Fitch Rates Monsanto's $4.5 Billion Sr. Unsecured Note Issuance 'A-'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has assigned an 'A-' rating to Monsanto Company's (Monsanto, NYSE: MON) proposed senior unsecured note issuance aggregating $4.5 billion. A complete list of ratings follows at the end of this release.

The Rating Outlook is Stable.

The notes will be senior unsecured obligations and will rank equally with the company's $3 billion in principal amount of senior unsecured debt outstanding as of May 31, 2014. Monsanto plans to use the net proceeds of the issuance together with cash on hand to repurchase shares of its common stock up to $6 billion in value. The notes will have make whole call provisions as well as a put option upon a change of control and a downgrade of the notes below investment grade.

Fitch downgraded Monsanto's ratings on June 25, 2014 in connection with the announced $10 billion share repurchase program and target leverage of net debt to EBITDA of 1.5 times.

KEY RATING DRIVERS

The ratings reflect Monsanto's substantive market positions in corn, soybean, cotton and vegetables seeds and traits; in addition to leading or sizeable positions depending on crop and geography. The company has R&D-driven expertise in plant biotechnology that enables high profit margins and strong cash flows. The company's portfolio benefits from patent protection for most of its key products which creates high barriers of entry for new market entrants. In addition, Monsanto licenses its technologies and traits to its competitors. These agreements generate a recurring royalty stream that further supports the company's profitability.

Monsanto's credit profile is strong, marked by robust operating margins, significant free cash flow, moderate leverage and solid liquidity. The company generated $4.7 billion of operating EBITDA in the LTM period ended May 31, 2014, corresponding to 30% of net sales. Over the same period, free cash flow after dividends but before acquisitions was approximately $0.9 billion. Pro forma for the debt issuance, total debt to operating EBITDA for the period was 1.6x. Fitch expects financial leverage to increase with the recapitalization but for total debt/EBITDA to remain at or below 2x.

Fitch expects Monsanto to continue to generate substantial positive free cash flow in most fiscal years and to maintain a strong credit profile appropriate for an R&D-driven company.

Monsanto's operating profits are driven by its corn seeds and traits which accounted for over half of the company's gross profits again in fiscal 2013. Farm economics are very healthy, which enables more farmers to buy newer generation seeds and traits. Corn planting in the U.S. may be lower in 2014 than in 2013 due to lower corn prices, but Fitch expects Monsanto's corn seeds and traits gross profits to grow due to U.S. farmer demand for new seeds and traits and growing hybrid corn planting in South America.

The rating is somewhat constrained by the company's growth-through-acquisition strategy and its sizeable dividends and share buyback program. Since 2007, Monsanto completed multiple acquisitions for an aggregated amount of roughly $4 billion, including the acquisition of The Climate Corp., to broaden its product portfolio into cotton, vegetables and other seeds, expand its geographical footprint and enhance service offerings to farmers. Fitch expects Monsanto to balance its new repurchase program with investment opportunities to retain its target capital structure.

The Stable Outlook is based on robust operating performance and expectations for continued sales and earnings growth. In the year to May 31, 2014, sales grew 4.5% year over year to approximately $13.2 billion and operating EBITDA increased 9.2% to $4.8 billion compared to the first three quarters of 2013, accounting for 36% of sales.

Fitch notes that the May quarter is the seasonal working capital high/cash low quarter. The company's liquidity totaled approximately $3.8 billion at May 31, 2014 with available cash at $1.8 billion and full availability under the company's $2 billion revolving credit facility due April 2016. The facility has a total debt to total capital covenant of less than 66 2/3% and Fitch expects the company to remain in compliance. Pro forma estimated maturities of debt over the medium term are $300 million in FY 2016, $900 million in FY 2017, $300 million in FY 2018 and $800 million in FY 2019.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Total Debt/EBITDA declines on a sustained basis below 1.25x.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Total Debt/EBITDA increases on a sustained basis above 2.25x;

--Liquidity, of which cash is at least $2 billion, less than $3 billion;

--Regulatory actions that threaten Monsanto's business model.

Fitch rates Monsanto as follows:

--Long-term IDR 'A-';

--Senior unsecured revolving credit facility 'A-';

--Senior unsecured debt 'A-';

--Short-term IDR 'F2';

--Commercial Paper 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 2014);

--'Rating Chemical Companies' (August 2012);

--'North American Chemicals 2014 Outlook' (December 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Chemical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682313

2014 Outlook: North American Chemicals

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724885

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836793

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Monica M. Bonar
Senior Director
+1-212-908-0579
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gregory Fodell
Associate Director
+1-312-368-3117
or
Committee Chairperson
Sean T. Sexton, CFA
Managing Director
+1-312-368-3130
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549,
brian.bertsch@fitchratings.com

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