Fitch Rates JBS' Proposed Note Issuance 'BB-'

  Fitch Rates JBS' Proposed Note Issuance 'BB-'

Business Wire

NEW YORK -- January 28, 2013

Fitch Ratings has assigned an expected rating of 'BB-' to a proposed benchmark
size senior unsecured notes offering of a JBS S.A. (JBS) subsidiary. The
notes, which will be due in 2023, are being issued by ESAL GmbH, a wholly
owned subsidiary of JBS based in Austria. These notes will be unconditionally
guaranteed by JBS and JBS Hungary Holdings Kft. The proceeds are expected to
be used to refinance shorter maturity indebtedness and for general corporate
purposes. A complete list of Fitch's ratings of JBS is provided at the end of
this release.

The 'BB-' rating takes into consideration JBS's strong business profile as the
world's largest beef and leather producer and one of the largest producers of
chicken and lamb. Further factored into JBS' ratings are the company's
geographic and product diversity, which partially mitigates the risks of trade
barriers and animal diseases. JBS has high leverage and its risk profile is
above average due to cyclical risks associated with the meat business and the
company's aggressive attitude toward growth through acquisitions. While its
business profile benefits from the improved diversification through past
acquisitions, the risk of additional acquisitions in the medium term remains
above average.

SENSITIVITY/RATING DRIVERS:

The Rating Outlook for JBS and its rated subsidiaries is Negative. A revision
of the Outlook to Stable could be triggered by a number of factors that
include financial improvements above Fitch's expectations, given the current
operating environment, and/or sufficient capital injections to meaningfully
reduce debt.

A downgrade could be precipitated by the additional weakening or a lack of an
improvement in the company's financial performance and leverage metrics.
Continued negative free cash flow (defined as cash flow from operations less
capital expenditures and dividends) beyond current expectations could also
result in negative rating actions. A downgrade of JBS's corporate rating would
trigger the downgrade of the rating of the proposed bonds.

High Leverage and Negative FCF Despite Recent Operating Improvement:

Fitch considers net debt-to-operating EBITDA in the 3.0 times (x) range to be
the normalized leverage ratio for the 'BB-' rating category for companies in
the protein industry, which face volatile and cyclical operating earnings. For
the last 12 months (LTM) ended Sept. 30, 2012, JBS' net leverage ratio stood
at 3.7x, which is high for the rating category. Generating positive free cash
flow (FCF) and meaningfully reducing leverage within the next 12-18 months
remain the largest challenge for the company. Main concerns in 2013 are cattle
availability and oversupply of pork in the U.S. Possible grain price shocks
could also pressure costs and profitability, which would hurt the company's
ability to deleverage. Positively, a competitor has recently closed a large
beef processing facility in Texas, which should help improve cattle
availability.

JBS' operating profit and cash flow improved in the third quarter of 2012, in
line with Fitch's expectations. Cash Flow from operations (CFFO) improved to
BRL624 million for the LTM ending Sept. 30, 2012, as compared to BRL464
million in 2011. Negative FCF of BRL748 million during the LTM continued to
reflect high capital expenditures of BRL1.4 billion. Net revenues have been on
an upwards trend in the past five years, fueled by acquisitions and capital
investments. EBITDA margins remain at the low level of 4% to 7%, which is
typical for the industry. For the LTM ending Sept. 30, 2012, net revenues of
BRL71 billion and EBITDA of BRL4.1 billion resulted in an EBITDA margin of
5.8%.

Adequate Liquidity, Reliance on External Financing

JBS has an adequate liquidity position and a manageable 2013 debt maturity
schedule, both of which will be improved with the current offering. As of
Sept. 30, 2012, cash and marketable securities of BRL5 billion covered 0.9x of
short-term debt of BRL5.5 billion. As a mitigating factor, about 65% of
short-term debt corresponds to trade finance lines that support export
activity. The company also needs to maintain about 10% of EBITDA to support
its working capital, which was about BRL400 million for the LTM ending Sept.
30, 2012. Considering these two adjustments, short-term maturities of
long-term debt were covered more than 2.0x by available cash. In addition, the
company's JBS USA division has about USD699 million available under its
asset-based loan (ABL) facility and PPC has about USD573.6 million available
under a separate facility.

JBS's maturity schedule for 2014 is heavy with close to BRL4 billion of debt
coming due. Fitch projects that JBS's FCF generation will be neutral to
negative in 2013, which will continue to make the company dependent upon
external financing to address its 2014 maturities.

Solid Business Profile:

JBS' credit ratings are supported by a strong business position in the world
production of beef, lamb and chicken. The company benefits from geographic and
product diversity, which mitigate risks related to disease, the imposition of
sanitary restrictions by governments, market concentrations, as well as
tariffs or quotas applied regionally by some importing blocs or countries. JBS
has plants in 12 Brazilian states and is the most geographically diversified
player within this industry in Brazil, as it has operations in the U.S.,
Mexico, Argentina, Paraguay, Uruguay, Italy, and Australia. The company is
domiciled in Brazil and has a significant footprint in the U.S., with about
66% of its revenues coming from that region, per Fitch's estimates.

Above-Average Industry Risk and Acquisition Profile:

The protein industry is volatile and exposed to fluctuations in commodity
prices by nature. The company's aggressive attitude toward growth through
acquisitions amplifies that risk. While its business profile benefits from
improved diversification through past acquisitions, the risk of additional
acquisitions remains.

Equity Financing:

The credit benefits from the implicit support of the Brazilian development
bank's investment arm (BNDESPar), which directly and indirectly holds 23%
after it transferred 10.1% in January 2013. The founding family indirectly
controls 44% of JBS's shares. The company's ability to finance part of its
expansion with equity benefited its capital structure, avoiding peaks in
leverage.

Fitch currently rates JBS as follows:

JBS S.A.:
--Foreign and local currency Issuer Default Rating (IDR) at 'BB-';

--Notes due 2016 at 'BB-';
--National scale rating at 'A-(bra)'.

JBS USA LLC:
--Foreign and local currency IDR at 'BB-';

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

JBS USA Finance, Inc:
--Foreign and local currency IDR at 'BB-'.

JBS USA jointly with JBS USA Finance:
--Notes due 2014 at 'BB-';
--Bonds due 2020 at 'BB-';
--Notes due 2021 at 'BB-'.

JBS Finance II Ltd:
--Foreign and local currency IDR at 'BB-';
--Notes due 2018 at 'BB-'.

The Rating Outlook for JBS S.A., JBS USA LLC, JBS USA Finance Inc. and JBS
Finance II Ltd is Negative.

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology
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

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