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Rating Action:

Moody's affirms JBS's Ba3 ratings and revises the outlook to stable from negative

01 Aug 2014

New York, August 01, 2014 -- Moody's Investors Service has today affirmed JBS's Ba3 ratings (global scale) and revised the ratings outlook to stable from negative. The stabilization of the outlook reflects the improvements in credit metrics given the rapid and efficient integration of Seara, the maintenance of an adequate liquidity position and our expectations that metrics will converge to pre-acquisition levels by year-end.

Ratings affirmed as follows:

Issuer: JBS S.A.

CFR: Ba3 (global scale)

USD 300 mln notes due 2016: Ba3 (global scale)

Issuer: Bertin S.A.

USD 350 mln bonds due 2016: Ba3 (global scale)

Issuer: JBS Finance II Ltd

USD 900 mln bonds due 2018: Ba3 (global scale)

Issuer: JBS USA, LLC

USD 475 mln secured term loan B due 2018: Ba2 (global scale)

USD 500 mln secured term loan due 2020: Ba2 (global scale)

USD 700 mln notes due 2020: Ba3 (global scale)

USD 500 mln notes due 2021: Ba3 (global scale)

USD 650 mln notes due 2021: Ba3 (global scale)

USD 750 mln notes due 2024: Ba3 (global scale)

The outlook for all ratings is stable.

RATINGS RATIONALE

JBS's Ba3 ratings reflect the global strength of its operations as one of the world's largest protein producers and its diversification in terms of protein products, raw material sourcing, and sales. The strategy to increase its footprint in the global processed food business and invest on strong domestic brands via JBS Foods should also improve the business profile and lead to higher and more stable margins over time. On the other hand, the company's aggressive growth strategy and M&A activity constrain the ratings, although execution risks are mitigated by a proven track record of assets integration and expansion. Also offsetting the positive attributes is the inherent volatility of the protein industry, which is subject to risk factors such as animal cycles and diseases, weather conditions, political influence and supply imbalances.

After the acquisition of Seara for BRL 5.85 billion in June 2013, JBS was able to rapidly integrate the business, extracting synergies and improving operating performance. In the 1Q14 JBS Foods (comprising mainly the former Seara operation) posted an EBITDA margin of 13.7%, up from a historical estimated level of mid single digit range. Such improvements, coupled with active liability management and a positive momentum for beef exports and the US poultry operations, supported the reduction in adjusted leverage to 4.5x (in the LTM ending Mar/14), from 5.3x at the time of the acquisition.

Going forward, we expect JBS to continue deleveraging, as it benefits from the full impact of the consolidation of JBS Foods and from the positive fundamentals for its JBS Mercosul and US poultry operations. The USA beef and pork segments, however, should continue to be challenged by animal availability constrains. Still, we estimate that, absent of any major debt-funded acquisition, JBS's adjusted leverage should decline to 4.0x at the end of 2014, the lowest level since the end of 2012. A possible IPO of JBS Foods with proceeds majorly channeled to debt reduction would be a positive development.

The stable outlook incorporates Moody's expectations that JBS will continue to deleverage its balance sheet. Furthermore, it reflects our assumption that the company will prudently manage Capex, acquisitions and dividend distributions to preserve its liquidity profile.

An upgrade to the ratings could occur if JBS reports stronger and less volatile consolidated cash flows and proves able to improve operating margins. An upgrade would require the company to report consistently healthy free cash flow, while maintaining CFO to Net Debt above 16% and adjusted Debt-to-EBITDA below 4.0x on a sustained basis.

A downgrade to the rating could be caused by sustained financial leverage, a weaker liquidity profile, or if the company fails to generate free cash flow on a consistent basis. Quantitatively, a downgrade could occur if Debt-to-EBITDA is sustained above 5.5x, EBITA/Interest below 2.0x or CFO to Net Debt below 10%. All credit metrics are adjusted according to Moody´s standard adjustments and definitions

Headquartered in São Paulo, Brazil, JBS S.A. ("JBS") is the world's largest protein producer in terms of revenues, slaughter capacity and production. It is the leader beef, chicken and leather player and a leading lamb producer on a global basis, besides being the third largest pork producer in the USA. The company has large scale and diversification, with presence in more than 100 countries.

The principal methodology used in this rating was Global Protein and Agriculture Industry published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Erick Figueiredo Rodrigues
Asst Vice President - Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms JBS's Ba3 ratings and revises the outlook to stable from negative
No Related Data.
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