Breaking News

Tweet TWEET

Fitch Affirms Mosaic at 'BBB'; Outlook Revised to Positive

  Fitch Affirms Mosaic at 'BBB'; Outlook Revised to Positive

Business Wire

CHICAGO -- October 04, 2012

Fitch Ratings has affirmed the 'BBB' investment grade debt ratings and Issuer
Default Ratings (IDR) of The Mosaic Company (Mosaic) and its subsidiaries. The
Rating Outlook has been revised to Positive from Stable.

The favorable change in the Rating Outlook is based on encouraging business
conditions which Fitch expects will yield a repeat of fiscal 2012's record
sales, better earnings and strong cash flow. The genesis for the improved
results will come from a growing demand for phosphate and potash fertilizers
needed for larger quantities of grains for feed and ethanol-from-corn, the
latter for higher renewable fuel requirements. Demand will be enhanced by the
drought and heat damage to this season's crops, particularly in the U.S. but
also in Russia and India. The USDA has recently estimated that the poor
weather will result in an 8% fall in total grain harvests in the U.S.,
increasing pressures for higher production with no apparent cooling of demand.

Last year increases in average phosphate prices, 13.0%, and potash prices,
24.9%, combined with flat phosphate sales volumes and lower potash sales
volumes to produce an 11.8% gain in sales over fiscal 2011. Higher production
costs for feedstock sulfur and ammonia, higher brine inflow costs at the
Esterhazy potash mine, and the higher costs to purchase phosphate rock from
outside the company cancelled sales gains to yield a flattish but still robust
EBIT and EBITDA of around $2.6 billion and $3.1 billion, respectively.

In the first quarter of fiscal 2013, sales were down year over year by almost
19%. Potash sales, volumes and earnings were all higher, but scheduled plant
turnarounds and inclement weather prevented Mosaic from shipping phosphate
fertilizers up the Mississippi for delivery to the domestic market and to
South America. As a result phosphate fertilizer shipments were down 16%, sales
were off almost 30%, and segment operating earnings were down 38%. EBIT for
the quarter was 16% lower year over year with EBITDA 12% lower. Second quarter
results are expected to make whole some portion of the decline.

Mosaic has resolved two operating issues that were costing the company
marginal profits. In February Mosaic reached an agreement with the Sierra Club
ending litigation and an injunction against mining phosphate rock at the
company's South Fort Meade mine in Florida. That mine produces around 20% of
the phosphate rock mined in the U.S. The injunction forced Mosaic to purchase
a portion of its rock needs on the open market at a higher cost. The South
Fort Meade mine is now fully operational. Mosaic also settled a long-standing
dispute between itself and Potash Corporation of Saskatchewan (PCS). Effective
with the start of calendar 2013, approximately 1.0 million metric tonnes of
annual capacity that was being mined for the benefit of PCS under a tolling
agreement will permanently revert to Mosaic for resale. Both of these events
should have a positive impact on earnings in fiscal 2013.

For the current year Fitch estimates that Mosaic will again earn around $3.0
billion in EBITDA, and funds flow from operations should again exceed $2.5
billion. Capital expenditures are forecast by the company at $1.5 - $1.8
billion, a probable increase over fiscal 2012 as the company progresses in its
potash expansion plans at its three Saskatchewan mines. FCF for the fiscal
year is expected to be almost neutral, owing to the increased common dividend
of $1.00 per share plus the higher capital expenditures. Mosaic's year-end
cash balances are still expected to be around $4.0 billion. No appreciable
change in debt at just over $1.0 billion is expected as there are no
significant debt maturities before the company's revolver matures in 2016 and
no need to borrow.

Alternate uses for cash on the balance sheet could include share repurchases.
In November 2011 Mosaic repurchased 21.3 million of its Class A Common shares
from the Margaret A. Cargill foundation (MAC Trusts) for approximately $1.2
billion. Cargill shareholders still hold 128.8 million shares subject to
transfer restrictions which will be released in three equal annual
installments beginning in November 2013, unless sold prior to the release
date. By agreement with Cargill Incorporated, Mosaic is prevented from
repurchasing its common stock (from other than the Cargill shareholders) prior
to November 2013. The Positive Outlook does not envision an increase in
leverage owing to share repurchases.

In addition to cash on hand Mosaic keeps a $750 million unsecured revolver,
available to both it and its subsidiary, MOS Holdings Inc. The revolver is
guaranteed by MOS Holdings Inc. and certain operating subsidiaries. Principal
financial tests include a minimum EBITDA/interest cover of 3.50 times (x) and
a maximum debt/LTM EBITDA of 3x. The revolver was undrawn at the end of last
August.

Fitch affirms the following ratings:

The Mosaic Company (parent)

--IDR at 'BBB';

--Senior unsecured guaranteed revolver at 'BBB';

--Senior unsecured notes at 'BBB';

MOS Holdings Inc.

--IDR at 'BBB';

Mosaic Global Holdings

--IDR at 'BBB';

--Senior unsecured notes at 'BBB'.

The Rating Outlook is Positive.

WHAT COULD TRIGGER A RATING ACTION

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

--Further permanent improvements in Mosaic's cost structure;

--Continued favorable agricultural economics that lead to an increase in free
cash flow (FCF).

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

--Negative FCF which in combination with stock repurchases significantly
erodes liquidity.

--A very sharp and sustained reduction in the sales prices or sales volumes of
Mosaic's fertilizers.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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.

Contact:

Fitch Ratings
Primary Analyst
Dennis Ruggles, +1-312-606-2318
Director
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Christopher M. Collins, CFA, +1-312-368-3196
Director
or
Committee Chairperson
Sean T. Sexton, CFA, +1-312-368-3130
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com