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04 Jun 2007
Moody's Upgrades FMC Corp.'s Sr. Unsecured Ratings To Baa2; Outlook Stable
Approximately $ 940 million of long-term debt securities affected
New York, June 04, 2007 -- Moody's Investors Service upgraded FMC Corporation's ("FMC") senior unsecured
debt ratings to Baa2. The upgrade reflects the significant progress
the company has made in improving its credit metrics and reducing contingent
liabilities. Moody's also believes that a continued favorable
demand outlook for its products will translate into improved performance
for 2008 and 2009. FMC's last rating action was a move to
investment grade in June of 2005. The ratings outlook is stable.
The following summarizes the ratings activity:
$45 million debentures due 2011 - raised to Baa2 from Baa3
Medium-term notes due 2008 - raised to Baa2 from Baa3
Senior unsecured industrial revenue bonds due 2007 to 2035 --
raised to Baa2 from Baa3
$600 million revolver due 2010 - raised to Baa2 from Baa3
The Baa2 ratings reflect FMC's moderate leverage; product,
customer, and geographic diversification; good business scale
with 2006 revenues exceeding $2.3 billion; and leading
market positions in such products as peroxides, carrageenan,
and soda ash (the company typically has number one or two market share
in most of its product lines). In addition, Moody's believes
FMC's results are somewhat less susceptible to the economic cycle than
other chemical manufacturers due to the size of their agricultural and
biopolymers businesses. Additionally, Moody's believes that
the impact of high petrochemical feedstock and energy costs is less than
many other commodity chemical producers. The upgrade is also supported
by improving operating margins, the strong performance of the Agricultural
segment, and improving supply/demand fundamentals within the Industrial
Chemicals segment. However, the ratings also consider agricultural
market risks including the seasonality of sales, the significant
influence of weather, and the effect of crop prices and government
subsidies on farmers' use of FMC's herbicide and insecticide products.
The ratings also reflect continued spending for environmental remediation,
an underfunded pension balance, material operating leases,
and the cyclicality of the Industrial Chemicals segment.
The ratings are further supported by FMC's moderate leverage. With
FMC's successful actions to both reduce and refinance debt reported interest
expense in 2006 was about $42 million versus just over $80
million in 2004. The company publicly stated its intention to reduce
net debt to $600 million by the end of 2006. At the end
of 2006 net book debt was well under this target at about $460
million. The ratings upgrade also incorporates more favorable industry
dynamics within FMC's soda ash product line, whereby soda ash is
the largest component of Industrial Chemicals revenues (FMC markets soda
ash through its 87.5% interest in FMC Wyoming Corp.).
Soda ash effective capacity utilization has significantly improved from
the particularly weak levels experienced in 2000 and 2001 (just over 85%),
and since 2005 operating levels are close to 100% for operating
units in the US. Moreover price increases announced by the industry
have significantly improved operating performance. Moody's recognizes
that it has taken time for the company to realize the full benefit of
these price increases as in the past a significant portion of customer
contracts contain price restrictions. Most of these restrictions
expired by the end of 2006.
The ratings also consider the strong performance of FMC's Agricultural
segment, driven by a favorable global farm economy and beneficial
crop and product focus in Latin America. The Agricultural segment's
EBITDA had been steady at about $100 million over the three years
ending 2003 and increased to just over $182 million in 2006.
EBITDA margins, adjusted for one time items have improved to above
23%. Moreover, this segment should continue to post
good earnings due to its focus on near-term innovation and high
crop prices. Moody's also notes that insecticides (64% of
Agriculture segment revenue) tend to be less susceptible to competition
from GMO crops compared to herbicides. However, the ratings
recognize that FMC is a small player in both insecticides and herbicides
and actions by competitors could have a significant negative impact on
FMC's financial performance.
The stable outlook reflects Moody's expectation that the company will
sustain or increase the current volume of business and generate at least
$180 million of free cash flow in 2007.
FMC Corporation is a diversified chemicals company headquartered in Philadelphia,
Pennsylvania. The company reported revenues of $2.4
billion for the LTM period ended March 31, 2007.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
No Related Data.
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