Fitch Rates JBS USA Lux S.A.'s Notes 'BBB-'
Rating Action Commentary
Source: Fitch Ratings
02 Aug, 2022
Fitch Ratings - New York - 02 Aug 2022: Fitch Ratings has assigned a 'BBB-' rating to the proposed new senior unsecured 2027 and 2032 notes issued by JBS USA Lux S.A. (JBS USA) and co-issuers JBS USA Finance, Inc and JBS USA Food Company (together, JBS USA). The notes are guaranteed by JBS S.A. as the other JBS USA's existing senior unsecured notes. The issuance of these two bonds are subject to the successful of an exchange offer.
JBS is not raising new funds as these new notes are part of a voluntary exchange offer and consent solicitation of the existing 2027 and 2032 senior unsecured notes issued only by JBS USA Food and guaranteed by JBS S.A. The new notes will have the same currency, maturity dates, interest rates and interest payment dates as the existing 2027-2032 notes rated 'BBB-' but will include JBS USA Lux and JBS USA Finance Inc as co-issuers. The company aims to simplify its debt structures and have the same covenant packages to reflect its investment-grade status.
Key Rating Drivers
Strong Financial Profile: Fitch forecasts JBS's net leverage will remain below 2x in 2022 (1.6x including International Financial Reporting Standards Rule 16 [IFRS16] adjustments at YE 2021). Fitch expects the U.S. beef segment to prove resilient and the U.S. poultry segment to perform strongly due to solid overall demand for protein, high beef and poultry prices, the reopening of the food service segment, and less disruption compared with previous years.
Fitch expects JBS Brazil Beef's performance to recover due to better cattle availability. Challenges remain due to high feed and cattle costs and the tight U.S. labor market. Fitch expects JBS to pursue acquisitions; however, given the size of the company, with an EBITDA above USD8 billion in 2021, Fitch does not expect net leverage to rise beyond 2.5x in 2022.
Solid Business Profile: JBS's business profile is strong considering its size and geographic and protein diversification, which includes pork, poultry, fish, beef and plant-based protein substitutes. It is the most geographically diversified company rated by Fitch in the protein sector. This geographic diversification enables JBS to mitigate cattle cycles, import restrictions, sanitary risk, deforestation in the Amazon Biome, and other environmental risks due to the complexity of monitoring the supply chain. The group is engaged in several environmental initiatives regarding carbon emissions and cattle traceability for direct and indirect suppliers. The sector remains under intense scrutiny by investors, public authorities and non-governmental organizations in relation to environmental and competition matters. JBS Brazil Beef represented 5.2% of LTM 1Q22 group EBITDA.
JBS USA Strong Profile: JBS USA's standalone business profile is strong due to its leading position in the U.S. beef, poultry, pork and prepared-food segments. The company is geographically diversified and has a strong presence in North America, Australia and Europe. Its LTM EBITDA and net debt/EBITDA was USD7.6 billion and 1.3x, respectively, in 1Q22, which is in line with its 'BBB-' rating. JBS USA's linkage with its parent, JBS, is strong. The company's legal, operational and strategic incentives are also strong strong, according to Fitch's Parent and Subsidiary Linkage Rating Criteria. JBS USA is indirectly fully owned by JBS S.A. and represents a majority of JBS S.A.'s consolidated revenues. JBS USA's bonds are guaranteed by JBS S.A, which controls JBS USA's business and financial strategies.
Protein Outlook: JBS's competitive advantages stem from its geographic and protein diversification, large-scale operations, access to export markets from Brazil and the U.S., and long-term relationships with farmers, customers and distributors. In 2022, U.S. beef production is forecast by the USDA to remain steady, while pork production decreases by 1.9% and chicken increases by about 0.9%, according to the U.S. Department of Agriculture.
ESG - Governance: JBS's ratings remain constrained by weak corporate governance due to its main shareholder, J&F and FIP Formosa, owning about 48% of the company's shares. The Batista family remains involved in the management of the group at both the board and operational levels and in the strategic decision-making of the group. The ultimate shareholders are the subject of ongoing investigations by the Brazilian Securities Commission (Comissão de Valores Mobiliários) and of criminal proceedings for alleged violations of Brazilian securities and corporate law.
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