Fitch Rates Arcor's $100MM Proposed Debt Issuance 'BB-'

Business Wire, June 5, 2007

BUENOS AIRES, Argentina -- Fitch Ratings has assigned the following ratings to Arcor S.A. (Arcor), an Argentine based producer of candy, chocolates and biscuits:

--Foreign currency Issuer Default Rating (IDR) 'B ';

--Local currency IDR 'BB';

--$100 million proposed debt issuance due 2017 'BB-/RR3';

--National scale rating 'AA (arg)'.

The Rating Outlook is Stable.

Arcor has production facilities in Argentina, Chile, Brazil, Mexico and Peru. It also exports products to over 120 countries. About 60% of Arcor's sales are generated by products holding either a leading or second market position. The strong brand equity of most of Arcor's products is due to its elaborate distribution network and Arcor's presence in the Argentine market for more than 50 years. In addition to incorporating Arcor's solid business position, Arcor's credit ratings reflect its moderate leverage and its success in managing its debt obligations and leading business position during the last Argentine sovereign crisis. While Arcor benefits from geographic revenue and asset diversification, its cash flow from operations is concentrated in Argentina, as reflected by the capping of its foreign currency IDR at the level of the Argentine Country Ceiling (rated 'B ' by Fitch).

Balanced against these supportive factors are concerns about the high correlation of Arcor's cash flow with the strength of the local economies in its key markets, as well as its exposure to variations in commodity prices. Arcor's credit ratings further reflect concern about government interference in some of its key markets, particularly Argentina. Political risks include pricing controls, higher taxes, transfer and convertability controls on foreign exchange, and increased regulation of exports and the repatriation of proceeds from those sales. In 2006, Arcor generated $130 million of revenues from Argentine exports and sales from companies it owns outside of Argentina generated approximately $580 million of revenue. Together these figures represent about 47% of consolidated sales. On a positive note, Fitch expects this percentage to grow as its investments in Brazil and Mexico mature.

As of March 31, 2007, Arcor had $355 million of total debt and $64 million of cash. These figures compare with $133 million of EBITDA during 2006. Arcor's debt is primarily composed of a $263 million International Finance Corporation loan. Arcor intends to use the proceeds of the $100 million notes to repay 2007 debt maturities and to finance working capital needs. Fitch projects net debt will remain at current levels, which should result in a net debt-to-EBITDA ratio of about 2 times (x) in 2007. Debt-to-EBITDA is expected to fall below the 2x level during the next two years due to the growth of Arcor's cash flow. In addition to organic growth, the increase in Arcor's EBITDA should be driven by an improvement in the performance of some of Arcor's recent acquisitions and joint ventures. Arcor is expected to generate more than $100 million of cash flow from operations in 2007, which will be primarily used to fund about $90 million of capital expenditures. These investments are mainly intended to increase the production capacity of its cookie and confectionary business segments.

Fitch's ratings of specific debt issues bring together both the probability of default and the prospects for recovery, as determined by the IDR and a Recovery Rating (RR). Given the incorporation of recovery in the definition of Fitch's ratings, the rating of blue chip companies in Latin America with local currency IDRs that exceed the related foreign currency IDR by at least two notches, are not capped by the foreign currency IDR, which is only a measure of the probability of default. Consequently, Arcor's proposed note is rated 'BB-'. The assigned 'RR3' Recovery Rating is consistent with an expected recovery of 50%-70% in the event of a default.

A comprehensive credit analysis of Arcor is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery.> Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.