Fitch Expects to Rate Benchmark-Size Sr Unsecured Notes Issued by JBS Investments GmbH 'BB-'

NEW YORK--()--Fitch Ratings has assigned an expected rating of 'BB-' to proposed benchmark-size senior unsecured notes offering by JBS Investments GmbH. These notes will be unconditionally guaranteed by JBS S.A. and JBS Hungary Holdings Kft. The notes will rank equally in right of payment with all other present and future senior unsecured obligations of the issuer and of the guarantors.

The proceeds are expected to be used to refinance shorter-maturity indebtedness and for general corporate purposes.

KEY RATING DRIVERS

HIGH LEVERAGE, BUT DELEVERAGING

Fitch expects JBS's net debt to EBITDA ratio to organically fall to around 3.0x or lower by the end of 2014 due to the company's strong free cash flow (FCF) generation. Nevertheless, given the acquisitive nature of the company, the existing rating categories build in an expectation that debt-financed transactions could lead to this ratio being closer to 3.5x. In FYE13, JBS reported strong performance, notably in its US poultry division business. Total group EBITDA grew 39% year-on-year at BRL6.1 billion and reported net leverage was at 3.7x. Annualizing 4Q'13 EBITDA, which includes Seara results, leverage ended the period at 3.17x.

TURNAROUND OF SEARA

JBS made significant initial cash investments in working capital in order to strengthen Seara's operations. The group has communicated to the market good progress in terms of integration of Seara since the acquisition in September 2013 and expect to report strong 1Q'14 results. JBS has rationalized the administrative and financial activities of Seara, improved logistics, product delivery rates and worked on the reformulation of Seara products with a focus on quality and better product mix.

SOLID BUSINESS PROFILE

JBS's credit ratings are supported by a strong business profile. The company is the world's largest beef and leather producer. With the acquisition of Seara Brasil, JBS has become the second largest processed meats producer in Brazil. The company's product and geographic diversification help to mitigate risks related to disease and trade restrictions.

NO MAJOR ACQUISITIONS ANTICIPATED

Fitch does not foresee any transformational acquisitions in the next 18 months as JBS's management will need to focus on the integration of Seara. However, Fitch factors in its ratings some bolt-on transactions as JBS aims to reinforce its production and distribution capacity.

ADEQUATE LIQUIDITY

As FYE13, about 29% of JBS debt - or BRL9.4 billion - was classified as short-term. This figure compares with BRL9 billion of cash and cash equivalents and USD1.5 billion of available committed lines at JBS USA.

RATING SENSITIVITIES

A downgrade could be precipitated by further increase of the group's leverage ratios, or a sharp contraction in the group's operating margin and FCF generation in the next 18 months.

An upgrade could result from an increase in the group's capacity to generate strong FCF. Expanding operating margin over a sustained period of time and consistent leverage ratios in the range of 2.0x to 2.5x would also be viewed positively.

Fitch Rates the following:

JBS S.A.:

--Foreign & local currency IDR 'BB-';

--Notes due 2016 'BB-';

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

-Debentures 'A-(bra)'.

JBS USA LLC:

--Foreign and local currency IDR 'BB-';

--Term loan B facility due in 2018 'BB'

--Notes due 2020, 2021 'BB-'.

JBS USA Finance, Inc:

--Foreign and local currency IDR 'BB-';

--Bonds due 2020 'BB-';

--Notes due 2021 'BB-'.

JBS Investments GmbH

--Notes due 2023 'BB-'.

JBS Finance II Ltd:

--Foreign and local currency IDR 'BB-';

--Notes due 2018 'BB-'.

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).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825635

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Contacts

Fitch Ratings
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Dan Kastholm
Managing Director
+1 312-368-2070
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Dan Kastholm
Managing Director
+1 312-368-2070
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com