Fitch Downgrades Atic to 'BB'; Outlook Negative

CHICAGO--()--Fitch Ratings has downgraded Grupo Embotellador Atic S.A.'s (Atic) foreign and local currency Issuer Default Ratings (IDRs) to 'BB' from 'BB+'. Fitch has also downgraded the 'BB+' rating of Ajecorp B.V.'s (Ajecorp) USD450 million notes due in 2022 to 'BB'. Ajecorp is a wholly owned subsidiary of Atic and is incorporated in the Netherlands as a limited liability company. Ajecorp's 2022 notes are unconditionally guaranteed by Atic and its key operating subsidiaries.

The Rating Outlook is Negative.

The rating action is supported by Atic's weak performance, particularly in Brazil and Mexico, as well as an increased net leverage ratio of 4.7x. The rating action also reflects that the integration of Atic's Indonesian operations into the guarantee is less positive than initially expected. The group's permitted investment basket has increased due to the integration of Indonesia, and while allowed under the indenture, continue to remain a credit concern given Atic's track record.

KEY RATING DRIVERS

Weak Performance and Increased Leverage

Fitch remains concerned about Atic's weak free cash flow generation due to sluggish macroeconomic environments in Peru, Brazil, Mexico, and Venezuela. Pressure in most of these markets is expected to continue during 2015 due to a variety of factors including: currency depreciation, slow economic growth, rising unemployment, elevated inflation and rising consumer debt.

Atic's performance in Brazil and Mexico continues to be negative despite the company's restructuring efforts; Mexican operations reported negative USD16 million in EBITDA for the latest 12 months (LTM) ended Sept. 30, 2014 and Brazilian operations reported negative USD10 million. Atic's consolidated EBITDA during the same period has declined to USD101 million from USD140 million in 2013 and USD151 million in 2012. Atic's net debt/EBITDA ratio has increased to 4.7x as of the LTM ended Sept. 30, 2014 from 3.1x in 2013 and 2.2x in 2012 due to weak cash flow generation.

Integration of Indonesian Operations Less Positive Than Expected

With the incorporation of Indonesia net leverage declines from 4.7x to 4.5x as of the LTM ended Sept. 30, 2014. The EBITDA contribution from operations in Indonesia significantly declined in 2014 due to strong competition from Coca-Cola. Indonesia is one of Atic's most important markets and the company has a market share of about 40%.

Historical Use of Permitted Investments

The size of the allowable investments/loans to related parties has increased due to the incorporation of the Indonesian operations into the guarantee structure in December 2014. These operations were previously under Atic's sister company, Callpa Limited, a beverage company owned by Atic's controlling shareholders, the Ananos family. Callpa has the same management team as Atic, and its purpose is to develop operations in new markets in Asia and Africa that produce and sell Aje-brand beverages.

Atic has historically used this basket to fund start-up operations under Callpa like Indonesia. While these investments are permitted under the bond indenture, it is still a credit concern given the company's track record.

RATING SENSITIVITIES

A negative rating action would occur if loans to related parties increase from current levels, and/or poor performance continues in Brazil and/or Mexico. A negative rating action could occur if net leverage does not decline to below 3.5x within the next 12 to 18 months.

KEY ASSUMPTIONS

--Low economic growth in Peru, Brazil, Mexico, and Venezuela.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981975

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Contacts

Fitch Ratings
Primary Analyst
Cristina Madero
Associate Director
+1 312-368-2080
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Monica Coeymans
Director
+56-2-499-3312
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1 312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Cristina Madero
Associate Director
+1 312-368-2080
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Monica Coeymans
Director
+56-2-499-3312
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1 312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com