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Announcement:

Moody's revises BRF Brasil Foods' Ba1 rating outlook to positive

 The document has been translated in other languages

Global Credit Research - 18 Apr 2011

Approximately USD 1.0 billion of rated debt affected

Sao Paulo, April 18, 2011 -- Moody's Investors Service has changed BRF Brasil Foods S.A.'s (BRF) ratings outlook to positive from stable reflecting the margin improvement in FY2010 following the acquisition of Sadia in 2009 and the expectations that the business performance and margin trend will remain favorable.

RATINGS RATIONALE

The positive outlook reflects Moody's expectation that BRF will benefit from the favorable economic conditions in Brazil and will sustain operating margin improvements despite higher grain input costs. It also reflects Moody's confidence that BRF will continue to generate positive free cash flow in 2011 and improve its debt coverage ratios with the further deleveraging process.

"BRF ability to increase prices in both domestic and international markets and sustain solid market position, especially in the processed foods, confirmed the value and strength of its brands", said Mr. Ricardo Kovacs, VP Senior Analyst. The anticipation of raw material purchases and controlled hedging positions, especially grains, at lower prices at the beginning of 2010, coupled with synergy gains from the merger with Sadia, also helped to elevate the EBITDA margin to 14.2% in FY10 from 8.5% in FY09.

Furthermore, the change in outlook incorporates the increasing proportion of value-added processed foods in the sales mix. Processed food now account for almost 60% of total sales in 2010. The migration into the processed food products should reduce the impact of commodity volatility in BRF's profitability and cash flow. Moody's also considers that capital expenditures will be in the same proportion of 2010 level, which should further support its free cash flow generation.

The affirmation of the Ba1 CFR incorporates the residual uncertainties related to the decision from CADE for the processed food segment. Nonetheless, the rating reflects Moody's expectations that the CADE decision should be forthcoming and not be overly disruptive to the overall operations of the merged entity and that BRF will be able to realize the projected synergies. Although Moody's recognizes international expansion is a key component of product and geographic diversification, also in order to reduce earnings volatilities, a possible acquisition overseas may add further integration and financial risks to BRF.

Leverage measured by total debt to EBITDA decreased to 2.7 times in FY10 (7.5 times in FY09) and we expect that BRF will delever to below 2.3 times and be better positioned in the current rating category. Liquidity remains comfortable and considering management target of maintaining cash level of approximately one time last twelve months EBITDA.

Moody's regards BRF as having above average transparency and financial disclosure standards, as demonstrated by its quarterly publication of audited financials in Brazilian GAAP and in IFRS and hosting regular quarterly conference calls. The company's shares are traded on BM&FBovespa complying with the Novo Mercado standards since 2006, the highest corporate governance level in the local market. Its ordinary shares are listed on the New York stock exchange (NYSE - Level III ADR's) validating to other relevant jurisdiction its higher corporate governance standards.

Upward pressure on the company's rating may result from a positive decision from CADE, with minimal impact to BRF's current operations, and management's ability to realize expected synergies in a timely matter. Quantitatively, if the company sustains a positive free cash flow generation, EBITA margin at least in the high-single digits and a debt to EBITDA ratio of below 2.5 times on a sustainable basis the rating could be upgraded.

Negative pressure on the rating could result from a weaker liquidity management or and persistently high leverage as measured by debt to EBITDA of above 3.0x. Furthermore, the rating or outlook could be negatively affected if BRF assumes higher risks in a larger than anticipated acquisition or greenfield projects, especially if leverage materially increases as a consequence. An adverse CADE decision could negatively impact the outlook.

Moody's last rating action on BRF occurred on January 14, 2010 when we affirmed the ratings of BRF and assigned a Ba1 foreign currency rating to the company's proposed 10-year USD 750 million guaranteed senior unsecured note issuance with stable outlook.

BRF, headquartered in Itajaí -- Santa Catarina State -- Brazil, is one of the largest food processors in Latin America, with a focus on poultry, pork, beef, milk and processed products, including dairy. BRF is the world's largest poultry exporter and the fourth major exporter in Brazil. The company operates 63 plants with net revenues of BRL 22.7 billion in FY10 (equivalent to approximately USD 13.4 billion). Approximately 40% of its sales are from the international markets.

The principal methodology used in rating BRF was Moody's Rating Methodology for Global Food -- Protein Agriculture Industry (published Sept 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.
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Moody's revises BRF Brasil Foods' Ba1 rating outlook to positive
No Related Data.
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