Fitch Places JBS's Ratings on Negative Watch

  Fitch Places JBS's Ratings on Negative Watch

Business Wire

NEW YORK -- June 12, 2013

Fitch Ratings has placed JBS S.A.'s (JBS) ratings on Negative Watch following
the announcement that it will acquire certain assets from Marfrig Alimentos
S.A.'s (Marfrig), including Marfrig's Seara Brazil (Seara) business through
the assumption of BRL5.85 billion (USD2.9 billion) of Marfrig's bank debt with
maturities between 2013 and 2017. The completion of the transaction would
require the approval of CADE, the Brazilian antitrust authority. A complete
list of ratings under review for possible downgrade is provided at the end of
this release.

KEY RATING DRIVERS

During its review, Fitch will focus on assessing the benefits JBS will receive
from increased diversification against the risks of an increasingly leveraged
capital structure. The ratings review would also consider JBS's short- to
medium-term strategy for improving Seara's operating performance, including
additional investments and expected synergies. The composition and the term
structure of JBS's debt will also be considered, along with any possible
re-financing of the assumed debt.

The contemplated transaction appears to be an opportunistic acquisition of
desirable, but troubled, assets for a price that in Fitch's opinion assumes
rapid and material improvement in Seara's performance. Fitch estimates 2013
EBITDA of the acquired assets to be in the range of BRL600 million. The
acquisition is fully debt financed and will increase JBS's net debt-to-EBITDA
leverage to above 4.0x, more than one turn above Fitch's expectations of 3.0x
net debt to EBITDA in 2013. As of Dec. 31, 2012, JBS's net leverage ratio
stood at 3.4x.

Fitch expects Seara's free cash flow (FCF) generation to be negative during
2013, considering the investments required to integrate the assets acquired in
the middle of 2012 from BRF S.A. as part of an asset swap between the two
companies. While Fitch previously expected JBS to generate positive FCF in
2013, the addition of Seara and the related investments will likely lead to
negative FCF for JBS in 2013 and possibly 2014.

While JBS has successfully integrated several sizable acquisitions, the most
recent one, Pilgrim's Pride (PPC) in 2009 for USD2.5 billion, was entirely
equity funded. The company's leverage increased in 2011 to 4.5x, the result of
a combination of pressure on its U.S. beef business due to the unfavorable
cattle cycle and high grain prices which tamed PPC's recovery. In 2013, JBS is
expected to benefit from declining grain prices, while the U.S. beef
operations are expected to remain challenged but profitable.

With the addition of Seara, JBS will become one of the world's largest chicken
producers and exporter. Before selling it to JBS, Marfrig purchased Seara from
Cargill in 2009 for USD900 million, an 11x-12x valuation. Marfrig more than
tripled Seara's business, from USD 1.7 billion in revenues and USD76 million
of EBITDA in 2009, to about USD4.5 billion in revenue and estimated EBITDA of
USD300 million in 2012. In the middle of 2012, Seara's production capacity
more than doubled with the addition of the BRF assets.

RATING SENSITIVITIES

A downgrade could be precipitated by a weakening of the company's leverage
metrics and cash flow generation as expected upon closing of the transaction.

The rating could be removed from Negative Watch and stabilized if the capital
structure of JBS pro forma for this transaction turns out to be less leveraged
than anticipated. Operational improvements and synergies from the transaction
would be positive, as would an equity injection.

Fitch has placed the following JBS ratings on Negative Watch

JBS S.A.:

--Foreign & local currency Issuer Default Rating (IDR) 'BB-';

--Notes due 2016 'BB-';

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

JBS USA LLC:

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

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

--Notes due 2014, 2020, 2021 'BB-'.

JBS USA Finance, Inc:

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

--Notes due 2014 'BB-';

--Bonds due 2020 'BB-';

--Notes due 2021 'BB-'.

ESAL 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. 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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793433

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Contact:

Fitch Ratings
Primary Analyst
Viktoria Krane, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gisele Paolino, +55 21 4503 2624
Director
or
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Managing Director
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