Fitch rates Marfrig senior note issuance

by Meat&Poultry Staff
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NEW YORK – Volatility in protein prices and profit margins prompted Fitch Ratings to put Marfrig Alimentos's proposed senior note issuance of $600 million on Rating Watch Negative. The company plans to use the funds to refinance its debt and extend its debt maturity schedule.

Fitch said that despite the sale of some assets, the company's debt remains a concern as the company works to improve cash flow and maintain its 'B' rating.

"Marfrig's ability to maintain a sustainable capital structure will depend on its ability to start generating positive free cash flow, which in turn hinges upon the company's success in executing its strategy to realign business priorities, reduce costs, improve logistics, and establish itself as a viable niche player in the segments it operates," Fitch said.

The sale of the Seara Brasil poultry-processing business and other assets negatively impacted the company's earnings. Additionally, volatile pricing in the beef segment in Brazil, Argentina and Uruguay offset gains in Marfrig's other businesses. The company's beef business represents 38 percent of Marfrig's net revenues.

"The high cost of cattle in the region, coupled with the challenges to push higher beef prices through to the consumer, resulted in a decline of Marfrig's beef EBITDA to BRL145 million in the 2Q2013, compared with BRL225 million in the 2Q2012," the ratings agency reported. "In additional to the revenue and EBITDA contraction, cash flow generation has been pressured by higher working capital needs."

Despite its challenges, Marfrig's diversification has supported the company. Marfrig maintains a strong business position as one of the largest beef producers and exporters in the world. The company also has prominent positions in the poultry and pork industries worldwide.

"An upgrade of Marfrig's ratings is over the medium term is plausible should the company and new management be able to overcome the several challenges facing the company on both a financial and operational level," Fitch said. "The company's capital structure is expected to continue to be highly leveraged after asset sales."
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