One of the rare survivors of the Argentine cross-border universe, a 10-year issue from foodstuffs company Molinos Rio de la Plata via Citibank, has still faced its fair share of blows over the last few years. Fitch Ratings took their local currency rating down in increments to B-' from BBB-' and the originator has fallen prey to the global aversion to any kind of Argentine paper.

Led by Citibank in 1996, the Molinos deal amounted to US$150 million. Standard & Poor's rates the transaction raBBB' on the national scale and does not assess it on any other scale. This might have reflected a heavy reliance on Argentine investors at the time of issuance.

Apart from its link to a collapsed sovereign and the related downgrades, Molinos was rejected by many investors in an off-the-radar buyback offer that JPMorgan Securities handled in mid-2002, according to sources. The company managed to persuade investors holding 37% of the outstanding volume, but the remaining buysiders balked at taking a 25% haircut. It was, in a sense, a vote of confidence that the deal would prevail, instead of a bet that a better offer would come along, sources said. So far, the holdouts bet right. According to a report issued by Fitch last night, there is US$35 million outstanding in the notes and they haven't come near default.

Buoyant commodity prices have joined the weak pesos to strengthen the operations of this exporter. Last week, Fitch upgraded the local currency rating of Molinos to B-' from CC' as the company's ability to pull in dollars through shipments of soybean and oilseed derivates has vastly improved. "The company's capitalizing on the good times that the global commodities market is going through right now," said Matias Maciel, a corporate analyst for Fitch. Domestic sales volumes have also begun to recover.

The Fitch upgrade brought the corporate's local currency rating on par with that of the SENs, which had stood at B-' since March 28, 2002. This longstanding discrepancy between the two was unusual, as future flows transactions are often structured to match the local currency corporate rating. "When you get down to those lower ratings categories, we make more of a difference," said Greg Kabance, director of Latin American structured ratings at Fitch. The local currency ratings had slumped to below that of the SENs primarily because of the potential restructuring of the corresponding vanilla debt. Due to its voluntary nature, the buyback was not considered a restructuring.

While export-related transactions have fared the best in Argentina, at least one source pointed out that Molinos' structure is relatively weak within the universe of future flows. The export-to-service ratio is 2x and the deal relies on only one off-taker, the Bunge Corporation.

Export receivables of soy, wheat and their derivatives back the transaction. Off-take contracts with the Bunge Corporation are valid for 10 years, the life of the deal. Under the structure, the off-taker deposits payments into an account overseen by trustee Bank of New York. Bunge is the world's leading oilseed processing company, with sales of US$22 billion in 2003.

Over the past year, the company has beefed up exports, though EBITDA has slid as lower-margin products increase their share of total sales. Molinos bought the 50% of Pecom Agra it didn't own last July in a move that lifts its oilseed-crushing capacity by 10%.

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