Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

<ul>
<li>We upgrade Minerva to Overweight from Neutral, driven by valuation: the 2031s widened to 375 bps OAS despite a stable-to-tighter EM BB backdrop.</li>
<li>Fundamentals remain mixed: net leverage rose to 2.94x, adjusted net leverage to 3.90x including supplier finance, while cash interest coverage fell to 1.66x.</li>
<li>Cash conversion is the key test: R$1.07 billion of working-capital use kept free cash flow negative; stronger 2H26 cash generation is needed to support deleveraging.</li>
</ul>


We upgrade Minerva to Overweight from Neutral, driven by valuation: the 2031s widened to 375 bps OAS despite a stable-to-tighter EM BB backdrop.
Fundamentals remain mixed: net leverage rose to 2.94x, adjusted net leverage to 3.90x including supplier finance, while cash interest coverage fell to 1.66x.
Cash conversion is the key test: R$1.07 billion of working-capital use kept free cash flow negative; stronger 2H26 cash generation is needed to support deleveraging.


Minerva 2Q26: Margin Pressure Persists, Cash Conversion Still the Test

<ul>
<li>
Better entry value: The 2031s have widened meaningfully since 4Q25, restoring spread cushion and becoming Minerva’s cleanest risk-adjusted curve expression.</li>
<li>
Execution risk remains: Higher cattle costs, negative post-working-capital FCF, and cash interest coverage below 2.0x keep the credit story balanced rather than improving.</li>
<li>
Valuation driver: Scale, pricing, liability management, and integration support EBITDA, but stronger free cash flow conversion is needed for a more constructive stance.</li>
</ul>



Better entry value: The 2031s have widened meaningfully since 4Q25, restoring spread cushion and becoming Minerva’s cleanest risk-adjusted curve expression.

Execution risk remains: Higher cattle costs, negative post-working-capital FCF, and cash interest coverage below 2.0x keep the credit story balanced rather than improving.

Valuation driver: Scale, pricing, liability management, and integration support EBITDA, but stronger free cash flow conversion is needed for a more constructive stance.


Minerva 1Q26: Bigger Platform, Same Cattle Cycle Pressure

<ul>
<li>Neutral Rating Downgrade: Valuation now reflects a completed integration and stabilized credit profile, with spread compression largely exhausted and yields trading inside the EM BB index and LatAm curves.</li>
<li>Margin Pressure Ahead: Rising cattle costs and domestic demand weakness in Brazil are expected to compress margins in 2026, offsetting revenue growth and keeping absolute EBITDA levels stagnant.</li>
<li>Balanced Risk-Reward: While deleveraging continues toward a 2.0x net debt target, current bond prices offer limited upside, making the positive convexity of the 2031 notes the preferred defensive exposure.</li>
</ul>


Neutral Rating Downgrade: Valuation now reflects a completed integration and stabilized credit profile, with spread compression largely exhausted and yields trading inside the EM BB index and LatAm curves.
Margin Pressure Ahead: Rising cattle costs and domestic demand weakness in Brazil are expected to compress margins in 2026, offsetting revenue growth and keeping absolute EBITDA levels stagnant.
Balanced Risk-Reward: While deleveraging continues toward a 2.0x net debt target, current bond prices offer limited upside, making the positive convexity of the 2031 notes the preferred defensive exposure.


Minerva 4Q25: Domestic Weakness and Cost Inflation Weigh on Profitability

<ul>
<li>We maintain our Overweight on Minerva, favoring the 2033s for superior carry-to-duration despite limited upside, supported by strong liquidity, improving leverage, and integration-driven efficiencies</li>
<li>We see room for further spread compression over 9–12 months as operating conditions remain favorable, tariff mitigation continues, and synergies from acquired plants strengthen the credit profile</li>
<li>Relative value remains constructive, with Minerva notes still wide to key benchmarks and peers even after tightening, while rising cattle prices and weak interest coverage remain the main risks</li>
</ul>


We maintain our Overweight on Minerva, favoring the 2033s for superior carry-to-duration despite limited upside, supported by strong liquidity, improving leverage, and integration-driven efficiencies
We see room for further spread compression over 9–12 months as operating conditions remain favorable, tariff mitigation continues, and synergies from acquired plants strengthen the credit profile
Relative value remains constructive, with Minerva notes still wide to key benchmarks and peers even after tightening, while rising cattle prices and weak interest coverage remain the main risks


Minerva 3Q25: Stronger Credit as Integration Completes, Margins Under Pressure

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Thematic (Sector/Industry)

<ul><li>The cattle cycle is a long-term cyclical fluctuation in cattle inventory driven by economic signals</li><li>Important metrics to consider include availability of female animals, profitability in feeding and cow-calf sectors</li><li>Brazil and Australia are the main suppliers of beef to the US, with a large portion of imports being lean trim beef</li></ul>This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

The cattle cycle is a long-term cyclical fluctuation in cattle inventory driven by economic signalsImportant metrics to consider include availability of female animals, profitability in feeding and cow-calf sectorsBrazil and Australia are the main suppliers of beef to the US, with a large portion of imports being lean trim beefThis content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

Understanding the cattle cycle, why US beef prices are at record highs and the role of Australia ...

Brazil

Minerva S.A. is a leading Brazilian food company specializing in the production and sale of fresh beef, leather, derivatives, and the export of live cattle. The company also operates in the meat processing segment, selling its products to over 100 countries across five continents. Minerva S.A. was founded in 1924 and is headquartered in Barretos, São Paulo, Brazil.

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Minerva (BEEF3 BR)

Minerva 2Q26: Margin Pressure Persists, Cash Conversion Still the Test

Minerva’s bonds have repriced more than fundamentals warrant. We upgrade to Overweight, but cash conversion and supplier finance remain the key tests.

Leandro Gubler

Minerva 1Q26: Bigger Platform, Same Cattle Cycle Pressure

Minerva’s 1Q26 keeps the credit story balanced: better 2031 entry value, stronger scale, but cattle costs and FCF still cap upside.

Leandro Gubler

Minerva 4Q25: Domestic Weakness and Cost Inflation Weigh on Profitability

Minerva is downgraded to Neutral as peak spread compression and rising cattle costs limit upside; we identify why the 2031 notes now offer a...

Leandro Gubler

Minerva 3Q25: Stronger Credit as Integration Completes, Margins Under Pressure

Maintaining Overweight on Minerva due to strong liquidity, improving leverage, and integration efficiencies, despite risks of rising cattle prices...

Leandro Gubler

Understanding the cattle cycle, why US beef prices are at record highs and the role of Australia ...

The cattle cycle and biological cycle of beef animals, in relation to key metrics and global suppliers, are impacted by factors such as dry weather...

Commodities Focus

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Minerva 2Q26: Margin Pressure Persists, Cash Conversion Still the Test

Minerva’s bonds have repriced more than fundamentals warrant. We upgrade to Overweight, but cash conversion and supplier finance remain the key tests.

Leandro Gubler

Minerva 1Q26: Bigger Platform, Same Cattle Cycle Pressure

Minerva’s 1Q26 keeps the credit story balanced: better 2031 entry value, stronger scale, but cattle costs and FCF still cap upside.

Leandro Gubler

Minerva 4Q25: Domestic Weakness and Cost Inflation Weigh on Profitability

Minerva is downgraded to Neutral as peak spread compression and rising cattle costs limit upside; we identify why the 2031 notes now offer a...

Leandro Gubler

Minerva 3Q25: Stronger Credit as Integration Completes, Margins Under Pressure

​Maintaining Overweight on Minerva due to strong liquidity, improving leverage, and integration efficiencies, despite risks of rising cattle prices...

Leandro Gubler

Understanding the cattle cycle, why US beef prices are at record highs and the role of Australia ...

The cattle cycle and biological cycle of beef animals, in relation to key metrics and global suppliers, are impacted by factors such as dry weather...

Commodities Focus

Maintaining Overweight on Minerva due to strong liquidity, improving leverage, and integration efficiencies, despite risks of rising cattle prices...