Moody's downgrades JBS SA, JBS USA
May 23, 2017
by Erica Shaffer
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Share in the meat packer plunged 31 percent yesterday, another 8 percent today.
NEW YORK – Moody’s Investors Service downgraded the ratings of JBS SA and its subsidiary, JBS USA, and placed the ratings of both companies under review for further downgrade in response to the ongoing corruption scandal that continues to weigh on the world’s largest meat packer.
“The rating downgrades include JBS SA’s Corporate Family Rating to Ba3 from Ba2, JBS USA’s senior secured rating to Ba2 from Ba1, and JBS USA's senior unsecured rating to Ba3 from Ba2,” Moody’s said in a statement. “This action follows confirmation by JBS SA that seven executives of the company and its controlling entity, J&F Investimentos, entered into a plea bargain agreement with the Federal Public Prosecutor’s Office concerning allegations of corruption.”
On May 18, JBS SA issued a statement saying that seven executives of the company agreed to a plea bargain with federal prosecutors in addition to paying a fine of R$225 million. Additionally, JBS Chairman Joesley Batista admitted in court documents released by Brazil’s Supreme Court that he made illegal payments to Michel Temer, the current president of Brazil, and former Presidents Dilma Rousseff and Luiz Inacio Lula da Silva. Temer has denied any wrongdoing and refuses to resign from office.
The recent revelations have snowballed into additional controversy for JBS SA. Moody’s said the ratings downgrade “reflects increased risks related to potential future litigation cases, governance of the company, and liquidity, on which there is currently limited visibility.”
The future is now regarding litigation. Rosen Law Firm announced a class action lawsuit on behalf of JBS investors. The complaint alleges that “…defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that:
(1) JBS executives bribed regulators and politicians to subvert food inspections of its plants and overlook unsanitary practices, such as processing rotten meat and running plants with traces of salmonella;
(2) JBS Chairman Joesley Batista was providing monthly bribery payments to a former Brazilian government official and a lobbyist;
(3) there were irregularities with the loans JBS received from Brazilian state-owned development bank BNDES;
(4) JBS and other entities controlled by JBS Chairman Joesley Batista and JBS CEO Wesley Batista made suspicious trades that exhibit signs of possible insider trading prior to the revelation of a plea deal by JBS’ top executives; and
(5) as a result, defendants’ statements about JBS’ business, operations and prospects were materially false and misleading and/or lacked a reasonable bases at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages.”
JBS SA is facing multiple federal probes, including an investigation into loans made to the meat packer by the National Economic and Social Development Bank (BNDES) through its subsidiary BNDESPAR, and a federal investigation into purchases of cattle that allegedly were grazed on illegally deforested land. JBS has denied wrongdoing in both cases.
Meanwhile, Moody’s said its review of JBS will focus on obtaining more details about the settlement “…along with information about any ongoing criminal investigations, including potential fines, executives involved, other possible liabilities and ramifications.”