Rating Action: Moody's changes outlook on Planasa's B2 ratings to stable from negativeGlobal Credit Research - 10 Feb 2022Milan, February 10, 2022 -- Moody's Investors Service ("Moody's") has today changed to stable from negative the outlook on the ratings of Placin S.á.r.l. ("Planasa" or "the company"), the owner of Planasa, a leading berry breeding and nursery company, domiciled in Spain. Concurrently, Moody's has affirmed Planasa's B2 corporate family rating (CFR), its B2-PD probability of default rating (PDR) and the B2 ratings on the E220 million backed senior secured term loan B due 2025 (including the E25 million fungible add-on) and the E40 million backed senior secured revolving credit facility (RCF) due 2024 borrowed by Planasa."The outlook change to stable reflects the improvement in the company's underlying profitability and cash generation as well our expectation that its leverage will decline towards 5x over the next 12 months," says Valentino Balletta, Moody's lead analyst for Planasa."The company has returned to the growth trajectory that was temporarily disrupted by the coronavirus pandemic," adds Mr Balletta.A full list of affected ratings is provided towards the end of the press release.RATINGS RATIONALEThe outlook change to stable from negative reflects the improvement in Planasa's operating performance over the course of fiscal year 2022, owing to strong demand for its products and to the company's efforts to focus on high margin business lines such as breeding.Planasa's business proved to be fairly resilient to the coronavirus pandemic, facing a relatively limited disruption in the financial year ended in March 2021, with only a 2% revenue decline and a 4% decline in Moody's-adjusted EBITDA. In 2021, the company had limited order cancellations and it did not face any major headcount availability problems. The company estimates that the direct negative impact from additional costs linked to the pandemic on its EBITDA was limited, at around E2 million. More negatively, phytosanitary issues in its Mexican strawberry nursery business resulted in a E5 million EBITDA loss. As a result, Planasa's Moody's-adjusted leverage reached 6.3x in March 2021.In 2022, Planasa topline and earnings grew by double digits, leading to better credit metrics. Topline growth has been supported by pent-up demand, as some of the customers postponed purchasing decisions during the pandemic, and further growth of the company's newly introduced plant varieties, especially blueberries, blackberries and avocado. In addition, earnings growth has been supported by the divestments and closures of loss-making activities in the fresh produce segment, lower one-off costs, as well as the business reorganization toward more margin-accretive activities, such as breeding, which benefit from royalty payments from farmers.Moody's expects Planasa's profitability to continue to improve over the next 12 to 18 months, supported by mid-to-high single digit revenue growth and further improvement in earnings allowing it to continue to generate positive free cash flow and to reduce its financial leverage towards 5.0x.In July 2021, Planasa acquired a Dutch raspberry breeding company called Advanced Berry Breeding for a total enterprise value of around E17 million. The acquisition was entirely financed with a E25 million fungible add-on to Planasa's existing backed senior secured term loan B, with no equity contribution from the private equity sponsor. The acquisition increased Planasa's net leverage by around 0.2x.Moody's believes that the company is likely to pursue further bolt-on acquisitions to complement and reinforce its strategy. The rating agency expects the company to maintain a prudent approach toward acquisitions, such that any potential future transactions will not lead to a significant increase in its leverage on a pro forma basis, although such strategy creates additional risks to Planasa's deleveraging trajectory.Planasa's B2 CFR continues to factor in (1) the company's high profitability, underpinned by its strong position in the upstream segment of the value chain; (2) its extensive expertise and know-how in the nursery business and R&D capabilities in the breeding business; (3) its presence in key geographies and high-growth markets; and (4) the supportive medium-term demand dynamics in the berries market.However, the company's rating is constrained by (1) Planasa's small scale of operations, reflecting its niche business profile; (2) its high product concentration and a degree of geographic concentration; (3) its high seasonal business and exposure to weather conditions, plant diseases and quality issues, which can significantly affect its earnings; (4) its currently high leverage, though expected to decline, and appetite for acquisitions, which entails a potentially slower deleveraging profile.LIQUIDITYPlanasa has good liquidity, supported by around E34 million cash on balance sheet as of December 2021. Additionally, the company has access to a E40 million backed senior secured revolving credit facility (RCF) due in 2024. The RCF is expected to be undrawn, with ample headroom under the springing covenant of net leverage not exceeding 8.0x, tested when the facility is more than 35% drawn.Planasa's cash generation is affected by the high seasonality of its business, with around three quarters of annual EBITDA generated between June and October, partly counterbalanced by the seasonality of net working capital.Moody's expects the company's funds from operations of around E35-40 million per year (after around E12 million annual interest payments), along with its cash holdings, to comfortably cover its net working capital seasonality (with over E20 million net working capital swings within the year) and its capital spending, which will peak at around E22 million in financial year 2022 (including capitalized R&D costs) and decline towards E15 million per year thereafter. Therefore, Moody's expects Planasa to generate positive Moody's-adjusted FCF of around E6 million in financial year 2022 and more than E15 million per year thereafter.Assuming no RCF utilisation, Planasa will have no any material debt maturities until January 2025, when its E220 million backed senior secured term loan B is due.RATIONALE FOR STABLE OUTLOOKThe stable outlook reflects Moody's view that Planasa's credit metrics will remain at levels commensurate with the B2 rating, with Moody's-adjusted gross debt/EBITDA moderately declining towards 5x in the next 12-18 months, while the company will continue to generate positive FCF on a sustained basis.The stable outlook also factors in Moody's expectation that the company will maintain a prudent approach to acquisitions, so that any potential future transactions will not lead to a material increase in leverage on a pro forma basis.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward pressure on Planasa's ratings is currently limited, given the company's small size and niche business profile. A potential upgrade would depend upon the company's ability to increasing its scale and diversification.Quantitatively, positive rating pressure could develop if the company successfully executes its expansion strategy such that earnings growth leads to its Moody's-adjusted gross debt/EBITDA remaining below 4.0x on a sustainable basis, while it continues to generate positive free cash flow.Downward rating pressure could emerge if the company's operating and financial performance deteriorate from the current level, so that its Moody's-adjusted gross debt/EBITDA remains above 5.5x on a sustained basis or free cash flow turns negative, leading to a material deterioration in its liquidity. Significant debt-funded acquisitions could also result in downward pressure on the rating.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Protein and Agriculture published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296919. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. LIST OF AFFECTED RATINGS Affirmations: ..Issuer: Placin S.á.r.l. .... Probability of Default Rating, Affirmed B2-PD.... LT Corporate Family Rating (Local Currency), Affirmed B2....BACKED Senior Secured Bank Credit Facility, Affirmed B2Outlook Actions:..Issuer: Placin S.á.r.l.....Outlook, Changed To Stable From NegativeCOMPANY PROFILEHeadquartered in Navarra, Spain, Planasa is an international operator in the berries market with a presence in 14 countries. The company's main activities are the breeding and nursery of berries, mainly strawberry and raspberry, with a growing contribution of blueberry and blackberry, and the sale of seeds and plants to berry growers. Planasa's activities also include selling fresh produce to end-customers.In the financial year 2021, Planasa generated revenue of E155 million and Moody's-adjusted EBITDA of E35 million. Planasa is majority owned by funds advised by private equity sponsor Cinven, which acquired a 65% stake in the company in October 2017. The former CEO and owner of the company, Alexandre Darbonne, holds the remaining non-controlling share in Planasa's equity.REGULATORY DISCLOSURESFor 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. 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