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Pilgrim's Pride Corporation -- Moody's assigns B1 to Pilgrim's Pride's $1 billion unsecured sustainability-linked notes

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Rating Action: Moody's assigns B1 to Pilgrim's Pride's $1 billion unsecured sustainability-linked notesGlobal Credit Research - 25 Mar 2021New York, March 25, 2021 -- Moody's Investors Service ("Moody's") has assigned a B1 rating to proposed $1 billion senior unsecured 10-year sustainability-linked notes being offered today by Pilgrim's Pride Corporation ("Pilgrim's"). Net proceeds from the proposed offerings will be used to refinance through a concurrent tender offer for its $1 billion outstanding 5.750% Senior Notes due 2025. The company's other ratings including the Ba3 Corporate Family Rating and stable outlook are not affected.The refinancing is modestly credit positive because it extends the company's maturities without materially affecting cash interest expense or leverage.The interest rate on the proposed notes will be subject to a 25-basis point increase beginning in 2026 if Pilgrim's fails to provide confirmation through a third-party verifier that it has satisfied its target to reduce greenhouse gas emissions intensity by 17.7% by the end of 2025.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: Pilgrim's Pride Corporation....Senior Unsecured Notes, Assigned B1 (LGD5)The proposed notes are rated one notch lower than Pilgrim's Ba3 Corporate Family Rating, reflecting their effective subordination to $1.2 billion of senior secured debt instruments, including a $750 million asset-based revolving credit facility and a $469 million Term Loan, both maturing July 2023.RATINGS RATIONALEPilgrim's Pride's credit profile (Ba3 CFR) is supported by its position among the world's largest chicken processors, moderate financial leverage, very good liquidity and, excluding exogenous disruptions, relatively stable operating performance. This reflects an operating strategy focused on maximizing profitability and earnings stability. These strengths are balanced against the company's narrow focus in the cyclical chicken processing industry, which is characterized by volatile earnings and modest profit margins. The company's appetite for potentially large leveraged acquisitions is balanced against a history of notable purchase price discipline.Moody's evaluates Pilgrim's credit profile on a standalone basis. Thus, the ratings are not directly affected by the credit profile of its ultimate parent JBS S.A. (Ba2). However, developments at JBS S.A.-related entities could indirectly affect Pilgrim's ratings.ESG CONSIDERATIONSThe animal protein sector is heavily exposed to social risks related to responsible production, health and safety standards and evolving consumer life-style changes. The animal protein sector is also moderately exposed to environmental risks such as soil/water and land use, and energy & emissions impacts, among others. These factors will continue to play an important role in evaluating the overall creditworthiness of the animal protein companies, like Pilgrim's Pride, particularly as the industry continues to evolve globally.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of consumer sectors from the current weak U.S. economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Pilgrim's Pride's financial policy is balanced. While the company regularly entertains leveraged acquisitions, it is a disciplined buyer. Outside of acquisition events, the company typically operates with debt/EBITDA in the 2.0x to 2.5x range. In addition, the company maintains very good liquidity, a key rating consideration.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects a fairly wide range of potential earnings performance that is typical in the cyclical U.S. chicken processing industry balanced against Pilgrim's very good liquidity. At the top of the cycle, Moody's expects financial leverage to be very modest relative to comparably rated companies. Conversely, at the bottom of the cycle, the company can often have financial leverage that is well outside Moody's central expectations for the rating for a limited period of time. High earnings volatility should be balanced against a financial policy of maintaining abundant access to cash and external sources of liquidity.Pilgrim's ratings are constrained by the company's single-protein concentration. However, the company's ratings could be upgraded if the company enhances earnings stability through improvements in business and product mix. Quantitatively, Pilgrim's ratings could be upgraded if the company maintains at least a 6% operating profit margin, positive free cash flow, sustains debt to EBITDA below 2.0x, and liquidity (cash and backup availability) of at least $1 billion.Conversely, Pilgrim's ratings could be downgraded in the event of a major leveraged acquisition or share buyback, deteriorating industry fundamentals that lead to prolonged negative free cash flow, or deteriorating liquidity. The ratings could also be downgraded if legal, governance or other challenges at related entities, including JBS S.A., negatively affect the risk profile of Pilgrim's.The principal methodology used in these ratings was Protein and Agriculture published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113389. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Greeley, Colorado, Pilgrim's Pride Corporation (NASDAQ: PPC) is the second largest chicken processor in the world, with operations in the United States, U.K., European Union, Mexico and Puerto Rico. The company produces, processes, markets and distributes fresh, frozen and value-added chicken products to foodservice customers, distributors and retail operators worldwide. Pilgrim's also is a leading integrated prepared pork supplier in Europe.For fiscal year 2020, Pilgrim's revenues totaled $12.1 billion. Pilgrim's Pride is controlled by São Paulo, Brazil based JBS S.A. (Ba2 stable), the largest processor of animal protein in the world. As of July 27, 2020, JBS S.A. owns in excess of 80% of the outstanding common stock of Pilgrim's.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Brian Weddington, CFA VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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