June 2 (SeeNews) - Moody's Investor Services said on Friday it has downgraded Croatian retailer and food manufacturer Agrokor's corporate family rating (CFR) to Ca from Caa2 and the probability of default rating (PDR) to D-PD from Ca-PD.
The outlook on Agrokor's ratings remains negative, Moody's said in a statement
Moody's has also downgraded the senior unsecured rating assigned to the notes issued by Agrokor and due in 2019 and 2020 to C from Caa2.
This is the fourth time this year that Moody's has downgraded its CFR on the company.
Agrokor entered serious financial trouble after Moody's January decision to cut its rating became public. Following the news, the company pulled out of a syndicated loan deal it had struck with several international lenders, which sent the price of its bonds on international markets into a downward spiral.
Moody's also said in the statement:
"Today's rating actions reflect Agrokor's decision not to pay the coupon scheduled on 1 May 2017 on its EUR300 million notes due May 2019 at the end of the 30 day grace period. It also factors in Moody's understanding that the company is not paying interest on any of the debt in place prior to Agrokor's decision in April 2017 to file for restructuring under Croatia's law for the Extraordinary Administration for Companies with Systemic Importance.
Upon Agrokor's filing for restructuring a government representative was appointed as receiver and the company started to negotiate with its creditors. At this stage, the ultimate outcome of these discussions remains uncertain. However, Moody's notes that on 27 April 2017 Agrokor announced that preliminary investigations had led to the discovery of potential errors in its accounts.
Moody's sees a risk that certain creditors, such as local suppliers, may be paid before international creditors. Furthermore, the issuance of additional super senior debt on top of the EUR80 million borrowed on 14 April 2017 would increase the subordination of existing debt holders. In the circumstances, Moody's considers that corporate family recovery prospects may fall towards the lower end of the 35%-65% range associated with the Ca CFR and that the recovery prospects for the senior unsecured notes are likely to be less than 35%, meaning that a C rating is appropriate for these instruments.
The previous Caa2 CFR had reflected a balance of potential outcomes: either a more creditor-friendly outcome led by supportive banks such as Sberbank, which could provide additional liquidity and leverage the company's broad business profile and substantial market share to achieve a high recovery for creditors; or a more administrator-led process. The company's recent reporting highlights the now prominent role of the Extraordinary Administration, with legacy lenders still involved but not leading the restructuring process. The reporting also highlights the ongoing operational challenges, negotiations with suppliers and uncertainty over financial reporting.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The negative outlook reflects the uncertainties arising from the restructuring and allegations in respect of financial reporting, which creates downside risk for the recovery prospects of creditors, although their magnitude will only become apparent over time.
Although the ratings are already low, further downward pressure could materialize if Moody's believes that there will be a greater loss for creditors than is currently assumed.
Upside potential is unlikely at this time, until a restructuring is completed. In the longer term, Moody's could upgrade Agrokor's rating if it is able to restore an adequate liquidity profile and improve its financial structure by reducing its debt."