We maintain our Overweight on Minerva (BB/BB) and retain the BEEFBZ 4.375% 2031 notes as our preferred bond, although fundamental risks have increased since our 2Q26 report. 3Q26 met the warning condition we set in that report, with adjusted net leverage rising to 4.09x and cash interest coverage falling to 1.44x, and the working-capital recovery we expected has been pushed into 2027. The call remains valuation-driven, as it was in 2Q26, but it no longer assumes a sustained improvement in recurring cash generation over our horizon. In our view, the market has repriced Minerva far more than the deterioration warrants. The bonds now trade wider than the EM B index while liquidity covers scheduled maturities through 2029, which leaves us comfortable maintaining Overweight despite a weaker fundamental outlook. The deterioration goes beyond the timing of inventory sales. Conventional net leverage rose to 3.23x from 2.94x, and cash financial expenses absorbed about 69% of LTM adjusted EBITDA. Part of the 3Q26 weakness should reverse, as management expects R$150–180 million of the cattle hedge loss to flow back through COGS, mainly in 4Q26. The cost of hedging foreign-currency debt is recurring under the current financing structure. Management attributed roughly R$320 million of the quarterly FX hedge loss to swap carry, and we think this burden is the main reason coverage will be slow to recover once temporary effects fade.
We expect the working-capital release to lower leverage over the next two quarters, but by less than management suggests. Shipments to China starting in 4Q26 will be billed largely in 1Q27, seasonal inventory needs ahead of the January U.S. quota could absorb part of the release, and the 8.4% rise in the PTAX selling rate since September-end inflates the BRL value of foreign-currency debt. We do not underwrite management’s conditional year-end leverage scenario near 2.8x. For bondholders, the more important question is what follows the release. With cattle supply in Brazil and Paraguay expected to stay tight through 2027, we see recurring Net FCF near breakeven once inventories normalize and negative in heavier coupon quarters. That leaves little room for organic deleveraging at current financing costs, and we think the relief over 4Q26 and 1Q27 will prove largely one-off.
