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Global Credit Research - 13 Jan 2011
Approximately USD 410 million in rated debt securities affected.
Sao Paulo, January 13, 2011 -- Moody's Investors Service has affirmed Minerva S.A.'s
(Minerva) local corporate family rating of B3 on the global scale,
as well as the B3 foreign currency ratings of Minerva Overseas Ltd.
and Minerva Overseas II Ltd. guaranteed senior unsecured notes.
The outlook for all ratings has been changed to positive from stable.
The change in outlook follows the continued enhancement of company's
performance and expectations that the improvements can be sustained over
the near term.
Issuer: Minerva S.A.
- Corporate Family Rating: B3 (global scale);
Issuer: Minerva Overseas Ltd (Cayman Islands)
- USD 35 million senior unsecured guaranteed notes due 2017:
B3 (foreign currency)
Issuer: Minerva Overseas II Ltd (Cayman Islands)
- USD 375 million senior unsecured guaranteed notes due 2019:
B3 (foreign currency)
The outlook for all ratings is positive.
Minerva's B3 rating primarily reflects its relatively small size
compared to local and global peers based on consolidated net revenues,
its continued high leverage, as well as the sales concentration
on live cattle, beef and beef related products and the volatile
nature of the protein industry. The ratings also consider the improving
corporate governance practices of the company through higher levels of
transparency, according to the enhanced BM&FBovespa's
novo Mercado rules, including quarterly conference calls and the
creation of new Corporate Committees. Company's strong organic
growth, its position as one of the largest exporters of Brazilian
beef, the solid presence in international markets are also credit
positive. Moody's expects increasing benefits of the alliance
with the Irish company Dawn Farms, through the recently increased
shareholding participation to 80% (from 50%) in the JV Minerva
Dawn Farms (MDF). MDF is a producer of value added products in
beef, pork and poultry.
"Despite the volatile nature of the protein industry in general
and the beef sector in particular, Minerva reported stronger operating
performance in the last twelve months ended September 30, 2010 as
a result of the partial recovery of local and offshore beef markets,
the completion of greenfield projects with greater slaughtering capacity,
coupled with a higher utilization rate of 80% that is above industry
average, offsetting the increase in the average cost of raw material
since the end of 2009", said Ricardo Kovacs, Vice President
at Moody's and lead analyst for Minerva.
During 2010, Minerva achieved an EBITDA margin of 9.6%,
comparing favorably with local peers, and reduced its leverage as
measured by adjusted debt to EBITDA to 5.0x as of LTM September
2010 from 5.9x in LTM June 2010, thanks to the management
of live cattle inventory that avoided commodity price increase during
the scarce period of the year and the pass through of cost to both local
and offshore markets especially during the second half of the year.
Also important, the adequacy of company's debt profile reduced
the pressure for short term capital needs and the lower necessity of CAPEX
for the following periods should benefit Minerva to achieve positive free
cash flow until the end of 2011.
The positive outlook reflects Moody's expectation that the management
will remain focused on deleveraging its balance sheet in 2011 with the
recovery of Brazilian beef export markets, and prudently managing
CAPEX after the recent period of investments in a new facility in Rondonia.
Minerva should also benefit from hedging contracts settled at lower prices
than projected for 2011 and continue to increase the participation of
offshore value added processed product sales where higher margins can
be earned. Specially, Moody's assumes that high-value-added
MDF share in total revenues could reach 25% within the next two
Minerva's rating would likely be upgraded if the trend continues towards
greater diversification of Minerva's revenue and cash flow streams,
with increased contribution of processed products to generate positive
free cash flow. Upwards pressure would also depend on the company's
ability to reduce adjusted total debt to EBITDA ratio to below 5.0x,
EBITA to Interest Expense above 1.5x and CFO to Net Debt above
10%, for at least two consecutive quarters.
The ratings could suffer downward pressure if Minerva's liquidity
deteriorated, if a stronger local currency causes operating margins
to decline sharply or if total adjusted debt to EBITDA climbs above 6.0x
(September 30, 2010 LTM was 5.0x), on a sustainable
basis. All ratios are adjusted according to Moody's standard analytic
Moody's last rating action on Minerva was on December 2nd, 2009,
when we assigned first time B3 corporate family and senior unsecured bond
ratings, both with a stable outlook.
The principal methodology used in rating Minerva was that for Moody's
Global Food — Protein and Agriculture Industry (published in September
2009) and available on www.moodys.com. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Minerva, headquartered in Barretos, São Paulo,
is one of Brazil's leaders in the production and sale of fresh beef,
leather and live cattle. With net revenues of BRL 3.2 billion
(approximately USD 1.9 billion) at September 30, 2010 LTM,
and installed slaughtering capacity of 8,940 heads of cattle per
day, Minerva is the third largest Brazilian exporter of beef and
beef byproducts and has ten own beef production facilities within six
Brazilian states as well as presence in Paraguay, with a total of
8.108 employees, according to company's reference form
as of yearend 2009.
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's affirms Minerva's B3 rating; outlook changed to positive.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
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