Fitch Ratings has downgraded
Fitch has also downgraded the company's
The downgrades reflect the difficult operating conditions Kernel has been facing since the beginning of the Russian invasion, the severe disruption in export activities, the potentially weakening liquidity profile and our understanding that it has submitted waiver requests connected to delaying repayment of its bank facilities. We believe these events have led to a higher level of credit risk. The 'CC' IDR indicates that default of some kind appears probable, despite management's efforts to inject liquidity via the divestment of certain assets to the main shareholder. Failure to obtain lenders' consent to delay payments would likely lead to a downgrade.
Key Rating Drivers
Imminent Significant Senior Secured Maturity: Kernel is seeking to postpone repayment of drawings, mostly under its senior secured bank debt due between March and
Repayment of these facilities is reliant on proceeds from exports that have been constrained. Also, the facilities are secured against inventories, which we believe could start losing value if not exported in the next few months.
Disrupted Export Operations: Since the Russian invasion, Kernel's business has been heavily affected by the inaccessibility of
Divestment of Farming Assets: To de-risk the business and improve liquidity, on
Derivation Summary
Kernel compares well with Moldovan agro-industrial business trader Trans-Oil (B), due to their similar operations and vertically-integrated models, which include sizeable logistics and infrastructure assets. The main difference in business models is Kernel's integration into crop growing, which limits sourcing and procurement risk, and a wider and diversified customer base. Kernel also enjoys greater business scale and a larger sourcing market, which before the war provided greater protection from weather risks.
Key Assumptions
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that Kernel would be considered a going concern in bankruptcy and that it would be reorganised rather than liquidated. We have assumed a 10% administrative claim.
Kernel's going-concern EBITDA is based on 2020 EBITDA, i.e. before both the Russian invasion of
We use an enterprise value/EBITDA multiple of 4x to calculate a post-reorganisation valuation and to reflect a mid-cycle multiple. The multiple is the same as that for MHP, a Ukrainian poultry processor.
We do not consider Kernel's PXF as fully drawn in our analysis but have assumed the amount outstanding as of end
The principal waterfall analysis generates a ranked recovery for the senior unsecured debt, in the 'RR6' category, leading to a 'C' rating for senior unsecured bonds. The waterfall analysis output percentage based on current metrics and assumptions is 0%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is unlikely at this point. The resumption of export activities, an improved liquidity position and a relaxation of the restrictions on cross-border FX payments would be positive for the rating
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Evidence of a default or default-like event including, entering into a grace period, entering a temporary waiver or standstill following non-payment of a financial obligation, announcement of a distressed debt exchange or uncured payment default.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Potentially Weakening Liquidity: As of
Issuer Profile
Kernel is the world's largest sunflower oil producer and exporter.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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