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Rating Action:

Moody's affirms FMC's ratings at Baa2

31 Mar 2017

New York, March 31, 2017 -- Moody's Investors Service, ("Moody's") affirmed FMC Corporation's Baa2 and Prime-2 ratings following the company's announcement that it has reached agreement to acquire certain herbicides and insecticide products owned by E.I. du Pont de Nemours and Company (DuPont) and to sell its Health and Nutrition (H&N) business to DuPont. The transaction includes a payment to DuPont of $1.2 billion and values each respective business at approximately mid-to-high7 times multiples, before synergies. The transaction, which is expected to close in the fourth quarter of this year, is conditioned on the closing of the Dow-DuPont merger, as well as customary regulatory approvals. The outlook on the ratings is stable.

"The transaction increases FMC's leverage initially, but considerably strengthens FMC's portfolio, market position and R&D capabilities in crop protection chemicals, " according to Joseph Princiotta, VP- Senior Credit Officer at Moody's.

Affirmations:

..Issuer: FMC Corporation

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: New Jersey Economic Development Authority

....Backed Revenue Bonds, Affirmed Baa2

..Issuer: Power County Industrial Development Corp.

....Backed Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Delaware Economic Development Authority

....Backed Revenue Bonds, Affirmed Baa2

..Issuer: Sweetwater (County of) WY

....Senior Unsecured Revenue Bonds, Affirmed Baa2

Outlook Actions:

....Outlook, Remains Stable

RATINGS RATIONALE

The transaction will increase FMC's debt and leverage metrics, however several offsetting factors support the credit profile and justify the ratings affirmation.

The transaction is transformational, and focuses and strengthens FMC's portfolio in crop protection chemicals, expands its asset base with the addition of 14 manufacturing and formulation facilities, and broadens and deepens its R&D capabilities. The deal moves FMC from a fully asset-lite, research-lite business model to one that encompasses a broad manufacturing asset base and early stage R&D; Moody's believes this is both a risk and an opportunity for FMC. The cumulative package of DuPont's insecticide and herbicide products has strong gross margins and should realize robust EBITDA margins of at least 30% and modest low-to-mid single digit percentage topline growth.

Specifically, the transaction consists of DuPont's sulfur urea cereal broadleaf herbicides and key products from DuPont's global chewing pest insecticide portfolio, namely Rynaxypyr, Cyazypyr and Indoxacarb. These products will be swapped for FMC's H&N segment. The value differential between the businesses will require FMC to pay DuPont $1.2 billion at closing. DuPont will also transfer a substantial portion of its global crop protection R&D capabilities including its development pipeline and organization. However, it will exclude personnel involved in marketing support and R&D for the products that DuPont is retaining, which includes seed treatment, nematicides and certain late-stage R&D programs.

On the negative side, the transaction will increase debt and leverage, which Moody's estimates will step up to the mid 3 times on a pro forma basis at closing. The increase is moderate and likely to be temporary and Moody's estimates will return to roughly 3.0 times or less be the end of next year, and into the low 2x range by the end of 2019. Moody's believes management is committed to debt reduction as a top priority, and estimates FCF on the order of $500-$600 million post-assimilation, which facilitates meaningful debt reduction. Moody's notes that FMC cut debt by $240 in 2016 and was on track (before this deal) to reduce leverage to the low 2x range by year end 2017.

In terms of execution risk, for a period of roughly 18-24 months post-closing FMC will lack the full operational capability to run the acquired businesses and will contractually rely on Transition Service Agreements with DuPont during this transitional period for certain admin, selling and IT-related capabilities.

Moreover, the largest DuPont product included in the swap -- Rynaxupyr -- declined in sales beginning in 2015 due to reduced farmer demand as a result of Monsanto's new Intacta soybean seed that has enhanced insecticide protection and from weak conditions in Brazil. The pressure appears to have stabilized and growth in this product is expected to resume due in large part to growth in Asia, Europe and NA, where Intacta is not present, as well as from the products expanded use in formulations.

The Prime-2 short-term rating reflects FMC's good liquidity profile supported by generally steady positive cash from operations and a $1.5 billion revolving credit facility due October 2019 that backstops its commercial paper program. The company had $64 million of cash as of December 31, 2016, however, almost all of it is held outside of the US. As of December 31, 2016, there was minimal commercial paper outstanding. There was $118 million of letters of credit outstanding under the revolving credit facility, resulting in $1,376 million available for additional borrowings.

The stable outlook reflects our expectations that FMC will successfully operate and integrate the acquired DuPont products and improve credit metrics to levels more supportive of the Baa2 rating in a reasonable time period. We estimate adjusted leverage to improve to 3.0x by year end 2018 and the low 2s by the end of 2019, as free cash flow is used to reduce debt.

An upgrade of FMC's ratings is unlikely in the next couple of years given the increased leverage as a result of the transaction with DuPont. However, eventually an upgrade could be possible if the company were to de-lever and achieve credit metrics supportive of a higher rating, including a sustained track record of leverage (Debt/EBITDA) below 2.3x.

The ratings could be downgraded if the company were to use most or all of its free cash flow for purposes other than debt reduction before metrics are restored to the mid 2s range, or if results were impaired or deteriorated such that leverage remained above 2.7x on a sustained basis.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FMC Corporation (FMC) is a diversified chemicals company headquartered in Philadelphia, Pennsylvania. The company operates three business segments: FMC Agricultural Solutions (70% of LTM revenues), FMC Health and Nutrition (23% of revenues) and FMC Lithium (8% of revenues). FMC had sales of approximately $3.3 billion for the twelve months ended December 31, 2016.

On April 21, 2015, FMC completed its acquisition of agricultural chemicals producer Cheminova A/S (Cheminova) of Denmark in an all-cash transaction valued at $1.8 billion, including assumed debt. Cheminova had sales of $1.2 billion in the twelve months ended December 31, 2014. On April 1, 2015, FMC completed the sale of its Alkali Chemicals division to Tronox for $1.64 billion, the proceeds from which were used to help finance the Cheminova acquisition and mitigate the resulting leverage increase.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph Princiotta
VP - Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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