Fitch Places JBS on Rating Watch Positive

NEW YORK-(Business Wire)-September 16, 2009 - Fitch Ratings has placed the following ratings of JBS S.A.'s (JBS) on Rating Watch Positive:

—Foreign currency Issuer Default Rating (IDR) 'B+';

—Local currency IDR 'B+';

—USD275 million outstanding senior notes (due 2011) 'B+/RR4';

—USD700 million outstanding senior notes (due 2014) 'B+/RR4';

—USD300 million outstanding senior notes (due 2016) 'B+/RR4';

—Long-term National Scale rating 'BBB+(bra)'.

The rating action follows the announcement by JBS that it had reached an agreement to buy 64% of Pilgrim's Pride and also to merge with Bertin. These transactions are expected to be entirely funded with a USD2.5 billion equity issuance in JBS USA and significantly enhance the competitive position of the company in the Brazilian market as well as diversify its revenue mix to different proteins as the acquisition of Pilgrim's Pride provides JBS with an entry into the poultry business. These transactions are expected to close at the end of 2009. Fitch anticipates net leverage to improve marginally (excluding synergies expected to exceed USD450 million per year) from its current 2.8 times (x) (pro forma the Smithfield Beef acquisition) as of June 2009. In addition, Fitch sees positively JBS planed USD2.0 billion IPO at its US subsidiary, JBS USA, in the first half of 2010 and it confirms JBS' strong track record integrating past acquisitions.

For the Pilgrim's Pride transaction JBS plans to pay USD800 million for a 64% stake in the new entity and assume USD1.5 billion of debt. JBS plans to use USD1.5 billion of its USD2.5 billion equity issuance to make the USD800 million payment and reduce debt to about USD800 million at Pilgrim's Pride. This acquisition to be made through JBS USA increases JBS revenue generation from its operations in the US and Australia from 70% of the total to about 75% and adds production capacity in Mexico. Synergies from this acquisition are expected to be USD200 million. Pilgrim's Pride is the second largest poultry company in the US with about 20% market share. This company is expected to generate more than USD300 million of EBITDA in the latest twelve months (LTM) ended September 2009 on USD7 billion of revenues. At the end of 2008, this company filed for Chapter 11 and the JBS acquisition is part of the reorganization plan of the company that needs to be approved by the bankruptcy court.

In the merger with Bertin, the Bertin shareholders would receive JBS stock and debt will be reduced by USD1 billion at Bertin from the USD2.5 billion JBS equity issuance. Bertin is Brazil's third largest beef producer with approximately USD400 million of EBITDA on USD3.5 billion revenues. Synergies of more than USD250 million per year are expected to be generated primarily from logistics consolidation and overhead cost reductions. Bertin derives 68% of revenues from fresh beef production, 13% from leather, 12% from dairy products and 7% from other businesses. This transaction not only expands the beef production capacity to Uruguay, Paraguay and several states in Brazil but also improves the distribution capacity of the company across Latin America in particular in Brazil. The merger scrutiny from Brazilian authorities will depend on the market definition.

As of June 30, 2009, JBS had cash on hand of USD1.18 billion and USD650 million in credit facilities available at JBS USA compared with short-term maturities of USD1.24 billion. Total debt was USD3.19 billion. During October 2008, the company paid USD565 million of cash to acquire Smithfield Beef. For the LTM ended June 2009, JBS' EBITDA was USD607 million. This figure would have been USD725 million, if Smithfield Beef had been consolidated for all of the LTM ended June 2009, resulting in a pro forma net leverage (net debt/EBITDA) ratio of 2.8x compared to 2.0x in 2008 and 3.7x in 2007.

JBS is one of the world's largest beef producers, with operations in Brazil, the United States, Argentina, Australia and Italy. The company is the largest producer and exporter of fresh meat and meat by-products in Brazil, Argentina and Australia and the third largest in the U.S. JBS USA concentrates JBS operations in the U.S. and Australia, which represent approximately 70% of total revenues.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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