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Announcement:

Moody's affirms Minerva's B3 rating; outlook changed to positive.

 The document has been translated in other languages

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.

Rating affirmed:

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.

RATINGS RATIONALE

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 years.

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 adjustments.

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.

Sao Paulo
Ricardo Kovacs
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's affirms Minerva's B3 rating; outlook changed to positive.
No Related Data.
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