Fitch Rates Marfrig's Proposed USD850MM Notes 'B/RR4'

NEW YORK--()--Fitch Ratings assign a 'B/RR4' rating to the USD 850 million of proposed senior unsecured notes due in 2019 to be issued by Marfrig Holdings (Europe) B.V. and irrevocably and unconditionally guaranteed by Marfrig Global Foods S.A. (Marfrig) and by Marfrig Overseas Limited.

Proceeds are expected to be used to refinance debt maturities.

A complete list of Fitch's ratings on Marfrig follows at the end of this press release.

KEY RATING DRIVERS

Focus on Deleveraging

Fitch expects Marfrig's net debt to EBITDA ratio to organically fall to below 4.0x by 2015 from an annualized 1Q14 leverage ratio of 4.2x. The annualized leverage adjusts for the October 2013 exchange by Marfrig of its branded food business, Seara, and its leather businesses, Zenda, to JBS in exchange for JBS assuming BRL5.850 billion of related debt. Future debt reduction will be driven by better asset and logistics management, a reduction in capex, lower working capital use and decreased interest expenses.

Simplified Business Profile

Marfrig has simplified its organizational structure and decreased execution risk with the divestment of Seara Brazil. 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 systems 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.

Improved Debt Profile

The group has improved its debt maturity and liquidity profile following the divestment of Seara. As of March 31, 2014, the group had BRL2.4 billion of cash and marketable securities. This compared with only BRL1.4 billion of short-term debt. The company is actively engaged in liability management to reduce interest expenses. It has done this through buying back expensive debt and issuing debt with a 6.25% coupon through Moy Park.

RATING SENSITIVITIES:

Considerations that could lead to a negative rating action include the inability of Marfrig to start generating positive free cash flow over the next 24 months while 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 consistently generate positive free cash flow.

Fitch currently rates Marfrig as 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.

The Rating Outlook is Stable.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 14, 2014).

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=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833978

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Contacts

Fitch Ratings
Primary Analyst
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368 3349
or
Media Relations
Elizabeth Fogerty, New York, +1 -12-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368 3349
or
Media Relations
Elizabeth Fogerty, New York, +1 -12-908-0526
elizabeth.fogerty@fitchratings.com