Alicorp S.A.A. 'BBB-' Rating Placed On CreditWatch Negative On Announced Acquisition of Intradevco

  • Peru-based packaged food maker Alicorp recently announced it acquired Intradevco for $490.4 million.
  • The acquisition was 100% debt-financed through a bridge loan of $500 million, which has increased Alicorp's leverage. Alicorp is implementing a liability management plan including the sale of non-core assets to refinance this loan.
  • MEXICO CITY (S&P Global Ratings) Feb. 4, 2019--S&P Global Ratings placed its 'BBB-' long-term issuer credit rating on Alicorp on CreditWatch with negative implications.
  • The CreditWatch listing reflects the risk that incremental debt used for this acquisition will bring leverage metrics to a level that's not commensurate with the current 'BBB-' rating on Alicorp.
  • We will resolve the CreditWatch listing within the next 90 days, once we have more details on the acquisition and we determine the magnitude of the impact on both cash flow generation and leverage.
The CreditWatch listing follows Alicorp's announcement that it acquired 
Tecnología Aplicada S.A. (TASA), Intradevco's holding company, for a total 
amount of $490.4 million.

The transaction was 100% debt-financed through a $500 million senior unsecured 
credit agreement, from which Alicorp will use the remaining $10 million for 
general corporate purposes. Alicorp is implementing a liability management 
plan including the sale of non-core assets to refinance this credit agreement. 
The company through its subsidiary, Alicorp Inversiones S.A., acquired 100% of 
TASA's shares, and TASA holds about 99.8% of the shares of Intradevco 
Industrial S.A. (Intradevco), a Peruvian home and personal care company.

We believe this transaction will strengthen Alicorp's position in the home 
care division while it enters the personal care division through new 
categories. The company will benefit from Intradevco's leading brands such as 
Sapolio, Aval, and Dento in the Andean region, and will represent an 
additional barrier to new entrants in the Peruvian market.

However, in our view, TASA's debt-financed acquisition will lead to an 
increase in Alicorp's leverage, resulting in a debt-to-EBITDA ratio around 
3.0x and a discretionary cash flow (DCF) to debt below 10% on a pro forma 
basis from 2.1x and 10.3%, respectively, as of Sept. 30, 2018. We consider 
that this transaction represents a deviation from our current base-case 
scenario, under which we expected the company to maintain debt to EBITDA 
around 2.0x and DCF to debt around 12% in the next two years.

Moreover, we previously indicated that a downgrade could be possible if the 
company completed additional large debt-financed acquisitions that weaken its 
key credit metrics, particularly if it has debt to EBITDA consistently above 
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