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14 October 2019 by jbchevrel

Louis Dreyfus Company B.V. (LOUDRE) is a leading merchant and processor of agricultural goods. It is a member of the crossover index since s21 included. Today at the close, the 5y CDS of LOUDRE was almost equal to the crossover index’s, at 245bp. LOUDRE posted okay H1-19 results last week, despite difficult macro conditions (incl. US/CN trade tensions, spread of African swine flu in Asia). LOUDRE generated EBITDA $439m +8.0%y excl IFRS 16 lease expenses recognition effect, despite net sales down -6.1%y as volumes shipped fell -6.9%y. The volume decline was well offset by favorable product mix. LOUDRE generated strong OCF $435m (from -$941m 1y ago) thanks to lower working capital, in particular (-$300m). On the negative side (for credit), LOUDRE paid $428m dividends in H1-19 (vs $411m 1y ago), i.e. a 50% payout ratio on 2018 results plus exceptional from proceeds of $466m sale of Metals in 2018. Despite this dividend, LOUDRE 5y CDS slightly outperformed the broader iTraxx XOver s32 over the past six sessions (4oct close: LOUDRE 255 XO 248 14oct close: LOUDRE 242.5 XO 242.5). This is because despite the dividend, LOUDRE net leverage was unch from 6m earlier. Net debt was indeed $3.2bn (H1-19) unch from 6m earlier (incl $0.3bn IFRS16 impact). Net leverage thus 3.0x, also unch from 6m earlier. Including pensions/RMI haircut leverage was stable too 3.7x. Available liquidity ex uncommitted facilities was $8.0bn. Short-term debt was $4.9bn (mostly self-liquidating bilateral loans). Bases look small in the short end 1y CDS is 68 vs LOUDRE 4% Dec 2020s z+67 and a tad negative further, 2y CDS is 101 vs slightly longer LOUDRE 4% Feb 2022s z+180, and 3y CDS is 150. Regarding the cash leg, it is probably worth recalling that in last week’s conference call, LOUDRE’s management flagged that they have no plan to issue public bonds within the next 12 months.