JBS USA Lux S.A. — Moody’s assigns Baa3 rating to JBS USA proposed notes

Rating Action: Moody’s assigns Baa3 rating to JBS USA proposed notesGlobal Credit Research – 19 Aug 2022New York, August 19, 2022 — Moody’s Investors Service (« Moody’s ») assigned a Baa3 rating to the proposed senior unsecured notes that will be co-issued by JBS USA Lux S.A. (« JBS USA »), along with wholly owned subsidiaries JBS USA Finance, Inc. (« JBS USA Finance ») and JBS USA Food Company (« JBS USA Food ») in exchange for existing notes issued by JBS USA Food Company (originally issued by JBS Finance Luxembourg S.à r.l.). The co-issuers are indirect wholly owned subsidiaries of Brazil-based JBS S.A. (JBS, Baa3 stable).The proposed notes will be guaranteed by JBS S.A., JBS USA Holding Lux S.à r.l. and certain other indirect parent companies of JBS USA and each of JBS USA’s wholly-owned U.S. restricted subsidiaries that guarantee the senior secured term loan, excluding Pilgrim’s Pride Corporation (« PPC », Ba3 stable).All the other ratings of JBS S.A., JBS USA and stable outlook remain unchanged.On 2 August JBS USA announced an exchange offer and consent solicitation for up to $2 billion of outstanding amounts for notes issued solely by JBS USA Food Company, including $1 billion in notes due in 2027 and $1 billion due in 2032. The transaction will have no effect on JBS USA credit metrics, as the proposed new notes would have identical economic terms, tenor and interest rates as those of the notes outstanding.The ratings of the proposed notes assume that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody’s to date and assume that these agreements are legally valid, binding and enforceable.Assignments:..Issuer: JBS USA Lux S.A….. proposed Gtd Senior Unsecured Notes due 2027, Assigned Baa3 (co-issued by JBS USA Food Company, JBS USA Finance, Inc.)…. proposed Gtd Senior Unsecured Notes due 2032, Assigned Baa3 (co-issued by JBS USA Food Company, JBS USA Finance, Inc.)RATINGS RATIONALEBecause JBS USA debt instruments are guaranteed by its parent company JBS S.A., the company’s ratings are driven primarily by JBS S.A. senior unsecured ratings. Thus, Moody’s expects that future changes to the JBS USA debt instrument ratings and outlook will reflect any changes to JBS S.A. senior unsecured rating and outlook, respectively. The rating could also be affected by any changes in capital structure that result in material shifts in relative rights of payment, guarantees or collateral support with respect to debt instruments of JBS USA and JBS S.A.JBS USA has good liquidity to meet its financial obligations and capital spending requirements, with about $1.7 billion in cash (excluding $90 million in restricted cash) and $ 2.2 billion in revolving credit facilities at the end of June 2022, and free cash flow of $3.2 billion in the 12 months ending in June 2022. JBS USA is the main operating subsidiary of JBS S.A., generating about 75% of consolidated revenue and 90% of the consolidated EBITDA for the 12 months ended in June 2022.JBS S.A. credit profile continues to reflect the strength of its global operations as the world’s largest protein producer; and its substantial diversification across protein segments, geographies, and markets, which resulted in more stability in operating margins and cash flow over time. It is constrained by the volatility in the protein industry, which is subject to risk factors such as weather conditions, diseases, supply imbalances and global trade variables.As for the environmental, social and governance (ESG) factors incorporated into JBS S.A. ratings, Moody’s considered environmental risks mainly related to the company’s exposure to carbon transition trends, natural capital and water management. The allegations of links of cattle raising to the deforestation of the Amazon and other biomes heightens social risks related to the exposure to responsible production, while corporate governance concerns due to concentrated shareholders structure continue to weigh on the company’s credit profile.The stable outlook reflects Moody’s expectation that JBS S.A. operational performance will remain strong and resilient in the next 12 to 18 months, and that the company will manage its M&A strategy and dividend payout without jeopardizing liquidity and maintaining leverage within the targets stated in its financial policies (2x-3x net debt/EBITDA). The stable outlook also contemplates the expectation that strong cash flow from operations will allow JBS to further reduce debt.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade to JBS USA debt instrument ratings would likely result from an upgrade of JBS S.A. senior unsecured rating. Conversely, a downgrade to JBS USA debt instrument ratings would likely result from a downgrade of JBS S.A. senior unsecured rating.An upgrade of JBS S.A. ratings would be subject to the overall earnings stability of JBS, sustained conservative financial policies, and continued evidence of enhanced risk control and governance oversight, with a track record of absence of event risks related to litigations and investigations involving the company and its controlling shareholders. An upward rating movement would also require JBS to generate positive free cash flows on a consistent basis and maintain strong liquidity and strong credit metrics, with leverage sustained at or below 2x and interest coverage (EBITA/interest expense) improving toward 7x.The ratings of JBS S.A. could be downgraded if the company’s operating performance weakens, its financial policy becomes more aggressive, or its liquidity deteriorates. A downgrade could be triggered by events that can increase liquidity risk or cause reputation damage, including litigations and M&A. Quantitatively, a downgrade could also occur if the company’s leverage (total debt/EBITDA) stays above 3x and cash flow from operations/debt stays below 25% on a sustained period.The principal methodology used in these ratings was Protein and Agriculture published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356422. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Headquartered in São Paulo, Brazil, JBS S.A. is the world’s largest protein producer in terms of revenue, slaughter capacity and production. The company is the leader in beef, poultry and leather, and it is the second-largest pork producer in the US. The company has operations in more than 20 countries with more than 450 offices and plants, which support its large scale and diversification. In the twelve months ended June 2022, JBS S.A. reported consolidated revenue of BRL 372.9 billion ($71.1 billion), with a consolidated EBITDA margin of 12.7%. Headquartered in Greeley, Colorado, USA, JBS USA reported consolidate revenue of $53.2 billion in the same period.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. 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