AgroFresh Inc. Downgraded To 'B-' On Weak Credit Metrics, Ratings On CreditWatch Negative Due To Upcoming Maturities

  • U.S.-based AgroFresh Inc. has reported consecutive quarters of weaker earnings due to weather disruptions that have affected the crops in key geographies, causing its credit metrics to weaken below our previous expectations.
  • As a result, we are lowering our issuer credit rating on AgroFresh to 'B-' from 'B'.
  • At the same time, we are lowering our issue-level rating on the company's senior secured credit facility to 'B' from 'B+'. The '2' recovery rating remains unchanged, indicating our expectation for significant (70%-90%; rounded estimate: 70%) recovery in the event of a payment default.
  • Due to its upcoming debt maturities, we are placing all of our ratings on AgroFresh, including our 'B-' issuer credit rating and 'B' issue-level rating, on CreditWatch with negative implications.
  • We plan to resolve the CreditWatch as soon as the company refinances its capital structure or near when its term loan becomes current in July.
NEW YORK (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions listed above. The downgrade follows AgroFresh's weaker-than-expected performance in 2019 and reflects our expectation that its EBITDA and credit metrics will remain relatively flat in 2020. The company's revenue and EBITDA declined by approximately 5% and 2.5% year-over-year, respectively, in 2019. The decline in AgroFresh's revenue was primarily due to unfavorable weather in the northern hemisphere that delayed the harvest season in the U.S. and Europe. The company was able to mitigate some of these losses through cost-saving initiatives, which improved its EBITDA margins. However, AgroFresh's EBITDA has gradually decreased over the past few years because the patents for its SmartFresh product have expired, which has led to an increase in competition, specifically in the Pacific Northwest. The company's addition of lower-margin products, such as Harvista and Tecnidex, have also contributed to a decline in its overall profitability. Given the uncertainties around the global harvest season and the coronavirus' effects on the global economy, we are lowering our 2020 expectations for AgroFresh, including an S&P Global-adjusted average debt-to-EBITDA metric of between 7x and 8x (previously expected between 5.5x and 6.0x).
The CreditWatch negative placement indicates that there is a one-in-two likelihood we will lower our rating on AgroFresh in the next 90 days.
We intend to resolve the CreditWatch as soon as AgroFresh refinances its capital structure or near when the company's term loan becomes current in July. We would likely lower our rating on the company if it is unable to refinance its capital structure before its term loan becomes current, which would constrain its liquidity and heighten its refinancing risk. Alternatively, we could remove our ratings on AgroFresh from CreditWatch if the company refinances its capital structure while maintaining credit metrics that view as appropriate for the current rating.
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