Fitch Downgrades Copeinca's IDR to 'B+' & Unsecured Notes to 'B+/RR4'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has downgraded the ratings of Copeinca ASA (Copeinca) and its fully owned subsidiary Corporacion Pesquera Inca SAC (COPEINCA) as follows:

Copeinca ASA

--Foreign Currency Issuer Default Rating (IDR) to 'B+' from 'BB-'.

Corporacion Pesquera Inca SAC (COPEINCA)

--Foreign Currency IDR to 'B+' from 'BB-';

--USD175 million senior unsecured notes to 'B+/RR4' from 'BB-'

The Rating Outlook is Stable.

The downgrades reflect Fitch's revised expectations for the company's balance sheet management and dividend distribution strategies, which are seen as negative to Copeinca's credit quality considering the volatility inherent to the fishing business. Despite the strong operating results in the past two years, the company has not strengthened its balance sheet to the extent anticipated by Fitch. Instead it distributed USD50 million in dividends in 2010, and it is expected to resume dividend payments in 2012. The ratings consider Fitch's view that the company's financial strategy will maintain a shareholder's focus with material levels of dividend payments relative to the company's EBITDA and cash flow from operation (CFFO), limiting the company's free cash flow (FCF) generation and the strengthening of its balance sheet.

Copeinca's ratings reflect the company's solid market position as the second largest producer in the Peruvian fishmeal industry with a granted fishing quota of 10.7% in Peru's north zone. However, inherent exposure to climatic events such as El Nino or 'La Nina' could result in significant volatility in operating performance from year to year and could negatively impact the company's credit profile. The ratings also reflect Copeinca's adequate liquidity and moderate leverage metrics in the current favorable operating environment, volatile free cash flow generation, stable business and regulatory environment due to the implementation of Individual Transferable Quota (ITQ) System in Peru, and limited product and customer diversification.

The 'B+/RR4' rating of the company's unsecured public debt reflect average recovery prospects given default. Fitch uses soft caps on its recoveries in certain markets to reflect concern about creditor rights or weak enforcement of existing laws. Although Copeinca's recovery analysis results in higher recovery prospects given default, in Peru the soft cap for Recovery Ratings is 'RR4', and Peruvian companies with recovery prospects higher than 50% are constrained by this cap.

Peruvian Fishing Sector, 2012 Catch Limit Stable:

Peru's total allowable anchovy catch limit, regulated by the Peruvian government in Peru's north zone, increase from 3.3 million of metric tones (MT) in 2010 to 6.2 million MT in 2011. The ratings factor in the view that Peru's 2012 total anchovy catch in Peru's north zone should remain stable at levels around 5.5 million MT.

2012 Revenues Projected around USD280 million:

Following the recovery in the sector volume during 2011, the company reached during 2011 a significant increase in its fishmeal (FM) and fish oil (FO) production levels of 196,733 MT and 46,000 MT, respectively. These levels represented increases of 109% and 80% over 2010 levels. The company's total revenue for 2011 was USD255 million, an increase of 9.2% over 2010, while company's EBITDA and EBITDA margin were USD100 million and 39%, respectively, and better than 2010 EBITDA and EBITDA margin of USD76 million and 33%. The improvement in the company's EBITDA margin during 2011 reflects the benefits of the company's fleet and plant optimization and the completion of its USD80 million capex program during 2010-2011 period. The company's total production of fishmeal and fish oil is expected to be around 210,000 MT while total 2012 revenues are expected to be around USD280 million.

FCF Generation Expected Neutral to Slightly Positive in 2012:

The company's FCF generation was negative during 2010 and 2011, resulting in FCF margins of -22% and -9%, respectively. Fitch's FCF calculation considers CFFO less capital expenditures (Capex) and paid dividends. During 2010, the company FCF was negative USD51 million resulting from USD57.6 million, USD58.6 million, and USD50 million in CFFO, capex, and paid dividends, respectively. During 2011, the company FCF was negative USD23.8 million resulting from USD10.2 million and USD34 million in CFFO and capex, respectively. For 2012, the company's FCF is expected to be neutral to positive in 2012 reflecting significant improvement in CFFO, considering Copeinca's important position in inventories at the beginning of 2012, capex levels in the USD15 million to USD20 million range, and dividends to be paid during the period.

Adequate Liquidity, Leverage Stable:

By the end of December 2011, Copeinca held a cash position and short-term debt of USD61 million and USD48 million, respectively, with an important position in inventories and account receivable of USD64 million and USD24 million, respectively. The company also maintains adequate levels of unencumbered assets - primarily fishing licenses - that could provide financial flexibility to access liquidity, if required, as collateral to secure financing. Fitch notes, however, that selling fishing licenses will result in a permanent reduction of the company's business and therefore considers it a very unlikely source of liquidity.

As of December 2011, the company's total debt/EBITDA ratio, was 2.7 times (x), and it has remained relatively stable when compared to the levels of 2.9x and 2.4x reached by the end of 2010 and 2009, respectively. The company is expected to manage its total debt/EBITDA ratio in the 2.5x to 3.0x range during 2012.

By the end of 2011, the company's total debt was USD266 million, increasing from the levels reached by the end of 2010 and 2009 of USD218 million and USD144 million, respectively. The company's debt is composed mostly of the USD175 million unsecured bonds due 2017 and lease-back contracts of approximately USD43 million. Copeinca's ratings also positively factor its manageable debt payment schedule. By the end of December 2011, excluding short-term debt financing work capital, the company faces debt payments of approximately USD16.9, USD16.9 and USD11.3 million during 2012, 2013, and 1014, respectively.

Rating Drivers:

Factors that could result in a negative rating action include deterioration in the company's credit metrics resulting from some combination of the following elements: adverse climatic conditions, and declining fishmeal and fish oil prices resulting in increasing financial leverage and a weak cash position. Factors that could trigger a positive rating action include significant reduction in leverage levels on a sustained basis, consistent positive free cash flow generation, and product diversification.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011)

--'Parent Subsidiary Rating Linkage (Aug. 12, 2011);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Aug. 12, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628489

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