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Rating Action:

Moody's upgrades Quickfood's guaranteed notes ratings to B1/Aa3.ar; stable outlook

 The document has been translated in other languages

04 Jul 2019

Buenos Aires City, July 04, 2019 -- Moody´s Latin America Agente de Calificación de Riesgo S.A., (Moody´s) has upgraded Quickfood S.A.'s guaranteed senior unsecured notes' ratings to B1/Aa3.ar from B2/A2.ar following the upgrade of the guarantor's ratings, Marfrig Global Foods S.A. (Marfrig, B1 stable), to B1 with stable outlook on July 4, 2019. At the same time, Moody's has affirmed Quickfood's corporate family rating (CFR) at B3/Baa2.ar. The outlook is stable.

Upgrades:

..Issuer: Quickfood S.A.

....Gtd Senior Unsecured Regular Bond/Debenture, Upgraded to B1/Aa3.ar from B2/A2.ar

Affirmations:

..Issuer: Quickfood S.A.

....Corporate Family Rating, Affirmed at B3/Baa2.ar

RATINGS RATIONALE

The upgrade to B1/Aa3.ar of Quickfood's guaranteed notes mirrors the rating upgrade to B1 from B2 of its guarantor, Marfrig, by Moody's Investors Service on July 4, 2019. Marfrig fully and unconditionally guarantees the instruments, which would cause an acceleration of most of the parent's debt in the event of a default. For more information, please see "Moody's upgrades Marfrig to B1; stable outlook" available at moodys.com at https://www.moodys.com/research/Moodys-upgrades-Marfrig-to-B1-stable-outlook--PR_404385.

Quickfood's B3/Baa2.ar CFR continues to reflect its weak credit and financial profiles, and its modest scale and concentration in Argentina, with a consequent strong correlation with the country's macroeconomic environment. Some of its raw materials are commodities or correlated with them, mainly livestock and trimming, which add both price and foreign-exchange rate volatility risk. Quickfood's B3/Baa2.ar ratings incorporate an uplift from its standalone credit profile because of the support from its parent, Marfrig. The ratings are also supported by the company's position as one of the main meat processing companies in Argentina, with high-quality products and well-recognized brands, such as Paty, the local leader in the beef hamburger market, and Vienissima, one of the local leaders in the sausages market.

Quickfood's credit metrics experienced some improvement in late 2018 and in the first quarter of 2019, as a result of (i) a capital contribution in August 2018 of ARS1 billion ($34 million) by the company's former parent company, BRF S.A. (Ba2 negative), that was used to pay down short term debt; and (ii) the triggering of a 'change of control' clause in early March 2019 following Marfrig's acquisition of the company in January 2019, which led to the repurchase of most of Quickfood's guaranteed notes. However, we expect Quickfood's debt levels to increase through the next 12 to 18 months to fund both working capital requirements and capital spending. Quickfood's profitability improved recently as a result the company's actions to improve productivity in 2018, with reported gross margin rising to 11.8% as of the last twelve months of March 2019 from 8.9% in fiscal-year 2017. But the company continues to derive negative profit at the operating and the net income levels, resulting in increasingly negative retained earnings in Quickfood's equity. In recent years, the company's low or even negative value of equity derived from high negative retained earnings forced former parent company BRF to strengthen Quickfood's equity through capital contributions. We expect the Argentine economic environment (75% of sales derive from the domestic market) to remain weak in 2019, with real GDP down by about 1.5%, which will continue to prevent the company from fully passing through higher costs of raw materials (mainly livestock and packaging) and further expanding gross margins.

The stable outlook reflects our view that Marfrig will continue to support the company to take advantage of its leading position in the processed food market in Argentina, as well as its export platform, given the recent US opening for import of fresh beef. In addition, we believe Quickfood will benefit from the group's solid business model and position as one of the largest food conglomerates in the world.

The B1/Aa3.ar rating of the guaranteed notes could be upgraded or downgraded if Marfrig 's ratings were to be upgraded or downgraded, respectively.

An upgrade of Quickfood's B3/Baa2.ar CFR could result from continued strengthening of the company's revenue and profitability, along with continued improvement in its leverage metrics. Additionally, a more predictable outlook on the economic activity in Argentina would be important for a rating upgrade.

A rating downgrade of Quickfood's B3/Baa2.ar CFR could be prompted if Marfrig's credit profile weakens, or in case of significant deterioration in Quickfood's operating performance. Indications of weakening market share in the domestic protein market could also place pressure on the rating, especially if Quickfood is unable to remain among the leading protein entities in Argentina

Founded in 1960 and headquartered in Buenos Aires, Argentina, Quickfood is dedicated to the manufacturing and commercialization of processed, refrigerated and frozen foods under specific brands. For the last twelve months ended in March 2019 revenues amounted to ARS9.6 billion (approximately $307 million). The company operates three processing plants and two distribution centers in Argentina.

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 is 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 and 12 processing units 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.

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.ar for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

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.ar.

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.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

Please see www.moodys.com.ar 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.ar for additional regulatory disclosures for each credit rating.

Martina Gallardo Barreyro
Asst Vice President - Analyst
Corporate Finance Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 1 800 666 3506
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 Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 1 800 666 3506
Client Service: 1 212 553 1653

No Related Data.
© 2019 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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