in the logistics and energy segments. The proposed bond issuance will be fully and unconditionally guaranteed on a general unsecured basis by these three companies. Currently we estimate that around $400 million of the company's debt is secured by land. We estimate Amaggi´s total land value at over $2 billion.
The stable outlook incorporates our view that Amaggi will maintain an adequate net leverage and liquidity profile even with its organic growth projects and sector volatility. It also considers that Amaggi will continue to rollover its exporting financing lines maintaining a diverse funding availability and adequate debt maturity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade would require Amaggi to maintain a robust liquidity profile through the harvest, with an adequate debt maturity profile and a reduction in absolute debt levels. An expansion of the company's business into other regions and segments could also benefit the credit risk profile. Quantitatively, an upgrade would require its total Moody's adjusted net debt/EBITDA to remain below 3.5x and funds from operations (FFO)/debt to remain above 12%.
A rating downgrade could result from Amaggi´s inability to maintain an adequate debt maturity schedule and liquidity profile. An increase in leverage or deployment of large investments leading to a deterioration of credit metrics and liquidity could pose negative pressure on the rating. Quantitatively, a downgrade would happen if total adjusted net debt/EBITDA remains above 4.0x and FFO/debt remains below 7.5%.
The principal methodology used in these ratings was Trading Companies published in June 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_190422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Cuiabá, State of Mato Grosso, Amaggi is one of Brazil's largest trading company and agricultural producer, operating since 1977 when was founded as a soybean seed company. Currently, the company operates in an integrated business model in the agribusiness chain: agricultural production, river and road transport, port operations, origination, processing and commercialization of grains and inputs, generation and commercialization of electricity. The company also operates two crushing plants in Brazil and 1 in Norway for the production of soybean meal and oil used in the food industry and animal feed market. André Maggi Participações ("AMP") is a privately held holding company, with its main operational subsidiaries being Amaggi Importação e Exportação Ltda (AEI) and Agropecuária Maggi Ltda (Amaggi Agro). In a consolidated basis, AMP generated $4.8 billion of net revenue during the 12 months through September 2020, with a EBITDA margin of 10.4%, including out standard adjustments.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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