Flash Fixed Income Report /

Brazil's JBS to issue two new bonds today; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    23 July 2019
    Published by

    The Brazilian meat-processing giant JBS (JBSSBZ) announced tender offers today for its current outstanding US$750mn, 7.25% bonds due 2024 and its US$350mn, 6.25% bonds due 2023. The company has been very active with its liability management strategy, having recently also concluded the payment of BRL750.7mn of debt related to the “normalization agreement” with local banks on 22 July.  

    In order to fund these tenders, JBS further announced that it will be issuing two new bonds:

    1. A US$500mn, eight-year (non-call three) senior unsecured bond due January 2028, expected to be rated Ba3/BB-/BB, issued by JBS S.A. GmbH, and with an initial price talk (IPT) in the “low 6.0%s”.
    2. A US$1bn, 10.5-year (non-call 5.5) senior unsecured bond due January 2030, expected to be rated Ba3/BB- and issued by JBS USA Lux S.A., JBS USA Food Company, and JBS USA Finance, Inc. We expect the initial price guidance later today, but based on the company’s currently outstanding US$400mn, 6.50% bonds due 2029 (Ba3) issued by the same group of entities, and are currently trading at cUS$109.507 (ALLQ) to yield c4.84% (g-spread 305bps; z-spread 305bps), we expect that the new issue could come in the high 4.0%s.

    According to PRNewswire, JBS USA intends to use the net proceeds from the second bond (together with its cash on hand) to make an intercompany loan to JBS USA Holding Lux for further transfer to JBS, which will use it to pay:

    1. The tender consideration for any and all of the 2024 notes and up to $350mn of the 2023 notes, issued by JBS Investments GmbH, tendered in connection with an offer to purchase and consent solicitation that was announced separately today and,
    2. The redemption price in connection with any redemption of the 2024 notes that remain outstanding.

    We believe that JBS continues to grow stronger both in terms of operations and liability management. Operationally, JBS continues to be the main protein company in Brazil, serving both the domestic and export markets, arguably better than any of its peers. In the short term, the company is expected to benefit from better prices and improved cattle supply at its US beef operations, increasing demand for pork products from the fallout of African Swine Flu that affected Chinese domestic hogs production (which is likely to have found a viable substitution through imports from Brazil in general and JBS in particular), and the continuing improvement of its US Seara (JBS Foods) operations. In terms of liability management, the company continues to extend maturities, reduce its cost of debt and overall indebtedness.

    We maintain our view that JBS is one of the better protein companies in Brazil (and arguably in the world) with a positive business outlook, and perhaps a rating upgrade due later this year. We reiterate our Buy on the JBS family of bonds and expect the two new issues to find strong demand and price on the tighter side of guidance, with some upside potential in the secondary market when the bonds begin to trade there.