S&P Worries About Perdigao

S&P has cut the outlook to negative from stable on Brazil’s Perdigao’s BB+ long-term corporate credit rating. “The change in outlook reflects the more challenging operating environment for food companies in general,” says S&P analyst Flavia Bedran. The agency predicts that soft global demand and a decrease in margins in 2009 will lead to weaker cashflow-protection metrics. It had expected Perdigao to cut total debt faster than it will be able to. S&P’s revised projection indicates that the company should report a total debt-to-Ebitda ratio of more than 3x by 2010, higher than its original expectation of 2x by 2010,” says the agency. However, it adds that comfortable liquidity and expected free cashflow generation give Perdigao flexibility to adjust to market conditions. S&P notes that Perdigao is highly exposed to unpredictable events, including trade barriers, outbreaks of animal diseases, volatility of commodities prices affecting raw material costs, and a significant share of low-value-added commodity-like products in its portfolio. “The negative outlook reflects the challenging operating environment for food companies in general, given the considerable decrease in external demand,” says S&P.