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11 Sep 2019
New York, September 11, 2019 -- Moody's Investors Service ("Moody's") assigned a Ba2 rating to BRF S.A.
(BRF) 's proposed senior unsecured notes. The outlook is negative.
BRF will use the proceeds from the notes offering for liability management
and general corporate purposes.
The rating of the notes assumes that the final transaction documents will
not be materially different from draft legal documentation reviewed by
Moody's to date and assume that these agreements are legally valid,
binding and enforceable.
..Issuer: BRF S.A.
....Proposed Senior Unsecured Notes:
The proposed issuance will be BRF's first in cross-border markets
since 2016 and will improve its debt maturity profile. The transaction
will have no material effect on BRF's leverage, as net proceeds
will be used mainly for liability management. The company plans
to refinance part of its $750 million notes due 2020 ($86.1
million outstanding), its $750 million ($118.7
million outstanding) and EUR 500 million (fully outstanding) notes both
due in 2022, its $500 million (fully outstanding) notes due
2023, and its $750 million (fully outstanding) notes due
BRF has an adequate liquidity profile, with BRL7 billion in cash
and equivalents at the end of June 2019, which covers all debt obligations
through at least early 2021. The company started to generate positive
free cash flows in 2Q19, after posting negative free cash flows
since 2016. Still, BRF has a tight amortization schedule,
considering that there is about BRL8.9 billion debt due in 2019-21,
represented mostly by cross-border bonds (BRL 1.3 billion),
BRL1.5 billion represented by CRAs (certificate of agribusiness
receivables) and BRL6.1 billion working capital lines. Since
the issuance will address part of the bonds maturing from 2020 through
2024, it will help extend the overall tenor of BRF's debt
amortization profile, while we assume that the bank lines will be
BRF's Ba2 ratings reflect its strong business profile and leadership in
both processed foods in Brazil and global poultry exports. After
a strong deterioration in performance and credit metrics between 2016-2018,
the company's performance is in a clear path of recovery, which
we expect to continue through 2020, reflecting the rationalization
measures already implemented and an improvement in consumer confidence
in Brazil, allowing BRF to focus on a more profitable mix,
along with a moderation in grain price increases. Besides,
the Halal segment, where BRF also has a strong presence, will
continue to post healthy margins, supported by an improved mix,
lower costs and higher volumes. International markets should also
improve, supported by the effect of the African Swine Fever (ASF).
Offsetting these positive attributes are the deteriorated credit metrics,
in particular leverage and coverage metrics, low geographic diversity
in terms of production footprint, and strong exposure to grain prices
and currency volatility, because around 50% of its sales
come from chilled and frozen meats and the export markets. The
company's exposure to foreign-exchange volatility is mitigated
by the use of effective hedging strategies.
The negative outlook on BRF's ratings incorporates the company´s
currently weak credit metrics for the rating category and our expectation
that a recovery will be only gradual in the next 12-18 months.
An upgrade is unlikely in the short term, but the stabilization
of the ratings would be dependent on a recovery in key credit metrics
and an improvement in the overall business conditions. A downgrade
could result from a deterioration in BRF's liquidity or its inability
to deleverage. A deterioration in the Government of Brazil's (Ba2
stable) credit quality could hurt BRF's ratings. Quantitatively,
a downgrade could also occur if total adjusted debt/EBITDA remains above
3.5x on a sustained basis, EBITA/interest expenses ratio
remains below 2.0x and cash flow from operations/net debt stays
The principal methodology used in this rating was Protein and Agriculture
published in May 2019. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
BRF S.A. (BRF) is one of the largest food conglomerates
globally and posted consolidated net revenue of BRL31.8 billion
($8.3 billion, considering average exchange rate)
for the twelve months ending in June 2019. Processed food and food
services, which typically generate higher and less volatile margins
than the chilled and frozen protein export business, represented
over 60% of net revenue. The company operates in 37 plants
and 47 distribution centers in the world, exports to more than 140
countries and has a leading position in global poultry exports.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
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same series, category/class of debt, security or pursuant
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ratings in accordance with Moody's rating practices. For ratings
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Please see www.moodys.com for any updates on changes to
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Barbara Mattos, CFA
Senior Vice President
Corporate Finance Group
Moody's America Latina Ltda.
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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No Related Data.
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