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Rating Action:

Moody's upgrades Marfrig to B1; stable outlook

04 Jul 2019

New York, July 04, 2019 -- Moody's Investors Service ("Moody's") today upgraded Marfrig Global Foods S.A. (Marfrig) corporate family rating and the senior unsecured ratings of its wholly-owned subsidiary Marfrig Holdings (Europe) B.V. to B1 from B2. The outlook is stable.

Ratings actions:

Issuer: Marfrig Global Foods S.A.

LT Corporate Family Rating: upgrade to B1 from B2

Issuer: Marfrig Holdings (Europe) B.V.

$21.6 million senior unsecured global notes due 2021; upgraded to B1 from B2

$446.1 million senior unsecured global notes due 2023; upgraded to B1 from B2

The outlook is stable

RATINGS RATIONALE

The upgrade of Marfrig to B1 reflects the estimated improvements in credit metrics during 2019 and beyond along with the lower refinancing risk after the payment, with proceeds from the Keystone sale, of the $900 million bridge loan raised for the National Beef acquistion and the $1 billion bond issuance in May 2019. The upgrade incorporates the expectation that , despite the increased concentration in the beef segment, Marfrig will be able maintain or modestly improve its operating margins when compared to historical levels. Accordingly, profitability will be supported by US operations and the strategy of adding higher value-added products through National Beef and Quickfood brands, as well as processed foods in Brazil.

The B1 ratings also consider the evolution observed in corporate governance practices. Marfrig has revised its Code of Ethics and Conduct and its Anticorruption Policy, while it implemented new governance policies, including clear formal financial policies on liquidity risk (limiting concentration of debt maturities in the short-term and cash levels) and leverage targets (net debt/adjusted EBITDA not exceeding 2.5x in December 2018 and 3.5x on each subsequent quarter), also incorporated into the Shareholders' Agreement.

The B1 ratings remain supported by Marfrig's scale as the second largest beef producer globally, its good geographic footprint and distribution capabilities. Diversification in terms of raw material sourcing, in Latin America and the US, reduces risks related to weather and animal diseases. It also mitigates some of the volatility inherent in commodity cycles and supply-demand conditions for each specific region.

Marfrig's credit profile is constrained by its cash flow dependence and exposure to the volatile beef segment, as well as the high gross leverage, measured by Moody's adjusted debt/EBITDA, and weak interest coverage. Liability management initiatives that reduce cost of debt will support improvements in interest coverage, while cash flow from operations will allow the company to reduce debt levels and improve leverage overtime.

The stable outlook reflects our expectations that Marfrig will present steady credit metrics in the next 12 to 18 months, despite its higher concentration in the beef segment. The outlook also incorporates our expectations that the company will maintain an adequate liquidity profile and will manage capital spending and dividend distribution in a prudent manner, avoiding compromising its leverage and cash flow.

An upward rating movement would require Marfrig to maintain a strong liquidity position and improve credit metrcis, with leverage, measured by Moody's total adjusted debt/EBITDA declining towards 4x and interest coverage, measured by EBITA/interest expense, improving towards at least 3x. An upgrade would also require improvements in operating performance, with CFO/Debt reaching at least 15%, and the company complying with its financial policies.

Marfrig's ratings could be downgraded if the company's operating performance weakens, its financial policy becomes more aggressive or its liquidity deteriorates. Quantitatively, the ratings could be downgraded if total debt/EBITDA stays above 5x over the next 12-18 months, EBITA/interest expense falls below 2x or CFO/debt stays below 12%. All credit metrics incorporate our standard adjustments.

The principal methodology used in these ratings was Protein and Agriculture published in May 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Marfrig Global Foods S.A. (Marfrig), headquartered in Sao Paulo, Brazil, is the second-largest beef producer globally, with consolidated revenue of R$36.7 billion (around $10.0 billion) in the 12 months ended March 2019. The company has a relevant scale and it is geographically diversified in terms of operating production facilities, with total slaughtering capacity of 33.5 thousand heads per day (including National Beef) through its 24 slaughtering plants (including one lamb slaughtering unit) and 12 processing facilities located in Brazil, Argentina, Uruguay and the US. In June 2018, Marfrig acquired the control of National Beef (through a 51% stake), headquartered in Kansas City, Missouri.

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.

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.
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