Fitch gives 'B/RR4' rating to Marfrig Global Foods' tap issuance of its US$500M senior unsecured 2020 notes

Nevin Barich

NEW YORK , March 14, 2014 (press release) – Fitch rates the tap issuance of the reopening by Marfrig Global Foods S.A. (Marfrig) of its USD500 million senior unsecured 2020 notes 'B/RR4'.

Proceeds are expected to be used to refinance debt maturities and extend debt maturity schedule. A complete list of Fitch's ratings on Marfrig follows at the end of this press release.

KEY RATING DRIVERS

FOCUS ON DELEVERAGING AND CASH FLOW:

Fitch expects Marfrig's net debt to EBITDA ratio to organically fall to below 4.0x by 2015 from 4.2x (4Q13 annualized) at fiscal year-end 2013 (FYE13). Fitch expects Marfrig to gradually improve free cash flow after 2014 and operating margin due to better asset and logistics management, lower capex, lower working capital use and interest expense post-divestment of Seara Brazil.

SIMPLIFIED BUSINESS PROFILE:

Marfrig has simplified its organizational structure and decreased execution risk with the divestment of Seara Brazil during 2013. The group is implementing its strategy called 'Focus to Win', which aims to improve profitability and revenues with a focus of its commercial strategy towards the rapid development of the food service and retail channels.

The group is now structured into three business units, Marfrig beef (46% of revenues), the world's third largest beef producer; Moy Park (25%), one of the largest poultry-based processed product supplier in the UK; and Keystone Foods (28%), which processes food for major restaurant chains (notably McDonald's). The company's product and geographic diversification continues to help to reduce risks related to disease, trade restrictions and currency fluctuation. As end-2013, processed foods represented 40% of sales. Revenues were primarily denominated in USD (43%), Euro/Pound (22%) and the Brazilian real (21%).

NO MAJOR ACQUISITIONS ANTICIPATED:

Fitch does not foresee any major acquisitions for Marfrig in the next 18 months as the company's management will need to focus on improving cash flow generation. Fitch expects Marfrig to focus on developing its existing activities. Key initiatives will be the optimization of plants and distribution by Marfrig Beef, the geographic expansion of Keystone, and the growth by Moy Park through multi-protein retail sales in markets across UK and Continental Europe, keystone expanding geographically (Asia and Indonesia) and developing of new accounts, and Marfrig beef optimizing its plants and distribution capacity.

IMPROVED DEBT MATURITY AND LIQUIDITY:

The group has improved its debt maturity and liquidity profile following the divestment of Seara. At FYE13, the group held BRL1.8 billion of cash and marketable securities with a current debt at about BRL1.1billion. Marfrig's short-term maturity represented 12.6% of total debt as of FYE13. Marfrig's largest bond refinancing requirements is now during 2017 (USD600 million).

RATING SENSITIVITIES:

Considerations that could lead to a negative rating action (rating or Outlook) include Marfrig's inability to start generating positive free cash flow over the next 24 months and maintaining net leverage above 4.0x. An upgrade of Marfrig's ratings over the medium term is possible should the company and new management be able to improve the group's profitability and generate consistent positive free cash flow and reduce leverage.

Fitch currently rates Marfrig s follows:

Marfrig Global food S.A.

--Local currency IDR 'B';

--Foreign currency IDR 'B';

--National scale rating 'BBB(bra)'.

Marfrig Overseas Ltd

--Foreign currency IDR 'B';

--Senior unsecured notes due 2016 'B/RR4';

--Senior unsecured notes due 2020 'B/RR4'.

Marfrig Holdings (Europe) B.V.

--Foreign currency IDR 'B';

--Senior unsecured notes due 2017 'B/RR4';

--Senior unsecured notes due 2018 'B/RR4';

--Senior unsecured note due 2021 'B/RR4.

Additional information is available 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

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or
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