Standard & Poor's has completed a round of rating agency cautions to Marfrig, over the balance sheet stretch threatened by the Brazilian beef giant's 38^th takeover in three years - and its dependence on McDonald's

S&P analysts said they were considering a downgrade to their B+ rating on Marfrig's foreign currency bonds after its $1.3bn takeover of US-based Keystone, a meat supplier to restaurant chains such as McDonald's and Subway.

The ratings flagged "uncertainties about the overall effects of an acquisition on Marfrig's financial and business profiles", adding that it would decide on any downgrade after discovering details of a R$2.5bn ($1.3bn) convertible bonds that the meat group is issuing to pay for the deal.

"We expect to resolve the [rating] when we have further information on the mandatory convertible debentures, and a clearer view on the improvements the expected synergies could make to Marfrig's business profile," S&P said.

Reliance on McDonalds

The comments echo those on Wednesday from Fitch Ratings, the rival ratings agency, which warned that the Keystone acquisition would "likely increase [Marfrig's] leverage above levels consistent with the company's current ratings".

The deal threatened to increase Marfrig's debts to a heady 5.3 times earnings before interest, tax depreciation and amortisation – a key metric for assessing the weight of debt burdens – compared with a current 4.4 times, already enough to make the group "highly leveraged".

Furthermore the acquisition could make Marfrig overly-reliant on the McDonald's fast food chain.

"The transaction will increase customer concentration into a single customer, McDonald's... which accounts for 90% of Keystone's $6.4bn in annual revenues," said Fitch, which tends to reward diversity when deciding on ratings.

The agency said it was considering a one-notch downgrade to its B+ rating on Marfrig debt, a move likely to force the group to offer sweeter terms to investors to sell its debt.

Management challenge 

Moody's, the other member of the big three ratings agencies, also threatened a downgrade, flagging the "operating and execution challenges" of Marfrig's takeover spree.

"The pace of acquisitions will test management's capacity to efficiently operate and integrate several companies with very different activities and still deliver credit metrics commensurate with its B1 rating."

The group's capital structure after closing the Keystone deal was "likely to stretch Marfrig's balance sheet".