Fitch Assign 'BB-' Expected Rating to Minerva Luxembourg S.A. Perpetual Notes

NEW YORK--()--Fitch Ratings has assigned an expected rating of 'BB-'(Exp) to Minerva Luxembourg S.A.'s proposed perpetual notes. The purpose of the notes is to repay outstanding indebtedness and for general purpose. The notes are issued by Minerva Luxembourg S.A. and guaranteed by Minerva S.A.

The notes will be unsecured, unsubordinated obligations of the issuer and will rank equally in right of payment with unsecured and unsubordinated indebtedness. The notes are perpetual with no fixed final maturity date and will be repaid only in the event the issuer redeems or repurchases the notes or upon acceleration following an event of default.

KEY RATING DRIVERS

Positive Industry Fundamentals

The fundamentals of the Brazilian beef industry remain positive due to the abundant cattle herd, low cost structure and positive revenue momentum derived from strong revenue growth from exports, a situation that Fitch does not expect to change in the short-term. The industry has been through a consolidation process over the last few years that culminated in the creation of three large export players. Fitch expects this consolidation process to give more stability to the industry at the end of the positive cattle cycle in Brazil.

Positive Performance

Minerva reported improving revenues and EBITDA in 2013. The company's net revenue reached BRL5.5 billion in 2013, which is 25% higher than in 2012. The beef division performed well during the year with domestic sales growing by 17% and exports increasing by 29%. Minerva's EBITDA increased 16% to BRL551 million from BRL475 million in 2012. EBITDA margins remained relatively flat at 10.1% compared to 10.3% in 2012. The company benefits from a comfortable liquidity position with cash and cash equivalents of BRL1.5 billion. The next material maturity date is 2023 when the USD850 million unsecured notes are due.

Improve Credit Metrics Expected

Fitch expects Minerva's net debt to EBITDA ratio to improve toward or below 3x over the next two years (3.3x as of the FYE13), as a result of improved EBITDA due to strong international demand for beef and the company's focus on free cash flow generation despite bolt-on acquisition to increase its production capacity. During 2013 the company, inaugurated two distribution centers (of a total of six to be opened by 2015), started the investments for the expansion of Minerva Fine Foods and announced the acquisition of two plants from BRF in Mato Grosso State. In early 2014, the company announced the acquisition of a slaughtering and deboning plant in Janauba, Minas Gerais state for BRL40 million and in Uruguay, of Frigorifico Matadero Carrasco S.A. for USD37 million.

Product and Country Concentration Risks

The ratings incorporate risks associated with geographic and product concentration in beef protein. Being mainly an exports company, Minerva's performance is exposed to exchange rate variations; a downturn in the economy of a given export market; imposition of increased tariffs or commercial or sanitary barriers; strikes or other events that may affect the availability of ports and transportation. Minerva is more exposed to these risks than Brazilian competitors such as JBS S.A. and Marfrig S.A. because of its higher export concentration. Exports represented about 70% of revenues at FYE13.

RATING SENSITIVITIES

A negative rating action could occur as a result of a sharp contraction of the group's performance, increased of net leverage as a result of either a large debt-financed acquisition, or as a result of a sharp operational deterioration due to disruptions in exports.

A positive rating action could be triggered by additional geographic and protein diversification and substantial decrease in gross and net leverage.

Fitch rates the following:

Minerva S.A.:

--Local Currency Issuer Default Rating (IDR) 'BB-';

--Foreign currency IDR 'BB-';

--National scale rating 'A-(bra)';

Minerva Luxembourg S.A.:

--Local currency IDR 'BB-';

--Foreign currency IDR 'BB-';

--Senior unsecured notes due in 2017, 2019, 2022 and 2023 'BB-'.

--Perpetual notes 'BB-' (Exp)

The corporate Rating Outlook is Stable.

Additional information is available at '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 - Effective from 8 August 2012 - 5 August 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824453

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Contacts

Fitch Ratings
Primary Analyst:
Johnny Da Silva, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Gisele Paolino, +55 21 4503 2624
Director
or
Committee Chairperson:
Joe Bormann, CFA, +1-312-368-3349
Managing Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Johnny Da Silva, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Gisele Paolino, +55 21 4503 2624
Director
or
Committee Chairperson:
Joe Bormann, CFA, +1-312-368-3349
Managing Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com