Brazil Meat Processor in Ratings Trouble

S&P has cut Brazil-based meat processor Minerva to CCC+ (negative) from B amid concerns about refinancing risk. Even considering a possibly stronger market in the next six months and a successful startup of the company’s food services operation, S&P says Minerva cashflows will be poor, leading to limited room for meaningful improvement in the financial profile. “Given more restrictive credit markets, negative free cashflow, and a significant interest burden, refinancing risk has increased considerably,” says S&P. “The company still relies on its approximate $200m in cash on hand, but we believe its flexibility to weather the current environment is weak,” it adds. The firm has had an Ebitda-to-interest ratio lower than 1x since year-end 2008. S&P expects Minerva to report total debt-to-Ebitda and funds from operations-to-total debt ratios of around 6.5x-7.0x and 3%, respectively, by year-end 2009. It assumes Minerva will gradually benefit from its profitable food service business to mitigate still recovering beef operations, and that it will use part of its liquidity to pay down short-term debt, though weak profitability and high leverage should persist throughout this year.