NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB' rating to the proposed USD750 million unsecured notes due in 2025, to be jointly issued by JBS USA, LLC (JBS USA) and JBS USA Finance, Inc (JBS USA Finance). The notes will be guaranteed by JBS S.A. (JBS), JBS USA Holdings Inc. and JBS Hungary Holding Kft. The purpose of the issuance of the bond is to repay debt.
KEY RATING DRIVERS
Solid Business Profile: JBS' ratings are supported by its strong business profile as the world's largest beef and leather producer. With the acquisition of Seara from Marfrig Alimentos S.A. (Marfrig) in 2013, JBS became the second-largest producer of processed meats in Brazil. The company's product and geographic diversification help mitigate risks related to disease and trade restrictions.
Industry Fundamentals: The fundamentals of the Brazilian beef industry remain positive due to the low cost structure, potential productivity gains and revenue growth momentum derived from strong international demand. In addition, in July 2014, China removed its embargo of Brazilian beef, which will benefit exports. This positive trend, however, is somewhat offset by high cattle prices, the slowdown of the Brazilian economy, and an abundant cattle herd that is reaching peak levels. This could pressure EBITDA margin of the main players in the industry during 2015. The USA beef industry remains difficult due to the shortage of the cattle herd but the shutdown of industry capacity is gradually improving companies' profitability.
Moderate Leverage: Fitch expects JBS' net debt-to-EBITDA ratio to organically fall to below 3.0x by the end of 2014 due to its strong EBITDA improvement and positive FCF generation. Given the acquisitive nature of the company, Fitch has built in an expectation of debt-financed acquisitions that could potentially increase the company's leverage ratio. Nevertheless, JBS' leverage should remain in line with the 'BB' rating category.
Solid Performance: The company's strong performance is due to an improvement in revenues from all business units, except for the U.S. chicken operations (Pilgrim's Pride), which remained stable. The Seara acquisition also contributed to growth. Fitch expects the recent decline of commodity prices, notably corn price to be supportive to the group's overall profitability in 2015.
Acquisition Risk: Considering JBS' acquisitions history, Fitch believes that the company will continue to pursue growth opportunities to strengthen its business profile. The group made a failed attempt to buy Hillshire brands company through an initial bid at USD6.4 billion in May 2014. Subsequently, JBS announced the acquisition of Tyson Foods, Inc.'s poultry businesses in Brazil (USD175million) and Mexico (USD400 million) and assets of Ceu Azul in Brazil (BRL246 million). The company has also entered into a conditional agreement to purchase 100% of the share capital of Primo Group. (AUD1,450 million) on cash and debt free basis. JBS has also made an offer to buy Big Frango Industria e Comercio de Alimentos (BRL430 million). Some of these acquisitions are depending upon the final approval from antitrust authorities
RATING SENSITIVITIES
A downgrade could be precipitated by an increase in JBS' net leverage ratio above 4x-4.5x on a sustained basis due to a sharp contraction of its operating margins, negative FCF generation, and/or a significant debt-funded acquisitions.
An upgrade could result from the company's consistent positive FCF generation and resilience of its operating margins backed by business diversification leading to its net leverage ratio falling towards or below 2.5x on a sustained basis.
Fitch currently rates:
JBS S.A.:
--Foreign & local currency IDR at 'BB';
--National scale rating at 'A+ (bra)';
--Notes due 2016 at 'BB' ';
--Debentures at 'A+(bra)'.
JBS USA LLC:
--Foreign and local currency IDR at 'BB';
--Term loan B facility due in 2018 at 'BB+';
--Notes due 2020, 2021 at 'BB'.
JBS USA Finance, Inc:
--Notes due 2020, 2021 at 'BB'.
JBS Investments GmbH
---Notes due 2020, 2023, 2024 at 'BB'.
JBS Finance II Ltd:
--Notes due 2018 at 'BB'.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=944076
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