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Rating Action:

MOODY'S ASSIGNS PRIME-1 RATING TO PHARMACIA AND MONSANTO'S NEW ASSUMABLE COMMERCIAL PAPER PROGRAM

04 Oct 2000
MOODY'S ASSIGNS PRIME-1 RATING TO PHARMACIA AND MONSANTO'S NEW ASSUMABLE COMMERCIAL PAPER PROGRAM

Anticipated Program Size of Approximately $2.5 Billion.

New York, October 04, 2000 -- Moody's Investors Service today assigned a Prime-1 rating to Pharmacia Corporation's ("Pharmacia's") new Assumable 4(2) Commercial Paper program. Upon closing of the partial (approximately 14%) IPO of Monsanto Company ("Monsanto"), Pharmacia's liabilities under this program will be released, and Monsanto will become the sole obligor of the commercial paper notes, without a formal guarantee from Pharmacia. Thereafter, Monsanto may issue additional commercial paper notes under the program. Moody's expects that the initial authorization limit will be approximately $2.5 billion, but the Prime-1 rating assumes that IPO proceeds and Monsanto's internal cash flow generation will allow the company to reduce the authorization limit to approximately $1.5 billion immediately after the partial IPO.

The Prime-1 rating is based on Monsanto's majority ownership by Pharmacia Corporation (rated A1/Prime-1), benefiting from being part of a larger, stronger pharmaceutical company, and also reflects the new Monsanto's lower relative debt levels compared to the pre-merger Monsanto. These factors led to Moody's upgrade of Monsanto's long term rating to A1 from A2 in March, 2000. Monsanto's ratings continue to reflect the company's strong franchise in agricultural products, namely its Roundup brand herbicide and the commercialization of seeds to produce crops compatible with Roundup. The expiry of Roundup's U.S. patent several weeks ago poses a moderate risk in light of prior post-patent success elsewhere. Moody's believes Monsanto's major risk factor is the considerable uncertainty faced by ag biotech. The near term risks include the extent to which farmers will continue to buy genetically modified seeds in the face of resistance by grain operators, food retailers and shifting consumer sentiment. Longer term risks include the possibility that insects and weeds develop tolerance to herbicides, uncertainties in the regulatory process, and patent litigation. Moody's will continue to monitor the emerging impact of these factors on Monsanto's business. Through the first 6 months of 2000, Monsanto reported a 6% increase in revenues -- somewhat lower than the company's historical rate of growth within its ag business.

The rating outlook is currently stable, based on our expectation that Pharmacia Corporation will maintain a high ownership stake for at least two years following the close of the merger (March 31, 2000) in order to preserve the favorable tax and accounting status of the transaction. After that, however, Pharmacia may consider reducing its ownership proportion. Under a scenario with reduced Pharmacia ownership, Monsanto's ratings could face downward pressure primarily due to the higher operating risks of the agricultural products and chemicals sectors.

Moody's expects the new commercial paper program to be fully-backed by committed bank facilities following the closing of the partial IPO. Moody's notes that CP holders benefit from the absence of a material adverse change clause at each borrowing. Prior to close, back-up is supplemented with a committed 120-day standby facility.

After the IPO closes, Monsanto will use the new commercial paper program for its seasonal working capital needs, which typically peak in the summer months. We believe the anticipated $1.5 billion authorization limit may be inadequate to meet Monsanto's working capital demands in the summer of 2001, and that the company may contemplate terming out a portion of its short-term debt.

Headquartered in Peapack, New Jersey, Pharmacia Corporation was formed in March 2000 through the merger of Pharmacia & Upjohn with Monsanto Company and its G.D. Searle unit. The company reported pharmaceutical sales of over $6 billion through the first half of 2000.

Headquartered in St. Louis Missouri, Monsanto Company focuses on agricultural products and chemicals, and is currently wholly-owned by Pharmacia Corporation. Approximately 14% of the company is expected to be sold to investors in an upcoming partial IPO.

New York
David Neuhaus
Vice President - Senior Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Michael Levesque
Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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