Fitch Ratings Upgrades Minerva to 'BB-'; Outlook Stable

  Fitch Ratings Upgrades Minerva to 'BB-'; Outlook Stable

Business Wire

NEW YORK -- December 16, 2013

Fitch has upgraded the long-term and local currency issuer default ratings
(IDRs) of Minerva S.A. (Minerva) and the IDRs and Senior Unsecured ratings of
Minerva Luxembourg S.A. to 'BB-' from 'B+'. Fitch has also upgraded Minerva's
National Scale rating to 'A-(bra)' from 'BBB+(bra)'. The Rating Outlook is
Stable.

A full list of Minerva's ratings follows at the end of this release.

Minerva's rating upgrades reflects the improving fundamentals for beef in
Brazil due to the consolidation of the industry during the past few years, and
Fitch's expectation of an improvement in the company's credit profile over a
sustained period. The recent transaction with BRF S.A. (BRF: Long-Term IDR
'BBB-'/Stable), if completed as planned, will result in BRF owning 15.2% of
equity in Minerva. Fitch views this agreement as beneficial to Minerva as it
will increase the company's processing capacity, lower the company's leverage,
and provide partial ownership and guidance from one of Brazil's largest food
companies.

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, a situation that Fitch does not
expect to change in the short term. The industry has been through a
consolidation process over the last few years that culminated in the creation
of three large export players. Fitch expects this consolidation process to
give more stability to the industry at the end of the positive cattle cycle in
Brazil. Minerva continues to fully take advantage of that situation due to its
strong exposure to export markets (70%). Fitch views Minerva's strategy to
expand its processing and distribution capacity in the local market
positively. The group's expansion into South America provides further business
and geographic diversification to varying degrees.

Reduced Leverage Expected

Fitch expects Minerva's net debt to EBITDA ratio to improve to below 3x over
the next two years (3.4x as of the LTM to September 30, 2013), as a result of
improved EBITDA due to strong international demand for beef. Fitch also
acknowledges the credit-friendly measures taken by the company through its
decision to issue or offer equity to finance expansion in the past. This
approach taken by management should allow the company to continue to balance
its growth while focusing on gradually improving its leverage ratios. Fitch
considers Minerva's acquisition of the two slaughtering and deboning plants
currently held by BRF as a positive development. This will increase the group
slaughtering capacity by 23% without adding new debt. The acquisition is
subject to the approval of the administrative council for Economic Defense
(CADE).

Positive Performance Expected and Liquidity

Minerva reported improving volumes, revenues and EBITDA in the third quarter
of 2013 (3Q'13). For the LTM ended Sept. 30, 2013, Minerva's EBITDA increased
to BRL543 million from BRL446 million for the same period in 2012. EBITDA
margins remained relatively flat at 10.4% compared to 10.5% in 2012. Fitch
projects Minerva will generate positive free cash flow (FCF) from 2013 onwards
while continuing to exhibit robust cash flows from operations (CFFO). The
company benefits from a strong liquidity position with cash and cash
equivalents of BRL1.2 billion, enough to pay the debt amortizations due until
2019. The next material maturity date is 2023 when the USD850million unsecured
note is due.

Product and Country Concentration Risks: The ratings incorporate risks
associated with geographic and product concentration in beef protein. Being
mainly an exports company, Minerva's performance is exposed to exchange rate
variations; a downturn in the economy of a given export market; imposition of
increased tariffs or commercial or sanitary barriers; strikes or other events
that may affect the availability of ports and transportation. Minerva is more
exposed to these risks than Brazilian competitors such as JBS S.A. and Marfrig
S.A. because of its higher export concentration. Exports represented about 70%
of revenues in the third quarter of 2013. The company has managed this risk by
arbitraging demand from export markets and expanding its production to other
South American countries (Uruguay, Paraguay).

RATING SENSITIVITIES

A negative rating action could occur as a result of a sharp contraction of the
group's performance, increased net leverage as a result of either a large
debt-financed acquisition or asset purchases, or as a result of a sharp
operational deterioration due to disruptions in exports.

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

Fitch upgraded the following as indicated:

Minerva S.A.:

--Local currency Issuer Default Rating (IDR) 'BB-' from 'B+';

--Foreign currency IDR 'BB-' from 'B+';

--National scale rating 'A-(bra) from 'BBB+(bra)';

Minerva Luxembourg S.A.:

--Local currency IDR 'BB-' from 'B+';

--Foreign currency IDR 'BB-' from 'B+';

--Senior unsecured notes due in 2017, 2019, 2022 and 2023 upgraded to 'BB-'
from 'B+/RR4'.

The corporate Rating Outlook is Stable.

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 - Effective from 8 August 2012 - 5 August 2013

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=812004

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Contact:

Fitch Ratings
Primary Analyst:
Johnny Da Silva, +1-212-908-0367
johnny.dasilva@fitchratings.com
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Gisele Paolino, +55-21-4503-2624
Gisele.paolino@fitchratings.com
Director
or
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Managing Director
or
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elizabeth.fogerty@fitchratings.com
 
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