Fitch Affirms Mosaic's IDR at 'BBB'; Outlook Revised to Stable
CHICAGO -- May 15, 2013
Fitch Ratings has affirmed the 'BBB' investment grade debt ratings and Issuer
Default Ratings (IDRs) of The Mosaic Company (Mosaic) and its subsidiaries,
and has revised the Rating Outlook to Stable from Positive. See the full list
of ratings at the end of this release.
KEY RATINGS DRIVERS
The revision in the Rating Outlook follows Mosaic's unveiling of a 'capital
management philosophy' which includes a return of excess cash to shareholders
in the form of share repurchases that will increase the company's financial
leverage. Currently, Mosaic's balance sheet carries very little leverage,
0.38x at the close of last February. Supporting managements' decision to
repurchase shares are large cash balances and the upcoming end of a lock-up
period this November on some 43 million shares owned by Cargill family
members, and the Ann Ray Charitable Trust and the Margaret A. Cargill
Foundation (the MAC Trusts). Lock-up periods for a similar number of shares
owned by family members and the MAC Trusts expire in November of 2014 and
2015, all together some 30% of Mosaic's outstanding shares.
Mosaic has placed a flexible ceiling on the amount that it is willing to spend
on share repurchases via a hard ceiling on the amount of leverage it is ready
to endure. The company is willing to operate with a leverage of 1.5x mid-cycle
EBITDA, extending to 2.0x if a compelling strategic investment arises. Above
those levels Mosaic would redirect free cash flow (FCF) to debt repayment in
order to maintain financial metrics consistent with investment grade ratings,
a discipline that is commensurate with a 'BBB' rating but that does not imply
a rating upgrade as suggested by a Positive Outlook.
Using current fertilizer prices, expected volumes, Mosaic's cost structure,
capital expenditure guidance and desired liquidity, Fitch calculates that
leverage would rise to around 0.71x projected 2014 EBITDA if the current
installment of shares coming off lock-up were repurchased in today's market.
Potash prices would have to fall more than 30% before Mosaic's leverage
ceiling would be approached and liquidity challenged. Considering the
company's low leverage and the inherent volatility in fertilizer prices, Fitch
believes that Mosaic has considerable room in which to conduct its shareholder
return policy. Fitch's current projections for 2014 anticipate cash flow from
operations in the vicinity of $2.5 billion, which will fund a capital program
of approximately $1.5 billion plus dividends and leave FCF of just under $300
A second facet of Mosaic's 'capital management philosophy,' also consistent
with current ratings, is an increase in targeted liquidity to even out any
seasonal and cyclical volatility in cash flow. The target is around +/- $2.25
billion, which includes domestic cash and available credit with a split of
around one-third cash and two-thirds available credit.
Ignoring weather-related events, in particular the late start to the spring
season caused by a lingering wet and cold winter, the long-term demand for
grains and crop nutrients as a result of population growth and U.S. ethanol
policy will continue to tax existing agricultural resources. To meet the
demand, agricultural yields will have to increase, which extends to improved
seed genomics and increased fertilizer applications.
For the LTM ended last February, Mosaic earned EBITDA of $2.836 billion on
revenues of $10.102 billion. Total debt amounted to $1.073 billion,
principally composed of four debentures with the nearest maturity of $89
million coming due in 2018. FCF was $199 million following $1.689 billion in
capital expenditures and $373 million in dividends. Approximately $737 million
of Mosaic's $750 million revolver maturing in 2016 was undrawn, and cash on
the balance sheet amounted to $3.323 billion. Bond covenants are standard
practice: negative pledge of assets, sale and leaseback restrictions and the
prohibition of the sale of substantially all properties.
Positive: Future developments that may, individually or collectively, lead to
a positive rating action include:
--A rapid accumulation of cash from operations following the use of leverage
to repurchase shares;
--A higher level of consistency in cash flow generation.
Negative: Future developments that may, individually or collectively, lead to
a negative rating action include:
--Negative FCF which in combination with stock repurchases significantly
--A very sharp and sustained reduction in the sales prices or sales volumes of
Mosaic's fertilizers leading to leverage above the company's target.
Fitch has affirmed 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'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
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Dennis Ruggles, +1 312-606-2318
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Christopher M. Collins, CFA, +1 312-368-3196
Sean T. Sexton, CFA, +1 312-368-3130
Brian Bertsch, +1 212-908-0549
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