Dec 03 -
-- Fage International S.A. (Fage) is launching a $250 million tap to its existing $150
million senior unsecured notes due 2020. Proceeds will be used to pay down debt and fund
investments in the U.S.
-- Given Fage's reducing exposure to Greece and taking into account the notes' amended
documentation, we now believe that insolvency proceedings would likely take place in Luxembourg,
which enables us to apply our recovery rating methodology.
-- We are affirming our 'B' issue rating on Fage's 2020 unsecured notes and assigning a '4'
Standard & Poor's Ratings Services said today that it had affirmed its 'B' issue rating on
the $400 million unsecured notes due 2020, issued by Luxembourg-based dairy company Fage
International S.A. (Fage; B/Negative/--). At the same time, we assigned a recovery rating of '4'
to the notes, indicating our expectations of average (30%-50%) recovery for noteholders in an
event of a payment default.
Fage is launching a $250 million tap to its existing $150 million senior unsecured notes due
2020. Proceeds of the proposed additional $250 million notes will be used to fully repay Fage's
2015 notes (currently rated 'B') and all bank lines outstanding, and to fund investments,
primarily a new factory in the U.S.
The additional 2020 notes will be co-issued by Fage and its U.S.-based subsidiary Fage USA
Dairy Industry Inc. (Fage USA). The notes will be guaranteed by Fage Luxembourg Sarl (the parent
company of Fage USA and Fage's non-Greek European operations) and Fage Dairy Industry S.A.
(Fage Greece). As at Sept. 30, 2012, we understand that the issuers and guarantors
represent more than 90% of the group's sales, EBITDA, and assets.
The recovery rating on the notes reflects the company's fair valuation (particularly based
on its strong brand and growing U.S. business), the relatively limited prior ranking liabilities
(in the form of a $50 million secured revolving credit facility ) and a favorable center of
main interest (COMI) in Luxembourg or the U.S. The recovery rating is constrained at '4',
however, by the operating pressures we see in the Greek business and the existence of some debt
baskets in the notes' documentation.
The documentation for the 2020 notes contains a series of covenants limiting Fage's ability
to raise debt, subject to a fixed-charge coverage incurrence covenant of 2.0x. The documentation
also contains restrictions on the company's ability to pay dividends, sell assets, or enter into
mergers and acquisitions.
Fage plans to amend the documentation for the 2020 notes in connection with the offering. It
is launching a consent solicitation to obtain the consent of more than 50% of the existing $150
million 2020 noteholders to the amendments. If fewer than 50% of existing noteholders consent,
FAGE may launch a second consent solicitation, in which new noteholders may participate together
with existing noteholders. In such a second consent solicitation, new noteholders will be deemed
to have voted in favor of the amendments by virtue of purchasing the new notes.
We believe that Fage's COMI would most likely be Luxembourg in the event of an insolvency
-- Fage, which will co-issue the 2020 notes, is incorporated in Luxembourg;
-- As per the amended documentation of the 2020 notes, Fage will hold its board meetings,
keep its corporate book, and run the administration of the company in Luxembourg; and
-- Fage now owns the group's intellectual properties, notably including its trademarks and
However, we do not exclude the possibility of insolvency proceedings taking place in the
U.S., where the group generated about 56% of revenues and 71% of EBITDA in the 12 months to
Sept. 30, 2012, with these figures rapidly increasing. We view the Luxembourg and U.S.
jurisdictions as rather favorable for creditors. However, Fage is exposed to multiple
jurisdictions, with its production assets located in the U.S. and Greece, and its intangible
assets in Luxembourg. We therefore believe that recovery prospects could be somewhat impaired.
Under our recovery rating methodology, we simulate a hypothetical payment default for Fage.
Given our view of Fage's strong brand, we value the company as a going concern. We calculate
Fage's stressed enterprise value at default using an EBITDA proxy. Under this hypothetical
scenario, we calculate that Fage's EBITDA at the point of default would likely total about EUR43
million. We use a 5.0x stressed EBITDA multiple to estimate a stressed enterprise value of about
EUR215 million at default.
After deducting priority liabilities--including enforcement costs and Fage's secured $50
million RCF, which we assume would be fully drawn at the hypothetical point of default--we
calculate that recovery prospects for the existing and additional noteholders would be slightly
below 50%. Given Fage's multijurisdictional exposure and the existence of some debt baskets in
the notes' documentation, we believe that recovery prospects would fall in the 30%-50% range,
resulting in a recovery rating of '4'.
RELATED CRITERIA AND RESEARCH
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept.
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008