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Rating Action:

MOODY'S UPGRADES BUNGE'S UNSECURED DEBT TO Baa2. OUTLOOK STABLE.

07 Mar 2005

Approximately $2.3 Billion of Debt Securities Affected.

New York, March 07, 2005 -- Moody's Investors Service today upgraded the senior unsecured debt for Bunge Limited and guaranteed subsidiaries to Baa2 from Baa3. The outlook on the ratings is stable.

The upgrade is due to Bunge's (1) continued solid operating performance; (2) strengthening of the company's market shares, business and geographic diversity, (3) a solid track record of managing its growth while maintaining a sound (albeit complex) capital structure and liquidity profile; and (4) the reduction in the company's leverage and improvement in its overall debt protection measures.

Bunge's operating performance has continued to be strong despite a very volatile commodity and industry environment. Over the past few years, Bunge has pursued successful global repositioning and then global expansion strategies. The company has divested a number of non-core operations, and redeployed its capital in order to expand its core commodity processing, food (primarily edible oils), and fertilizer operations. Bunge's business portfolio now contains significant operating presence in North America, Latin America, and Europe, with smaller operations in other regions. While in pursuit of this strategy, Bunge's operating performance and income from continuing operations has steadily improved. Its growth has also added new products and geographic markets to its portfolio, which should help dampen some of the earnings and cash flow volatility inherent in the commodity processing industry. We note that the company's solid operating performance -- particularly in its Brazilian fertilizer operations -- has enabled it to earn higher returns on its assets than either of its two closest competitors, Archer-Daniels-Midland and Cargill Incorporated.

Despite the significant acquisition-led growth Bunge has pursued over the past few years, the company has strengthened its overall capital structure, greatly expanded its sources of capital, and increased its financial flexibility. Since 2001, Bunge accessed the public equity markets via an IPO, and has successfully accessed both the long and short term public and bank debt markets. The company has reduced third party debt at subsidiaries, hence reducing the degree of structural subordination it once had in its capital structure. Most recently, during 2004 Bunge issued additional equity in conjunction with increased acquisition and investment activity in order to lessen the negative impact on its leverage. The company has also lengthened its maturity schedule, as well as the tenor of several of its bank credit facilities, thus strengthening its liquidity. Moody's views positively the actions Bunge has taken to improve its capital structure and financial flexibility over the past few years.

Bunge's stable outlook reflects Bunge's strong market positions, geographic diversity and financial flexibility to deal with changes in exchange rates and volatile commodity prices. The stable outlook also anticipates that Bunge will manage its future growth such that leverage (as measured by retained cash flow to total debt) remains in the 16% - 20% range.

Bunge's ratings are supported by its strong position in the global commodity markets, its geographically diverse sourcing capabilities, and its attractive cost advantage in the Brazilian fertilizer industry. Bunge is the world's largest processor of soybeans, the world's largest seller of bottled vegetable oil, and the leading fertilizer producer in Latin America. The company's strong oilseed sourcing capabilities in both North and South America not only allow it to take advantage of the fast growing oilseed production in Brazil and Argentina, but also help to mitigate any possible disruption to its business due to poor harvests in any one region. Bunge's ratings also reflect the strength of its Brazilian fertilizer operations, where Bunge is the largest supplier of fertilizer to farmers in South America, with over 29% of the retail market share of NPK fertilizers. Bunge enjoys a formidable cost advantage in this industry as it controls five of the country's six phosphate mines, making its costs much lower than those of its competitors who must import phosphate raw materials.

Bunge's ratings also reflect its exposure to volatile commodity and foreign exchange markets, and the instability to Bunge's earnings and cash flows that it causes. Ratings also reflect the fact that Bunge's business portfolio lacks the diversification of that of its largest competitors, and that it earns a large portion of its operating income from its Brazilian fertilizer operations. We note that the company operates in a low margin business, although Bunge enjoys higher margins than do its peers because of the size and profitability of its Brazilian fertilizer operation. The risk of further acquisitions is also a ratings factor, particularly as Bunge expands its global network to reach the scale of its competitors.

The company's ratings also consider the risks from its extensive operations in economically-challenged Brazil and Argentina. However, there are several factors that partially mitigate this risk. For one, the oilseed commodities Bunge sources in Brazil and Argentina, are largely exported and thus not exposed to downturns in local markets. Secondly, demand for its fertilizer in Brazil is derived from this same export-focused grain production. Thirdly, the US dollar pricing of soybeans and the close tie of Brazilian fertilizer prices to the US$ reduce foreign exchange exposure. Finally, as agricultural exports are a significant source of hard currency for these countries, the risk of government interference in Bunge's export operations is reduced. Even so, Moody's monitors the impact of political and economic difficulties upon Bunge's operations.

Moody's regards Bunge's highly complex capital structure as a credit negative. The company has a significant number of legal entities, several of which are party to complex credit transactions. Such complexity reduces the transparency of cash flows within Bunge's enterprise, and increases the risk of disruption of cash flows from Bunge's operating subsidiaries to parent obligors. The relatively simple capital structure typical of investment grade companies is not exhibited by Bunge.

Over time, Bunge's ratings could be upgraded further if the company is able to further improve the stability of its earnings and cash flow, reduce the complexity of its capital structure, and reduce leverage such that retained cash flow to debt can be maintained in the 20% - 25% range. Barring any large debt-financed acquisitions, a near-term downgrade of Bunge's ratings is unlikely. Downward rating action could occur, however, should the company's operating performance falter or leverage increase such that retained cash flow to debt falls and will likely remain below the 16% - 20% range.

Ratings upgraded are as follows:

Bunge Limited Finance Corp.

Senior Unsecured to Baa2 from Baa3 based on a 100% unconditional guarantee of Bunge Limited.

Bunge Master Trust

Senior unsecured to Baa2 from Baa3 based on a 100% unconditional guarantee of Bunge Limited.

Note: A $600 million supported commercial paper program of Bunge Asset Funding Corp. is not under review and is not impacted by this rating action.

Headquartered in White Plains, NY, Bunge is a global agribusiness company with operations primarily in commodity grain processing and fertilizer production.

New York
Angela Jameson
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S UPGRADES BUNGE'S UNSECURED DEBT TO Baa2. OUTLOOK STABLE.
No Related Data.
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