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
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For any affected securities or rated entities receiving direct credit
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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This rating is solicited. Please refer to Moody's Policy
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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
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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
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
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