Fitch Rates Minerva Luxembourg's Proposed Reopening of its 2023 Notes 'BB-'

NEW YORK--()--Fitch Ratings rates Minerva Luxembourg S.A.'s proposed USD100 million add-on issuance in a reopening of its 2023 notes (rated 'BB-'). The notes are unconditionally and irrevocably guaranteed by Minerva S.A. (Minerva). The purpose of the re-opening is to repay higher coupon outstanding indebtedness.

The notes are unsecured, unsubordinated obligations of the issuer and rank equally in right of payment with unsecured and unsubordinated indebtedness of Minerva.

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; Fitch expects this favorable environment to remain in the near term. In July 2014, China removed its embargo of Brazilian beef, which will benefit companies such as Minerva that have export capacity. Minerva has one plant in Barretos that is qualified to export to China.

Positive Performance

Minerva reported improving revenues and EBITDA in 2Q'14. The company's net revenue reached BRL1.7 billion, which is 25% higher than in 2Q'13. Sales from the Beef Division and the Others Division, which includes Live Cattle and Leather, performed strongly. Export market revenues increased by 28% year-over-year. During the same period, Minerva's EBITDA increased 33% year-over-year. LTM EBITDA margins for the period ended June 30, 2014 was 10.9%, up 20 bps over the same period in 2013. The group's debt maturity schedule remains comfortable with the next material maturity date due in 2023 when its USD850 million unsecured notes fall due (the group has bought back BRL 286 million of these notes).

Improve Credit Metrics Expected

Fitch expects Minerva's net debt to EBITDA ratio to improve toward 3x over the next two years; it was 3.4x as of June 30, 2014. The company is doing bolt-on acquisitions that will significantly increase its production capacity and should improve operating cash flow. In early 2014, the company acquired a slaughtering and deboning plant in Janauba, Minas Gerais state for BRL40 million and concluded the acquisition in Uruguay, of Frigorifico Matadero Carrasco S.A. for USD37 million. The group has also signed a six-month agreement with BRF SA (IDR 'BBB- '/Stable Outlook) in which Minerva will supply cattle to BRF, which will offer slaughtering and deboning services, including the packaging, storage and offer of beef in its production units. Then, Minerva will collect and distribute these products. This agreement became effective on July 15th. The company is awaiting for the Brazilian Antitrust Agency's (CADE) final approval of the acquisition of BRF's plants.

Product and Country Concentration Risks

Minerva is less diversified from a product and geographic position than two other large protein companies based in Brazil, JBS S.A. and Marfrig S.A. Minerva's operations are highly focused on beef production with exports representing about 68% of its revenues as of 2Q'14, Minerva's performance is exposed to exchange rate variations. A downturn in the economy of a given export market, the imposition of increased tariffs or commercial or sanitary barriers, and strikes or other events that may affect the availability of ports and transportation are also significant risks faced by the company.

RATING SENSITIVITIES

A negative rating action could occur as a result of a sharp contraction of the group's performance, an increase in net leverage close to 4.0x as a result of either a large debt- financed acquisition and/or a sharp operational deterioration.

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

Fitch currently rates Minerva as follows:

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-'.

The corporate Rating Outlook is Stable.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 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

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Contacts

Fitch Ratings
Primary Analyst
Johnny Da Silva, +1 212-908-0367
Director
Fitch Ratings, Inc.
33 Whitehall St.
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, +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.
33 Whitehall St.
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, +1 212-908-0526
elizabeth.fogerty@fitchratings.com