Fitch Rates Marfrig's Proposed USD500MM Issuance 'B+(EXP)/RR4'
OREANDA-NEWS. Fitch Ratings has assigned a 'B+(EXP)/RR4' rating to Marfrig Global Foods S.A.'s (Marfrig) proposed USD500 million issuance of global notes. The proposed senior unsecured global notes will mature in 2023. The notes will be issued through its wholly owned subsidiary, Marfrig Holdings (Europe) B.V. and will be unconditionally and irrevocably guaranteed by Marfrig. Proceeds will be used to refinance existing debt and for general corporate purposes.
Simplified Business Profile
Marfrig's ratings consider its broad product portfolio and geographic diversification, which reduces risks related to disease, trade restrictions and currency fluctuations. Recent divestitures allowed Marfrig to simplify its organizational structure into two business units: Marfrig Beef (50.3% of revenue; 50% of EBITDA), one of the world's largest beef producers, and Keystone Foods (49.7% of revenue; 50% of EBITDA), which processes food for major restaurant chains in the U.S. and Asia.
Improved Credit Metrics
Marfrig's net adjusted debt/EBITDA was 3.5x as of March 31, 2016, as a result of satisfactory performance and the divestment of Moy Park to JBS in September 2015. Fitch expects Marfrig's adjusted net leverage ratio to fall below 3.5x in 2016 supported by EBITDA growth, better asset and logistics management, steady capex and lower interest expenses. Fitch expects Marfrig to generate positive free cash flow (FCF) in 2016.
Challenging Domestic Environment
The domestic operating environment in 2016 remains difficult for the Brazilian protein sector due to the economic recession, elevated inflation, increased interest and unemployment rates, and declining consumer confidence. Marfrig responded to these challenges by reducing processing capacity (five slaughter units closed in 2015), while exporters reported higher average prices offsetting lower export volume.
No Acquisitions Anticipated
Marfrig is not expected to execute any major acquisitions over the next 18 months given management's focus on deleveraging its balance sheet, improving cash flow generation and reducing interest expenses. Key initiatives will include the optimization of plants and distribution facilities by Marfrig Beef and the geographic expansion of Keystone.
Negative Rating Triggers: Marfrig's inability to improve FCF over the next 24 months and maintain net leverage above 4.5x-5.0x on a sustainable basis could trigger a negative rating action.
Positive Rating Triggers: A combination of a positive FCF track record, resilience of the group's operating margin in its beef business in Brazil, and a reduced gross leverage and sustained net leverage ratio near 3.5x would be viewed positively.
Marfrig's liquidity is adequate. As of March 31, 2016, the group held BRL5.2 billion of cash and marketable securities. This compares favorably with short-term debt of BRL2.2 billion. Marfrig's largest refinancing requirement will be in 2020 (BRL3.2 billion), as the company has redeemed most of its 2016 and 2017 bonds. Proceeds from the divestment of Moy Park are being used to buy back outstanding bonds (2018, 2019 and 2021 bonds). Almost 96% of Marfrig debt and 80% of revenues is denominated in U.S. dollars and foreign currencies
FULL LIST OF RATING ACTIONS
Fitch currently rates Marfrig as follows:
--Foreign and Local Currency IDR 'B+';
--National scale rating 'BBB+ (bra)'.
Marfrig Holdings Europe B.V.:
--Foreign Currency IDR 'B+';
--Notes due 2017, 2018, 2019, 2021 'B+/RR4'.
--Notes due 2023 'B+(exp)/RR4'
Marfrig Overseas Ltd:
--Notes due 2016, 2020 'B+/RR4'.