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Rating Action:

Moody's upgrades JBS S.A. ratings to Ba3 and assigns Ba3 rating to proposed notes; stable outlook

17 Oct 2018

New York, October 17, 2018 -- Moody's Investors Service ("Moody's") upgraded JBS S.A. (JBS)'s corporate family rating to Ba3 from B1 and the senior unsecured ratings of its wholly-owned subsidiary JBS USA Lux S.A. (JBS USA) to Ba3 from B1. The senior secured bank facility under JBS USA Lux S.A. was upgraded to Ba2 from Ba3. The outlook for all ratings is stable.

At the same time, Moody's assigned a Ba3 rating to the proposed senior unsecured notes to be issued by JBS Investments II GmbH and fully guaranteed by JBS S.A. Net proceeds will be primarily used for a tender offer of the JBS S.A. 2020 notes, as well as other 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.

Ratings actions:

Issuer: JBS S.A.

LT Corporate Family Rating: upgraded to Ba3 from B1

Issuer: JBS USA Lux S.A.

$500mm GTD global notes due 2021: upgraded to Ba3 from B1

$650mm GTD global notes due 2021: upgraded to Ba3 from B1

$3300mm GTD secured term loan due 2022: upgraded to Ba2 from Ba3

$750mm GTD global notes due 2024: upgraded to Ba3 from B1

$900mm GTD global notes due 2025: upgraded to Ba3 from B1

$900mm GTD global notes due 2028: upgraded to Ba3 from B1

Issuer: JBS Investments II GmbH

Proposed $500 million senior unsecured notes: Ba3

The outlook for all ratings is stable

RATINGS RATIONALE

The upgrade of JBS´ corporate family rating to Ba3 was triggered by the improvement in credit profile following the recent transactions aiming at reducing the amount of debt levels through 2021 and extending debt maturities. The initiatives include a BRL2 billion pre-payment under the company´s normalization agreement with Brazilian banks, the up to USD 1.5 billion tender offers for the 2020 and 2021 notes, the renewal of USD 900 million revolving credit facilities in the US, and a new AUD$200 million committed line in Australia. In total JBS will amortize up to USD 1 billion in debt, while maintaining cash balances at around BRL 12 billion and generating positive free cash flows. We expect to see leverage, measured by total debt to EBITDA, including Moody's standard adjustments, declining from 4.4x in the last twelve months ending June 2018 to 3.5x by the end of 2019.

Liquidity has been the most relevant risk during 2017, after the outbreak of the corruption scandals in Brazil involving JBS SA, its parent company J&F, and their executives. Accordingly, JBS has taken the necessary steps to address such risk by negotiating an aggregate amount of BRL 12.2 billion in short term debt instruments with banks under the so-called "normalization agreement". At the end of June 2018, short-term debt represented only 7% of total debt. The BRL 2 billion pre-payment of the 2019 and 2020 amortizations under the normalization agreement and the tender offers, if successful, will further improve the company's debt amortization schedule and its liquidity cushion.

JBS ratings continue to be supported by the strength of its global operations as the world's largest protein producer and its substantial diversification across protein segments, geographies and markets. JBS strategy to increase its global footprint into higher value added processed food segments has improved its business profile and will lead to stable or higher operating margins and cash flows overtime.

The ratings are constrained by the risks regarding a series of judicial processes and investigations which can directly or indirectly involve JBS and its shareholders. The Leniency Agreement as entered into by its controlling owner, J&F Investimentos S.A. ("J&F"), includes a total fine of BRL 10.3 billion to be paid by J&F, is the most relevant. Currently the Leniency is being investigated by the Brazilian Attorney General for possible breaches. However, despite the investigation in regarding the agreement's validity, the provisions of the leniency agreement continue to hold and it have not prevented the company, nor its J&F, from executing asset sales or renegotiating debt with banks. The rating also reflects the inherent volatility of the protein industry, which is subject to risk factors such as weather conditions, diseases, supply imbalances, and global trade variables, along with the company's history of aggressive growth via acquisitions.

Proceeds from the proposed bond issuance will be primarily used for liability management, and JBS has announced a tender offer for its $1 billion notes due in 2020, as well as other general corporate purposes.

The stable outlook reflects the expectation that JBS will maintain a prudent approach to liquidity and continue to generate positive free cash flow, while maintaining strong operating performance. The outlook also incorporates our expectation that the evolution of existing judicial processes and investigations will not jeopardize JBS' liquidity or the company's access to capital markets.

An upgrade of JBS' ratings will require further reduction in event risks, represented by existing litigations, including the maintenance of the J&F Investimentos (J&F) Leniency Agreement. An upgrade would also require additional improvements in the company´s capital structure, most specifically the reduction of its debt maturities in 2021 and 2022, while maintaining an adequate cash balance to meet the requirements of its operations and debt obligations. The ability to growth inorganically without jeopardizing liquidity or leverage is another important consideration for an upgrade. Quantitatively, an upgrade would require JBS adjusted total debt to EBITDA to remain below 3.5x and the cash flow from operations (CFO)/net debt ratio to be above 20%.

The ratings or outlook could suffer negative pressure should events that can increase liquidity risk occur, or if JBS' operations deteriorate, weakening cash flows as such CFO/net debt remains below 15% on a sustained basis. A negative action could be prompted by persistently high leverage, with total debt to EBITDA above 4.2x and weakening interest coverage, with EBITA/interest expense maintained below 2x.

The principal methodology used in these ratings was Global Protein and Agriculture Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in São Paulo, Brazil, JBS S.A. (JBS) is the world's largest protein producer in terms of revenues, slaughter capacity and production. The company is the leader in beef, chicken and leather, and the second largest pork producer in the US. The company has a presence in over 100 countries, with large scale and diversification.

In the last 12 months ended June 2018, JBS S.A. reported consolidated revenues of BRL 169 billion ($51.1 billion), with adjusted EBITDA margin of 8.9%. JBS USA Lux S.A. (B1 stable)("US beef"), which represents the beef and lamb operations in the US, Canada and Australia, is the largest business segment, accounting for 43% of total revenue during the first half of the year; Pilgrim's Pride Corporation (Ba3 stable) including Moy Park (US poultry), accounts for 22% of total revenue, while the US pork business contributes 12%. JBS S.A. Brasil ("beef Brazil") represents 14% of total revenue in the same period. Brazil-based Seara, which comprises poultry, pork and processed foods operations, is responsible for 9% of revenue.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The person who approved JBS S.A. and JBS Investments II GmbH credit ratings is Marianna Waltz, CFA, MD - Corporate Finance, Corporate Finance Group, JOURNALISTS: 800 891 2518, Client Service: 1 212 553 1653. The person who approved JBS USA Lux S.A. credit ratings is Peter H. Abdill, CFA, MD - Corporate Finance, Corporate Finance Group, JOURNALISTS: 1 212 553 0376, Client Service: 1 212 553 1653.

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: 800 891 2518
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 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.
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