Belgium-Based Fresh Produce Importer And Distributor FieldLink Assigned Preliminary 'B-' Rating; Outlook Stable

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1 Research Update: Belgium-Based Fresh Produce Importer And Distributor FieldLink Assigned Preliminary 'B-' Rating; Outlook Stable Primary Credit Analyst: Anton Geyze, Moscow (7) ; Secondary Contact: Karin Erlander, London (44) ; Table Of Contents Overview Rating Action Rationale Outlook Related Criteria And Research Ratings List NOVEMBER 7,

2 Research Update: Belgium-Based Fresh Produce Importer And Distributor FieldLink Assigned Preliminary 'B-' Overview Belgium-based fresh produce importer and distributor FieldLink N.V. is raising debt to refinance its existing credit facilities. FieldLink is exposed to the volatile fresh produce industry, and its Standard & Poor-adjusted debt to EBITDA significantly exceeds 5x. We are assigning our preliminary 'B-' long-term corporate credit rating to FieldLink and preliminary 'CCC+' issue rating to the 265 million senior secured notes to be issued by the company's key operating subsidiary Univeg Holding B.V. The stable outlook reflects our view that FieldLink will demonstrate resilient operating performance and maintain an adequate liquidity position. Rating Action On Nov. 7, 2013, Standard & Poor's Ratings Services assigned its preliminary 'B-' long-term corporate credit rating to Belgium-based fresh produce importer and distributor FieldLink N.V. The outlook is stable. We also assigned our preliminary 'CCC+' issue rating to the group's proposed senior secured notes of 265 million to be issued by its key operating subsidiary Univeg Holding B.V. The recovery rating on the proposed senior secured notes is '5', indicating our expectation of modest (10%-30%) recovery in the event of a payment default. Rationale The preliminary rating reflects our assessment that the company's business risk profile is "weak" and its financial risk profile is "highly leveraged", according to our criteria. The rating also reflects our view that FieldLink will be able to maintain margins of more than 2% within the next several years, owing to improvements in company's operating efficiency and its focus on more-closely integrating with the supply chain of its customers, large food retailers in Europe. We also expect FieldLink's balance sheet will remain highly leveraged after taking into consideration an off-balance sheet factoring facility and operating leases. We view FieldLink's business risk profile as "weak", reflecting its NOVEMBER 7,

3 participation in the competitive, seasonal, commodity-oriented, and volatile fresh produce industry, which is exposed to political and economic risks. A recent example of such exposures was the group's significant EBITDA decline in 2011 due to the E. coli food contamination crisis in Europe. We take into account the benefits of FieldLink's strong market position in Europe, global sourcing capabilities, and quality of service. FieldLink is the largest food distributor of fresh produce in Europe, with strong relationships with a number of food retailers in The Netherlands, Belgium, and Germany. FieldLink sources globally and locally through independent growers and provides logistics and distribution services to its customers. The company's sales are highly focused on three large retailers in Europe, which account for more than 50% of the company's sales, while FieldLink's own production makes up less than 10%. Furthermore, the company lacks strong consumer brands and focuses on private labels and trade brands, which account for 85% of sales. At the same time, we view positively the recent takeover of FieldLink by its founder Hein Deprez from CVC Capital in 2013, and believe this should help to deliver sustainable growth and generate increasing free operating cash flow. FieldLink's "highly leveraged" financial risk profile reflects a debt-to-ebitda ratio of significantly more than 5x and EBITDA interest coverage of about 2x, as adjusted by Standard & Poor's for material operating leases and a large factoring facility of about 250 million. We expect this ratio will remain above 5x in the medium term, owing to only gradual growth in free operating cash flow and earnings according to our base-case scenario. Our assessment of FieldLink's financial risk profile also reflects the company's "adequate" liquidity position as a result of its planned refinancing. We understand FieldLink plans to issue 265 million senior secured notes and sign a 90 million revolving credit facility (RCF) to refinance existing credit facilities with restrictive covenants. Our base case for FieldLink for the next several years includes the following assumptions: Single-digit-percentage sales growth as a result of an increasing market share of existing customers and expansion into new geographies. A sustainable EBITDA margin of about 2.5%, supported by the company's focus on operating efficiency and a high share of value-added services such as category management, with closer integration with the food retail supply chain. About 22 million of capital expenditure, reflecting the company's relatively light asset base. No large debt-financed acquisitions. Liquidity We view FieldLink's liquidity as adequate, according to our criteria and pro forma for the proposed transaction. The group's liquidity is supported by its long-term capital structure and adequate headroom under its leverage NOVEMBER 7,

4 maintenance covenant in its RCF facility. We expect the company's ratio of liquidity sources to be more than 1.2x over the next 12 months. We estimate liquidity sources to include: Surplus cash of 12 million, post-transaction; Our base-case assumption of funds from operations of about 40 million; and A 90 million RCF, 43 million of which will be undrawn at the closing of the proposed transaction We estimate uses to include: Our assessment of intrayear working capital swings of $30 million-$70 million; and 22 million of capital expenditures. Recovery analysis The issue rating on the proposed senior secured notes to be borrowed by Univeg Holding is 'CCC+', one notch below the preliminary corporate credit rating on FieldLink. The recovery rating on this facility is '5', indicating our expectation of modest (10%-30%) recovery in the event of a payment default. The recovery rating is constrained by the high amount of priority ranking liabilities, although recovery prospects are supported by the company's asset base and what we believe to be a fairly comprehensive security package. The post-transaction capital structure will comprise of the 90 million super senior RCF, the 265 million senior secured notes, and existing bilateral facilities of 22 million. Also included is a factoring facility of approximately 250 million, which despite it being nonrecourse, we have assumed would lead to some valuation dilution for secured lenders in a default scenario. According to the documentation, the senior secured debt will benefit from a fairly comprehensive security package comprising of first priority liens on certain real property, intellectual property, receivables and inventory, and share pledges. Under the terms of the intercreditor agreement, the RCF lenders are expected to have priority over the proceeds of enforcement of the security. Additionally, the guarantor group will represent 92% of the group's EBITDA and 91% of total assets at closing. The super senior RCF agreement will include a total leverage financial maintenance covenant, as well as standard nonfinancial covenants. The documentation also allows for additional debt to be incurred when fixed charge cover is greater than 2.0x and senior secured debt is less than 3.75x, which could further dilute recoveries for note holders. Our hypothetical default scenario would be triggered by breakout of another food contamination crisis, disruptions in supply chain management resulting in a loss of key customers, and increased competition, taking over company's customers. This would lead to a payment default in We value the business on a going-concern basis. However, given the high level of priority liabilities, including the nonrecourse factoring NOVEMBER 7,

5 facilities, we see a risk of negligible recovery prospects for note holders. However, the company has a meaningful asset base which we believe would support higher recoveries if assets were sold discretely; therefore our valuation reflects a blend of the two approaches. The overall outcome is a recovery rating within the 10%-30% range, resulting in recovery rating of '5' and an issue rating one notch below the preliminary corporate credit rating. Simulated default assumptions Year of default: 2016 EBITDA at emergence: 55 million Implied enterprise valuation (EV) multiple: 5.0x Jurisdiction: Belgium Simplified waterfall Net enterprise value (after 7% enforcement costs): 260 million Priority claims (on balance sheet): 132 million(1) Priority claims (off balance sheet): up to 250 million Senior Secured debt claims: 298 million(2) --Recovery expectation: 10%-30% (1)Including the super senior RCF, pension liabilities, and finance leases. (2)All debt amounts include six months of prepetition interest and a fully drawn guarantee facility. Outlook The stable outlook reflects our view that FieldLink will demonstrate resilient operating performance and maintain an adequate liquidity position. We expect the company will maintain adequate headroom under its leverage maintenance covenant in its RCF facility. We could lower the rating if FieldLink's performance became more volatile than we currently expect, thereby putting pressure on the company's margins and liquidity position. This could result from a food contamination crisis, intensified competition with other distributors, or rising prices on fresh produce, which can be fully passed on to retailers and consumers. We currently view a positive rating action as remote. We could raise the rating if believe FieldLink's margins are sustainable in the medium term under its new ownership, the company is able to sustainably achieve and maintain a Standard & Poor's-adjusted interest coverage ratio of materially more than 2.5x, and there is no risk for company's liquidity position. Related Criteria And Research Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, NOVEMBER 7,

6 2008 Corporate Criteria: Analytical Methodology, April 15, Corporate Criteria: Ratios And Adjustments, April 15, 2008 Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009 Ratings List New Rating FieldLink N.V. Corporate Credit Rating Univeg Holding B.V. Senior Secured* Recovery Rating B-(prelim)/Stable/-- CCC+(prelim) 5(prelim) *Guaranteed by FieldLink N.V. Additional Contact: Industrial Ratings Europe; Complete ratings information is available to subscribers of RatingsDirect at and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) ; London Press Office (44) ; Paris (33) ; Frankfurt (49) ; Stockholm (46) ; or Moscow 7 (495) NOVEMBER 7,

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