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Related Issuers
Rating Action:

Moody's assigns Ba2 ratings to BRF proposed notes; stable outlook

14 Sep 2020

New York, September 14, 2020 -- Moody's Investors Service ("Moody's") assigned a Ba2 rating to BRF S.A. (BRF) 's proposed senior unsecured notes. The outlook is stable.

The transaction will have no material effect on BRF's leverage, as net proceeds will be used mainly for liability management and general corporate purposes, while the issuance will improve its debt maturity profile.

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.

Ratings assigned:

..Issuer: BRF S.A.

....senior unsecured notes: Ba2

RATINGS RATIONALE

BRF's Ba2 ratings reflect its strong business profile and leadership in both processed foods in Brazil and global poultry exports. We expect the improvements seen in the company's performance in 2019 to be sustained through 2021, reflecting the rationalization measures implemented, a focus on innovation and a higher valued-added mix. Besides, global economic downturn in 2020 should support poultry demand, as it is cheaper than other animal proteins. Despite the short-term challenges in the Halal segment, we expect BRF to continue to benefit from its strong presence in these markets, while the company expands in other international markets, in particular China, where the African Swine Fever (ASF) supports higher animal protein imports.

Offsetting these positive attributes are the low geographic diversity in terms of production footprint and heavy concentration in one protein (poultry), and strong exposure to grain prices and currency volatility. The company's exposure to foreign-exchange volatility is mitigated by the use of effective hedging strategies.

BRF has an adequate liquidity profile, with BRL9.7 billion in cash and equivalents at the end of June 2020, which covers all debt obligations through 2022. Liquidity is further enhanced by BRL 1.5 billion available under committed credit facilities and positive free cash flow generation (BRL 3.4 billion in the twelve months ended June 2020).

Furthermore, BRF continued with its liability management strategy in July 2020, with the issuance of BRL 2.2 billion in debentures (used as a collateral for the issuance of agribusiness receivables certificates -- CRA) and a tender offer for its 2022, 2023 and 2024 bonds, which amounted to $296 million. In August, the company pre-paid BRL 965 million in short-term debt maturities with financial institutions in Brazil. We expect BRF to continue to refinance working capital lines and address shorter-term capital markets debt maturities, represented mostly by bonds due in 2022, 2023 and 2024 - about $1.1 billion, or $610 million considering only the 2022 and 2023 maturities. At the end of June 2020, bonds represented about 57% of BRF's total debt.

The stable outlook reflects our expectations that BRF will present steady credit metrics in the next 12 to 18 months, and maintain an adequate liquidity profile, managing capital spending and dividend distribution in a prudent manner, avoiding compromising its leverage and cash flow.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

An upgrade would be considered in case of a continuous improvement in operating performance, with BRF showing a resilient performance regardless the underlying macroeconomic environment and consumption patterns in key markets. An upward rating movement would require BRF to maintain a strong liquidity position, and improve credit metrics, with leverage, measured by total adjusted debt/EBITDA sustained below 3x and cash flow from operations (CFO)/Debt improving towards at least 15%. Moreover, an upward rating movement would also be subject to its relative position to Brazil's sovereign ratings (Ba2 stable).

A downgrade could result from a deterioration in BRF's operating performance and liquidity, with weaker cash flow limiting the company's ability to deleverage. Quantitatively, a downgrade could also occur if total adjusted debt/EBITDA remains above 4x on a sustained basis. A deterioration in the Government of Brazil's credit quality could hurt BRF's ratings.

The principal methodology used in this rating was Protein and Agriculture published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113389. Alternatively, 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 BRL35.8 billion ($8.0 billion, considering average exchange rate) for the twelve months ending June 2020. Processed food and in natura high value products, which typically generate higher and less volatile margins than in natura low value export business, represented about 80% of the company's total product portfolio. The company operates 40 meat processing plants, 10 industrial facilities/processing plants for margarine, pasta, dessert and soybean crushing, and 45 distribution centers in the world. BRF exports to more than 130 countries and has a leading position in global poultry exports, with about 11% of the world's poultry trade.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Barbara Mattos, CFA
Senior Vice President
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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