Pilgrim's Pride (PPC) Ratings Affirmed by S&P Following Special Dividend

Standard & Poor's Ratings Services affirmed its corporate credit rating on Pilgrim's Pride Corp. (NYSE: PPC) at 'BB'. The outlook is positive.

We also affirmed the issue-level rating on the company's senior secured $700 million revolving credit facility at 'BBB-'. The recovery rating is unchanged at '1', indicating our expectation for very high recovery (90%-100%) in the event of a payment default.

We are also assigning a 'BBB-' issue-level rating to the company's proposed $1 billion first-lien term loan due 2020 and its new $700 million senior secured revolving credit facility. The recovery rating is '1'. These rating are based on preliminary proposed terms and conditions. We will withdraw the ratings on the existing revolving credit facility at the close of the transaction.

The net proceeds of the first-lien term loan, together with cash, will be used to pay a $1.5 billion special dividend to shareholders.

"The rating affirmation reflects our belief that the special dividend is consistent with the company's existing financial policy, which includes increasing debt leverage over time via shareholder returns and acquisitions to a target debt-to-EBITDA ratio of between 2x and 3x," said Standard & Poor's credit analyst Chris Johnson. "We also believe ongoing operating cost reductions and improved pricing practices have reduced the company's earnings volatility, which should allow it to perform better during weaker earnings cycles."

The positive outlook reflects the possibility of a higher rating if PPC sustains its improved operating performances and if we raise the ratings on JBS. This could occur if PPC maintains an EBTIDA margin of more than 10% over the next 12 to 18 months while it maintains a debt-to-EBITDA ratio below 3x and FFO to debt of more than 30% (assuming the company remains a strategically important subsidiary of JBS, and JBS' strong operating and free cash flow generation continues while it assumes a more conservative approach to debt-financed acquisitions).

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