Flash Fixed Income Report /

Brazil’s JBS concludes BRL2.7bn of normalisation agreement loan

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    20 June 2019
    Published by

    The Brazilian meat processing company JBS has concluded the payment of BRL2.7bn (cUS$700mn) as a partial amortisation of its normalisation agreement loan that it has outstanding with a number of financial institutions.

    With the payment announced yesterday (19 June), the company effectively frees up the proportional collateral that secures the debt related to the normalisation agreement, reduces its financial expenses, and extends the average life of its debt to 6.1 years. 

    We believe this is an important achievement as the company continues to improve its balance sheet (see our Q1 report), something that was recognised by Fitch, which upgraded JBS to BB from BB- on 17 June. 

    JBS had previously said that it intended to pay cUS$400mn of this debt, but given its strong free cash flow generation, the amount was increased to US$700mn. The normalisation agreement remains with an outstanding balance of BRL6.3bn (cUS$1.7bn) with Banco do Brasil, Bank of China, Banco Bradesco and Banco Santander.

    A statement from the company said, “According to the terms of the normalisation agreement, the payments made thus far entitle the company, but do not oblige it, to terminate the agreement, which may be done after bilateral negotiations between the company and its financing partners, with the objective of extending financing terms, obtaining interest rates that better reflect its current financial soundness and reduce the portion of collateral.”

    We have a Buy recommendation on the JBS family of bonds based on a positive business environment, improving governance and prudent management of its finances.