Fitch Affirms Marfrig's FC & LC IDRs at 'B'; Assigns Stable Outlook

  Fitch Affirms Marfrig's FC & LC IDRs at 'B'; Assigns Stable Outlook

Business Wire

NEW YORK -- November 6, 2013

Fitch Ratings has affirmed the foreign and local currency Issuer Default
Ratings (IDRs) of Marfrig Alimentos S.A. (Marfrig) at 'B' as well as its
national scale rating at 'BBB (bra)'. A complete list of related rating
actions is provided at the end of this release.

Fitch has removed the ratings of Marfrig and its affiliates from Rating Watch
Negative and has assigned a Stable Rating Outlook to Marfrig.

These rating affirmations and the assignment of a Stable Outlook conclude the
review of Marfrig, which was downgraded and placed on Rating Watch Negative
during June 2013 as a result of weak operating performance and increasing
leverage. Subsequently, Marfrig's divestment of the Seara Brasil and Zenda
leather businesses to JBS S.A. for BRL5.8 billion (USD2.6 billion) and their
strategy for managing and growing its businesses in a profitable fashion to
generating cash flow have resulted in a stable ratings outlook. The ratings
build in an expectation that Marfrig's net leverage will organically improve
to below 4.0x by the end of 2015. Marfrig's strategy for managing and growing
its businesses in a profitable fashion, generating cash flow are key factors
to the company's long-term credit quality.

KEY RATING DRIVERS

FOCUS ON DELEVERAGING AND CASH FLOW:

Fitch expects Marfrig's net debt to EBITDA ratio to organically fall to below
4.0x by 2015 from 4.9x at fiscal year-end 2012 (FYE12). Fitch expects Marfrig
to gradually improve free cash flow after 2014 and operating margin due to
better asset and logistics management, lower capex, lower working capital use
and interest expense post-divestment of Seara (BRL5.8 billion) which was
completed at the end of September 2013. These expectations are consistent with
Marfrig's guidance of having the company breakeven free cash flow in 2014 and
generating positive free cash flow in 2015 and onwards. Marfrig's ability to
maintain a sustainable capital structure will depend on its ability to start
generating positive free cash flow, which is contingent upon the company's
success in executing its business strategy while focusing on the improvement
of its credit metrics.

SIMPLIFIED BUSINESS PROFILE:

While Marfrig's divestiture lowers consolidated leverage, simplifies the
organizational structure and decreases execution risk, the divestment of Seara
will reduce the company's economies of scale in Brazil and product
diversification due to the exclusion of a well-established consumer brand. The
group is now structured in to three business units, Marfrig beef (47% 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 to major restaurant chains (notably McDonald). The
company's product and geographic diversification continues to help to reduce
risks related to disease, trade restrictions and currency fluctuation. As of
June 2013, processed foods represented 49% of sales, excluding Seara. Revenues
were dominated in USD (42%), Euro/Pound (22%) and Real (22%) and 22% of the
company's debt was denominated in BRL.

NO MAJOR ACQUISITIONS ANTICIPATED:

Fitch does not foresee any major acquisitions in the next 18 months as
Marfrig's management will need to focus on the improvement of the company cash
flow generation. Fitch expects Marfrig to focus on the development of its
existing activities with the development by Moy Park of multi-protein retail
sales in markets across UK and Continental Europe, keystone expanding
geographically (Indonesia and Middle East) and developing of new accounts, and
Marfrig beef optimizing its plants and distribution capacity.

IMPROVED DEBT MATURITY PROFILE AND LIQUIDITY:

The group has improved its debt maturity and liquidity profile following the
divestment of Seara. As of June 2013, the group held BRL2.3 billion of cash
and marketable securities with a current debt at about BRL2.2 billion (mostly
revolving credit and trade finance lines). With the divestment of Seara, Fitch
estimates that Marfrig's short-term maturity will be reduced to approximately
BRL1.0 billion. Marfrig's largest bond refinancing requirements is now during
2017 (USD600 million) as the company has redeemed most of its 2016 bond (about
USD183 million still outstanding).

RATING SENSITIVITIES:

Considerations that could lead to a negative rating action (rating or Outlook)
include Marfrig's inability to start generating positive free cash flow over
the next 24 months and maintaining net leverage above 4.0x on a sustainable
basis could result in a downgrade. 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 generate consistent positive free cash
flow and reduce leverage on a gross and net debt basis.

Fitch affirms Marfrig ratings as follows:

Marfrig Alimentos S.A.

--Local currency IDR at 'B';

--Foreign currency IDR at 'B';

--National scale rating at 'BBB(bra)'.

Marfrig Overseas Ltd

--Foreign currency IDR at 'B';

--Senior unsecured notes due 2016 at 'B/RR4';

--Senior unsecured notes due 2020 at 'B/RR4'.

Marfrig Holdings (Europe) B.V.

--Foreign currency IDR at 'B';

--Senior unsecured notes due 2017 at 'B/RR4'.

--Senior unsecured notes due 2018 at 'B/RR4'.

--Senior unsecured note due 2021 at 'B/RR4.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

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=715139

Parent and Subsidiary Rating Linkage Fitch's Approach to Rating Entities
within a Corporate Group Structure

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714476

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807224

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Contact:

Fitch Ratings
Johnny Da Silva, +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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Dan Kastholm, +1 312-368-2070
Managing Director
or
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elizabeth.fogerty@fitchratings.com
 
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