Moody's downgrades Sadia

Moody's Investors Service said it downgraded Sadia SA's local-currency corporate family rating and the $250 million guaranteed senior unsecured notes due 2017 issued by Sadia Overseas Ltd. and guaranteed by Sadia to Ba3 from Ba2.

The ratings remain under review for possible further downgrade.

The rating actions follow the company's announcement of R$760 million in cash losses from positions in currency forward contracts and counterparty losses in the company's offshore investment portfolio. The agency said the downgrade reflects the expected increase in Sadia's adjusted total debt-to-EBITDA ratio to well above 4 times as a result of new short-term bank debt that has been raised to cover the derivatives and counterparty losses.

Moody's noted that Sadia's ratings continue to be supported by its strong brand portfolio, solid market position, highly competitive cost structure and worldwide geographic sales diversity.

These positive factors are tempered by the company's exposure to earnings volatility due to commodity price movements, the risk of export markets being closed to its products and by the agency's expectation of negative free cash flows for the next few years because of its high expansion capital expenditures program, the agency said.

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