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Fitch Affirms Arcor S.A.I.C.'s Notes at 'B+/RR4'; Outlook Stable

BUENOS AIRES, Argentina--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings of Arcor S.A.I.C. (Arcor):

-- Foreign currency Issuer Default Rating (IDR) at 'B+';

-- Local currency IDR at 'BB-';

-- USD200 million senior unsecured notes due 2017 at 'B+/RR4';

-- National scale rating at AA+(arg);

-- USD200 million senior unsecured notes due 2017 national scale rating at AA+(arg)

The Rating Outlook is Stable.

Arcor's 'BB-' local currency IDR reflects the company's strong business position as a leading Latin American producer of confectionary and cookie products. Arcor enjoys strong brand equity in Argentina due to its comprehensive distribution network and its presence in the country for more than 60 years.

Arcor's foreign currency IDR, above the Country Ceiling, reflects its strong credit profile, substantial foreign exchange earnings relative to its foreign currency denominated debt, and significant offshore assets that could potentially serve as collateral to obtain financing in countries such as Brazil and Chile. These would partially mitigate the risks of foreign exchange controls in Argentina that had remained high as reflected in the B country ceiling of Argentina.

The company is exposed to commodity prices, a double digit inflation in Argentina and foreign currency mismatch. As of June 12 Arcor recorded sales of USD1.5 billion and an EBITDA of USD156.7 million. The company generated USD77 million of cash flow from operations and a free cash flow of USD 8.7 million.

Arcor's cash flow generation is concentrated in Argentina. While Arcor's operations in investment-grade countries such as Brazil and Chile account for nearly 30% of its consolidated revenues, the contribution to cash flow from operations in those countries is still low. About 85% of Arcor's operating cash flow is generated in Argentina. Total revenues outside Argentina amounted to approximately USD1,096 million in 2011 and additionally the company's exports from Argentina were USD184.5 million. This numbers compare to a total indebtedness of USD471 million

Arcor's capital structure is conservative. Leverage is low for the rating category. As of June 30, 2012, Arcor had a total debt-to-EBITDA ratio of 1.5 times (x) and net debt-to-EBITDA of 1.1x. Dollar-denominated debt was approximately USD 310 million as of June 2012, about 66% of total debt. The majority of it was IFC loan with an outstanding of USD 71.2 million and USD200 million notes due 2017.

Arcor's liquidity is manageable. Next year maturities are USD 120.7 million, and are partially cover by cash and equivalents of USD 126 million as of June 2012. Fitch expects Free Cash Flow to remain positive. The company's capex plan is aimed to expand its operations outside Argentina; which could be partially funded through debt in the local markets. Overall, indebtedness is not expected to increase above targeted ratios.

Potential Rating and Outlook Drivers:

The Stable Outlook reflects Fitch's expectations that Arcor will manage its balance sheet to a targeted ratio of debt-to-EBITDA of around 2x. Under a conservative scenario, Fitch estimates the company's interest coverage to be above 4x.

Arcor's foreign currency IDR could be affected by any change in Argentina's ratings. Any significant increase in Arcor's targeted leverage ratio would threaten credit quality and could result in a negative rating action. Conversely, the LC IDR could be positively impacted by a better than expected cash flow generation or better than expected operating results from subsidiaries in investment grade countries.

Additional information is available '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, 2012);

--'Liquidity Considerations for Corporate Issues' (June 12, 2007);

--'Rating Corporates Above the Country Ceiling' (Jan. 27, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Rating Corporates Above the Rating Ceiling

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=668909

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Fitch Ratings
Primary Analyst
Gabriela Catri, +5411 5235 8129
Director
Sarmiento 663, 7 - Buenos Aires - Argentina
or
Secondary Analyst
Viktoria Krane, +1 212-908-0367
Director
or
Committee chairman
Cecilia Minguillon, +5411 5235 8123
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings