January 9, 2013 / 10:10 PM / 5 years ago

TEXT - Fitch rates Marfrig proposed note issuance

(The following statement was released by the rating agency)
    Jan 9 - Fitch Ratings has assigned an expected rating of 'B+/RR4' rating to
Marfrig's proposed USD300 million senior unsecured notes due 2017 to be issued
by Marfrig Holdings (Europe) BV. These notes will be unconditionally guaranteed
by Marfrig Alimentos S.A. (Marfrig), Marfrig Overseas Ltd and several other
subsidiaries. Proceeds are expected to be used to refinance debt maturities and
extend debt maturity schedule.  A complete list of Fitch's ratings of Marfrig is
at the bottom of the press release. 

The 'B+' rating takes into consideration the company's aggressive growth 
strategy and high leverage.  Further considered in the rating is the volatility 
of protein prices and profit margins due to factors beyond the company's 
control.  Positive considerations include Marfrig's strong business position as 
one of the largest producers and exporters of beef, poultry, and pork in Brazil.


Ratings Drivers:

The Rating Outlook for Marfrig and its rated subsidiaries is Negative.  A 
revision of the Outlook to Stable could be triggered by a number of factors that
could include financial improvements which are better than expected given the 
current operating environment, and/or sufficient capital injections to 
meaningfully reduce debt.  A rating downgrade could be precipitated by a further
deterioration in company's credit metrics, negative cash flow generation or 
liquidity concerns.

Fitch views positively the BRL 1 billion equity issuance concluded by the 
company during October 2012. Along with the current bond issuance this will 
strengthen liquidity and improve the company's amortization schedule. In Fitch's
opinion, the funds raised will be sufficient to address an estimated BRL1.2 
billion of debt maturities (other than trade debt) through 2013.  Fitch projects
that Marfrig's free cash flow generation will be negative in 2013, which will 
continue to make the company dependent upon external financing, as it faces debt
maturities during 2014 of BRL2.8 billion.  Additional challenges faced by the 
company include: integrating the assets acquired in an asset swap with Brazil 
Foods (BRF), retaining the market share of the brands it received, and the 
successful launch of a large number of new products in a bid to capture 
additional market share. 

Leverage Remains High Despite Recent Equity Issuance: 

As of Sept. 30, 2012, Marfrig had BRL 12.9 billion of debt and BRL 2.8 billion 
of cash and marketable securities.  During the LTM ended Sept. 30, 2012, the 
company generated BRL 1.9 billion of EBITDA.  Fitch estimates that Marfrig's 
gross and net debt-to-LTM EBITDA ratios pro forma the equity issuance for the 
period ended Sept. 30, 2012 were 6.1x and 4.6x, respectively. These ratios 
compare with 6.8x and 4.8x during 2011. Fitch expects that Marfrig's leverage 
ratios will remain relatively high through 2013.

Earnings Volatility: 

Protein prices and demand are volatile. Marfrig's profit margins are affected by
factors beyond the company's control. These include domestic and international 
supply and demand imbalances resulting from animal disease and weather 
conditions, global economic growth, changes in consumption habits, and 
government-imposed sanitary and trade restrictions. Competitive pressures from 
other players also affect the company's margins.

Strong Business Position: 

Marfrig is one of Brazil's largest producers and exporters of beef, poultry, and
pork. The company has a more diversified business profile than most of its 
peers. Its production base is diversified and 35% of its sales are from exports.
A little over one-third of its revenues come from higher value-added processed 
food. As a result of the recent asset swap with BRF, processed and prepared 
product capacities will more than double.  

Processed Food - Long-Term Positive, Short-Term Volatility: 

Marfrig's strategy of reducing commodity protein exposure by increasing its 
share in processed food, which is less volatile and commands better profit 
margins, is a credit positive. The asset swap with BRF will strengthen Marfrig's
competitive position in the value-added protein products market and is 
consistent with the company's previous acquisitions. Achieving full capacity 
will take time and the company's efficiency may decline during the integration 
period which will pressure margins. 

Fitch currently rates Marfrig as follows: 

Marfrig Alimentos S.A.
--Local currency IDR at 'B+';
--Foreign currency IDR at 'B+';
--National scale rating at 'BBB+(bra)';
--BRL 300 million 3rd debentures issue (1st tranche) at 'BBB+(bra)'; 
--BRL 300 million 3rd debentures issue (2nd tranche) at 'BBB+(bra)'. 

Marfrig Overseas Ltd
--Foreign currency IDR at 'B+';
--US$375 million senior unsecured notes due 2016 at 'B+/RR4'; 
--US$500 million senior unsecured notes due 2020 at 'B+/RR4'. 

Marfrig Holdings (Europe) B.V.
--Foreign currency Marfrig Alimentos S.A.
--Local currency IDR at 'B+';
--Foreign currency IDR at 'B+';
--National scale rating at 'BBB+(bra)';
--BRL 300 million 3rd debentures issue (1st tranche) at 'BBB+(bra)'; 
--BRL 300 million 3rd debentures issue (2nd tranche) at 'BBB+(bra)'. 

The Rating Outlook for Marfrig Alimentos S.A., Marfrig Overseas Ltd, and Marfrig
Holdings (Europe) B.V. is Negative.  The ratings of these companies are linked 
by Fitch Parent and Subsidiary Linkage criteria.

 (Caryn Trokie, New York Ratings Unit)

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