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Rating Action:

MOODY'S CONFIRMS CARGILL INCORPORATED'S DEBT RATINGS (LONG-TERM AT Aa3; SHORT-TERM AT PRIME-1); REVISES RATING OUTLOOK

05 Feb 1998
New York, 02-05-98 -- Moody's Investors Service confirmed Cargill Inc.'s Aa3 long-term debt rating and Prime-1 short-term rating and revised the rating outlook to negative following the company's announcement of weak first half operating results and a $90 million after-tax reserve for its Access Financial unit. The confirmation is based on the company's leading position as a domestic and international grain merchandiser, as well as the inherent cyclicality of its business lines. The rating also incorporates the increased risk profile of Cargill's extensive financial operations.

The rating outlook has been revised to negative to reflect the impact of weaker operating results on Cargill's debt protection measures. While Moody's believes Cargill's strong cash flow and competitive and financial position continue to support this rating level, financial flexibility has moderated slightly. As such, a prolonged period of earnings softness or additional unforeseen events may pressure the rating.

Ratings confirmed are:

Cargill, Incorporated:

Senior unsecured at Aa3
Senior unsecured MTN at Aa3
Commercial paper at Prime-1
Industrial revenue bonds based on a Cargill, Inc. guarantee at Aa3

Cargill Asia Pacific Treasury Ltd:

Senior unsecured at Aa3
Senior unsecured MTN at Aa3
Commercial paper at Prime-1

Cargill Australia Limited:

Commercial paper at Prime-1

Cargill Financial Markets PLC:

Commercial paper at Prime-1

Cargill Financial Services Corporation:

Commercial paper at Prime-1

Cargill Global Funding PLC:

Senior unsecured at Aa3
Commercial paper at Prime-1

Cargill Investment Corporation:

Preferred stock at "aa3"

Cargill Ltd:

Senior unsecured at Aa3

Cargill, Inc. Employee Stk Ownership Tr:

Senior unsecured at Aa3

Cargill recently reported fiscal first-half earnings of $124 million, 74% below fiscal 1997 levels. The company continues to face earnings pressure in several of its key business lines primarily related to excess industry capacity. These include corn processing, grain processing, seed, juice, and coffee. In addition, the company took a $90 million after-tax reserve to cover losses at its troubled Access Financial unit, which continues to be plagued by weak performance specifically in its manufactured housing operations. Although the Aa3 rating incorporates the inherent volatility of Cargill's operating performance, the recent spike down is sharper than in many previous cycles. While Moody's anticipates that Cargill's operating performance will improve over the long-term, the current results have weakened the company's position at the Aa3 rating level and reduced its cushion for withstanding further significant weakening of financial measures at this rating level.

Cargill, Incorporated is a leading domestic and international grain merchandiser with important interests in processing commodity-oriented lines such as oilseeds, corn, flour, poultry, red meat and steel. The company has successfully leveraged its international presence and information network to maximize profitability in both its trading and financial service operations. Cargill's earnings reflect the cyclicality of these commodity-based businesses, although the company benefits from the geographic and product diversity of its operations. Cargill's international presence is formidable, with operations in over 70 countries. This geographic reach mitigates the effect of financial turmoil in any one area of the world, such as that currently seen in Asia. Similarly, the company's product diversity, which encompasses product such as cotton, meat, fertilizer, sugar, salt and energy, moderates the effect of commodity price volatility and worldwide supply and demand imbalances. Moody's views this geographic and product diversity as a strong factor supporting the rating.

The ratings are also supported by the company's orientation to long-term cash flow and a stable shareholder base oriented toward long-term performance. The private ownership structure of the company eliminates the event risk associated with shareholder pressure and provides the company with a long-term perspective in managing its business and making investment decisions.

Cargill maintains an extensive financial services business which is involved in a wide range of operations, including trading of securities, investments in emerging markets, investments in distressed assets, structured finance and trade finance. The unit has been successful in leveraging expertise obtained from Cargill's traditional trading and processing business and its knowledge of the global marketplace. However, this unit's exposure to worldwide financial markets, interest rate and currency volatility highlights it increased risk profile versus Cargill's core commodity business. While this business has historically been a strong contributor to earnings, recent problems at the company's Access subsidiary have highlighted the risks involved in rapid and diverse expansion. Cargill, Inc.'s ratings incorporate the performance and financial profile of the financial services operation, and take into account the company's risk management techniques, financial policies and liquidity in this business segment.

Cargill generates strong cash flow and maintains adequate liquidity to support both its core business and financial operations. Liquidity is a critical rating factor, as high seasonal borrowings and requirements for the financial service operations drive debt levels to high points exceeding year-end levels. Short-term debt requirements are well supported by a high level of cash and cash equivalents, readily marketable and price-hedged financial instruments and commodity inventories, and sufficient sources of alternative liquidity are maintained.

Cargill, Inc., based in Minneapolis, Minnesota, is the nation's largest privately held company, and is a leading domestic and international grain merchandiser.

MOODY'S CONFIRMS CARGILL INCORPORATED'S DEBT RATINGS (LONG-TERM AT Aa3; SHORT-TERM AT PRIME-1); REVISES RATING OUTLOOK
No Related Data.
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