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Moody's downgrades BRF to Ba2 with negative outlook

Moody's on March 6 downgraded Brazil-based food producer BRF SA's corporate family rating to Ba2 from Ba1, citing weak credit metrics.

The agency also downgraded its ratings for BRF and subsidiary BFF International Ltd.'s dollar- and euro-denominated global notes to Ba2 from Ba1 with a negative outlook.

Moody's said the ratings reflect its forecast that BRF's recovery will take longer than expected, in addition to the company's poor operating performance locally and globally as well as weak margins in 2016 and 2017 following a steep rise in Brazilian corn prices.

However, the agency said it continues to forecast improvements in BRF's operating performance this year with more material improvement in 2019. It added that the company's leverage rose to 4.6x in 2016 and 5.6x in 2017, which is away from both Moody's downgrade trigger of 3.5x and BRF's own leverage targets.

Moody's also noted that the Ba2 ratings continue to reflect BRF's good business profile, despite the company being the subject of federal investigations in Brazil over alleged contamination in certain animals that were slated for meat processing. Brazil's federal police recently arrested former BRF CEO Pedro Faria on allegations that he and other company officials were aware that the company was evading food safety checks.

S&P Global Ratings on Feb. 23 also revised its global scale rating outlook for BRF to negative from stable, reflecting a potential downgrade in the next six to 12 months.

The downgrades come amid growing pressure from the company's investors to replace its entire board.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.