Minerva S.A.

The stable outlook reflects our expectation that the company will continue to use excess cash to reduce interest burden and debt, which will enhance its financial flexibility during industry downturns. In this scenario, Minerva's growth without third-party capital would be limited in the next two years. It would use free operating cash flow (FOCF) mainly to prepay debt and make a 25% payout dividend and repurchase shares. In this scenario, debt to EBITDA will remain below 3x and FFO to debt will gradually approach 30% in 2021. We could take a negative rating action in the next 12 months if weaker business conditions and high input costs would hinder free cash flow generation, consuming liquidity gradually and bringing debt to

...Equity inflows accelerating deleveraging. Two large capital inflows boosted Minerva's deleveraging in 2020. The company plans to use the majority of the proceeds from the equity follow-on and the warrant exercise of capital increase of a 8.4% additional stake in SALIC (which now holds 33.83% of Minerva), totaling about R$1.6 billion, to prepay debt. We expect debt to EBITDA below 2x and funds from operations (FFO) to debt approaching 30% in 2021. We estimate the company to repay about R$1 billion in debt per year in 2021 and 2022. But we also forecast a strong cash balance and ongoing debt refinancing. Appetite for expansion, but likely will rely on third-party capital. We believe Minerva will continue to pursue growth mainly through its foreign subsidiaries controlled by Athena Foods through third-party capital. Initially, Minerva planned an IPO of Athena and then a private placement to sell a minority stake in it, but it canceled both. We believe that any transaction would contribute...

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