Louis Dreyfus Bond Offer Shows Trader’s Debt Position Weakened

  • Increase in key leverage metric disclosed on bond road show
  • Balance sheet impacted by declining profits from trading

Louis Dreyfus Co., one of the world’s four biggest agricultural commodities traders, told investors in a presentation for its bond road show this week that a key debt metric weakened over the past three years as profit declined.

The ratio of adjusted net debt to earnings before interest, taxes, depreciation and amortization rose to 4.2 in the 12 months to June, from 3.4 at the end of 2015 and 2.5 at the end of 2013, the company said in a presentation dated Nov. 2.

Dreyfus said its credit metrics have been “impacted by a weaker market environment, consistent with the agri-commodity merchant industry,” according to the presentation seen by Bloomberg News. Seasonal factors in the second half of the period, including crop inventories, may also have affected the leverage ratio, according to a person familiar with the matter.

Louis Dreyfus declined to comment on the matter. The 165-year-old foodstuffs trader hired banks including BNP Paribas SA, Credit Agricole SA, Credit Suisse Group AG and HSBC Holdings Plc for investors meetings ahead of a potential bond sale.

Investors closely watch the net-debt-to-Ebitda ratio as it’s a yardstick for the ability of a company to repay its loans. Commodities traders rely on access to abundant and relatively cheap credit lines to fund their business of acting as intermediaries in global trade.

Glencore Plc, the world’s largest commodities trader, is aiming to keep its net debt to Ebitda ratio closer to 2, after investors and ratings companies expressed concerns when the ratio climbed to 3 last year. Other food commodities traders, including Singapore-listed Wilmar International Ltd. and Olam International Ltd., have higher leverage ratios than Dreyfus, company reports show.

Dreyfus is meeting investors in Europe this week before a potential bond issue seeking to raise no more than 500 million euros ($545 million), according to the person who asked not to be identified as the matter is private. The figures showing the 68 percent increase in the ratio of adjusted net debt to Ebitda since 2013 form part of an investor presentation. 

Dreyfus has suffered alongside the rest of the agricultural commodities industry, with rivals also reporting lower profits and higher leverage ratios. Bumper crops for commodities including wheat and corn, together with few weather-related disruptions have dampened earnings in the sector.

Dreyfus tapped the capital markets for the first time in September 2012 when it sold a $350 million perpetual bond in Singapore. The trading house has returned to the public debt market several times since, selling euro and yen-denominated notes.

The Rotterdam-based company said in the presentation that its funds from operations as a percentage of net debt fell to 13.4 percent in the 12 months to June, down from 25.2 percent in 2014.

Key Moment

The drop in profits comes at a crucial moment for Dreyfus and its owners. Margarita Louis-Dreyfus, who controls the trading house, and other family members are in discussions over the value of a 16.6 percent stake in the trader. Under an existing agreement, Louis-Dreyfus is obliged to buy shares in the food-trading business from members of the clan that want to sell. The stake could cost as much as $1 billion, people familiar with the matter have said this year.

The company’s Ebitda slid 20 percent to $380 million in the first half of 2016 from the year-earlier period. Dreyfus’s net income rose 3.8 percent in the period to $135 million thanks to lower effective tax rates and favorable foreign currency movements, the company said earlier this year.

The company’s cash used in operating activities, after changes in working capital, was negative $422 million in the first half of the year compared with a positive $396 million in the same period of 2015, according to new information disclosed in the presentation. Louis Dreyfus’s cash from operating activities was also negative in the first half of both 2013 and 2014, but net positive over the full years.

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