Fitch Ratings has affirmed Marfrig Global Foods S.A.'s Long-Term Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) at 'BB+' and MARB BondCo PLC and NBM US Holdings, Inc.'s senior unsecured notes at 'BB+'.

Fitch has also affirmed Marfrig's National Scale rating and debentures at 'AAA (bra)'.

The Rating Outlook is Stable.

The affirmation reflects Marfrig's expected gradual deleveraging over the rating horizon, good liquidity and favorable debt amortization profile.

Key Rating Drivers

Consolidated Approach: Fitch evaluates Marfrig's financials on a consolidated basis as the group has shown its commitment in supporting its subsidiary BRF's capital structure. Marfrig participated in BRF's BRL 5.4 billion capital increase and made additional share purchases in 2023, raising its ownership in BRF to approximately 50% from around 33%. Fitch will exclude dividends to minorities in its EBITDA calculations for credit ratios. The agency anticipates BRF will begin distributing dividends to shareholders within the forecasted rating period. BRF accounts for approximately half of Marfrig's consolidated EBITDA as of YE23.

Asset Sale Improves Financial Flexibility: Fitch sees Marfrig's sale of assets to Minerva as a positive transaction as it reinforces the group's financial flexibility and it is in line with Marfrig's focus on the production of value-added products. Marfrig announced the sale of assets worth BRL 7.5 billion in South America and secured BRL 1.5 billion upon signing the agreement in August 2023 and expects to receive the remaining BRL 6 billion upon completing the transaction toward the end of 2024. This completion is contingent on receiving approval from anti-trust authorities in Brazil, Argentina, Uruguay, and Chile. After the transaction, Marfrig will continue to operate in the food segment in South America, focusing on the production of value-added products. Fitch expect cash proceeds to be mainly allocated to reduce debt.

Deleveraging in 2024: Fitch forecasts Marfrig's consolidated net leverage to decline toward 3x in 2024 (4.3x in 2023 or 4.2x on a pro-forma basis) based on good performance in South America as well as the strong recovery of its subsidiary BRF due to operating efficiency and low feed costs. Fitch forecasts positive FCF and lower net debt for Marfrig on both a consolidated and standalone basis. Fitch projects group capex to remain steady in 2024 for the group.

Geographical Diversification: Marfrig's cash flow benefits from geographical diversification as it lowers profit volatility, with an EBITDA margin projected to trend toward 3% in the U.S., compared to about 10%-11% in South America in 2024. Fitch estimates that in 2024 National Beef will represent about half of Marfrig's EBITDA (excluding BRF), with the balance coming from its South American units (mainly in Brazil). This geographical diversification enables the group to mitigate cattle cycles, sanitary, social, deforestation in the Amazon Biome and other environmental risks due to the complexity in the monitoring of the supply chain.

Weaker U.S. Beef Production: USDA forecasts U.S. beef production to decline by about 2%-3% yoy due to lower cattle availability in 2024, with cattle prices expected to be up by about 4% yoy (vs 22% in 2023). This will continue to pressure operating margins in the sector. In contrast, Brazilian beef production is projected to increase by about 2.6% yoy in 2024 and cattle availability is projected to remain abundant, which should enable Marfrig to maintain an EBITDA margin in the mid-single-digit in 2024.

Derivation Summary

Marfrig's ratings reflect its solid business profile and geographic diversification as a pure player in the beef industry, with a large presence in South America (notably in Brazil) and the U.S. through National Beef. It also reflects its stake in BRF. Its size compares favorably with regional peer Minerva S.A. (BB/Stable), which is mainly a beef processor in South America. JBS S.A. (BBB-/Stable) and Tyson Foods (BBB/Stable) enjoy a larger scale of operations, and higher product and geographical diversification than Marfrig.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer

Improved profitability based on the recovery of EBITDA from BRF and strong South American beef operations;

Positive FCF;

Adjusted net leverage close to 3x as of YE 2024.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Net leverage below 2.5x, respectively and gross leverage below 3.5x, on a sustained basis.

--(CFO-Capex)/Debt above 7.5%.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative FCF on a sustained basis;

Net leverage above 3.5x on a sustainable basis.

Liquidity and Debt Structure

Adequate Liquidity: Marfrig had USD4.5 bn of cash and cash equivalents compared with BRL1.8 billion and USD1.6 billion due in 2024 and 2025, respectively as of YE23. The company's short-term debt is mainly related to trade finance lines.

Issuer Profile

Marfrig Global Foods S.A. (Marfrig) is a multinational corporation and the world's second largest beef company in terms of production capacity. The company operates slaughter and processing facilities, distribution centers and offices located in North America, South America, Europe and Asia.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Marfrig has an ESG Relevance Score of '4' on Waste & hazardous Materials Management, Ecological due to supply chain management and its exposure to cattle sourcing from the Amazon biome. The company's exposure to land use and ecological impact could result in decisions being made to the detrimental to the company's creditors. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors.

Marfrig has an ESG Relevance Score of '4' on Governance as a result of ownership concentration due to the control of the company by the Molina's family and the lack of a detailed succession plan. The company has pursued multiple strategies in the past decade, buying and selling companies, and it remains a key credit consideration. The shareholder's strong influence upon management could result in decisions being made to the detriment of the company's creditors. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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