Fitch Rates Mosaic's Term Loans 'BBB'; Outlook Stable
CHICAGO -- March 28, 2014
Fitch Ratings has assigned a 'BBB' rating to The Mosaic Company's (Mosaic)
$800 million unsecured term loan facility consisting of a $370 million Term
A-1 loan and a $430 million Term A-2 loan. The A-1 tranche has a maturity of
three years from the earlier of full funding or Sept. 19, 2014, and the A-2
tranche has a maturity of five years from the earlier of full funding or Sept.
19, 2014. The Rating Outlook is Stable.
TERM LOAN FACILITY
The term loan will rank equally with Mosaic's existing $3 billion of senior
unsecured debt. Mosaic plans to use the proceeds of the term loan facility to
replenish cash balances used to complete the purchase of CF Industries
Holdings, Inc.'s (CF) phosphate assets. The term loan facility has similar
financial covenants with the company's revolving credit facility: maintenance
of Total Debt to EBITDA of less than 3.5x and the Interest Coverage Ratio
greater than 3x. If the term loans are fully drawn, Mosaic's leverage pro
forma at Dec. 31, 2013 would be 1.9x on a total debt to EBITDA basis. The term
loan facility is prepayable at par.
KEY RATING DRIVERS
Mosaic's ratings reflect the company's position as one of the world's largest
fertilizer producers with good cost control, advantaged geography, and long
mine lives. The ratings consider the company's generally conservative
financial management, strong liquidity, and robust cash flow from operations.
Mosaic recently purchased CF's South Pasture phosphate mine and beneficiation
plant, Plant City phosphate manufacturing facility and ammonia terminal and
fertilizer warehouse in Tampa for $1.2 billion and to fund CF's asset
retirement obligation escrow for $200 million. In addition, Mosaic and CF
entered into ammonia supply agreements whereby CF will supply Mosaic with
ammonia. Fitch views the transaction as strategically beneficial for Mosaic
since the company will be able to add contiguous operating acres to its land
holdings in Florida. The supply agreement benefits Mosaic as well since it
will not spend capital to build out its own ammonia capacity.
Mosaic has agreed to repurchase a significant number of shares through various
agreements with large shareholders. 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 1.5x 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.
For 2013, Mosaic earned EBITDA of $2 billion on revenues of $9 billion. Total
debt amounted to $3 billion with the nearest maturity of $89 million coming
due in 2018. Fitch forecasts roughly $2 billion in EBITDA and negative FCF of
$500 million in 2014.
Mosaic had substantial liquidity at Dec. 31, 2013. The company has an undrawn
$1.5 billion credit facility which matures in 2018. The company had $19
million of letters of credit outstanding at Dec. 31, 2013 which reduced its
borrowing capacity under the revolver. Cash balances were substantial with
$5.3 billion at Dec. 31, 2013. Mosaic's credit facility allows for a maximum
total debt to EBITDA of 3.5x and a minimum interest coverage of 3.0x. Fitch
believes Mosaic will continue to maintain meaningful cushion with respect to
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 rates Mosaic as follows:
The Mosaic Company (parent)
--Long-term Issuer Default Rating (IDR) 'BBB';
--Senior unsecured guaranteed revolver 'BBB';
--Senior unsecured notes 'BBB'.
MOS Holdings Inc.
--Long-term IDR 'BBB'.
Mosaic Global Holdings
--Long-term IDR 'BBB';
--Senior unsecured debentures 'BBB'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (August 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology -- Effective 12 August 2011 to 8 August 2012
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Christopher M. Collins, CFA, +1 312-368-3196
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Sean T. Sexton, CFA, +1 312-368-3130
Brian Bertsch, +1 212-908-0549
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