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Rating Action:

Moody's assigns A2 rating to Cargill's new notes; outlook stable

21 May 2021

New York, May 21, 2021 -- Moody's Investors Service, ("Moody's") assigned A2 rating to Cargill, Incorporated's ("Cargill") new unsecured notes due 2051. Proceeds from these notes will be used to pay down existing notes with upcoming maturities and for general corporate purposes, specifically increased working capital requirements. The outlook is stable.

"Cargill's debt offering reflects the expected increase in working capital requirements following the run-up in crop prices and related commodities in 2020, expected volume increases in 2021, and the upcoming debt maturities." stated John Rogers, Senior Vice President at Moody's Investors Service, and lead analyst on Cargill.

Assignments:

..Issuer: Cargill, Incorporated

....Senior Unsecured Regular Bond/Debenture, Assigned A2

RATINGS RATIONALE

Cargill's A2 senior unsecured rating is supported by the size and scope of its global commodity-oriented businesses and strong liquidity. Cargill has a long history of operating and trading in volatile commodity markets and its global scale and extensive sourcing and logistics network are both key to its strategy. The credit profile is constrained by earnings volatility, exposure to potentially large changes in working capital based on volatility in commodity prices, exposure to basis risk on many derivatives, and the confidence sensitive nature of the industry (counterparty access and trade credit). Cargill's vertical integration from key commodities to higher margin downstream products is viewed as a credit positive over the longer term. Moody's expects the Cargill's trading/merchandising businesses will become a smaller proportion of the company's earnings and cash flow over time, reducing Cargill's exposure to unusually volatile commodity markets. Furthermore, Moody's anticipates the Cargill will continue to reduce costs and monetize underperforming businesses, while pursuing small to mid-sized acquisitions to augment its global footprint or add complementary businesses to its operations.

Commodity volatility is expected in this industry, and the escalation of crop prices over the past year have led to increasing monetization of farm inventories and a sizeable increase in receivables and inventories. As expected, this has led to stronger financial performance at Cargill in their second and third quarters of 2021. In light of the current and expected commodity environment, Moody's anticipates credit metrics to remain robust through 2021 with Net Debt/EBITDA at near 1.5x and Retained Cash Flow/Net Debt of over 40%.

Cargill has excellent liquidity with roughly $3.7 billion of available cash and roughly $3.3 billion of committed revolver availability as of February 28, 2021. This is significant given the large increase in working capital since the start of fiscal 2021 and that free cash flow was negative by more than $1.6 billion in the first three quarters of fiscal 2021. Cargill has roughly $970 million of debt maturities between November of 2021 and March 2022.

Cargill's stable outlook reflects Moody's expectations that credit metrics will continue to strongly support its A2 rating despite increased working capital requirements and debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Cargill's ratings could be upgraded if management shifts to a more conservative financial policy, ensuring that Net Debt/EBITDA remains below 1.25x and Retained Cash Flow/Debt is sustained above 45%. However, for now, Cargill's business risk profile and management's financial priorities make an upgrade unlikely. Cargill's rating could be downgraded if Retained Cash Flow/Net Debt is sustained below 30% and Net Debt/EBITDA increases to 2.0x on a sustained basis. Moody's provides commodity merchandising companies with a reasonable amount of flexibility in their metrics given the rises in agricultural commodity prices over the past year.

Cargill's ratings could be upgraded if management shifts to a more conservative financial policy, ensuring that Net Debt/EBITDA remains below 1.25x and Retained Cash Flow/Debt is sustained above 45%. However, for now, Cargill's business risk profile and management's financial priorities make an upgrade unlikely. Cargill's rating could be downgraded if Retained Cash Flow/Net Debt is sustained below 30% and Net Debt/EBITDA increases to 2.0x on a sustained basis. Moody's provides commodity merchandising companies with a reasonable amount of flexibility in their metrics given the volatility in agricultural commodity prices.

ESG CONSIDERATIONS

Environmental concerns are modest for Cargill and other agricultural commodity trading companies. Cargill has minimal environmental liabilities. Future regulations could increase transportation and logistics costs but would impact Cargill and its competitors equally. While other regulatory changes could impact trading or processing operations, Moody's doesn't expect these costs to have a material effect on its businesses. Social risks are higher for trading companies, but still modest relative to most other industries. Sustainable sourcing and traceability of crops are becoming bigger issues for agricultural trading companies, and a more important consideration for consumers worldwide. Other issues like deforestation, loss of biodiversity and sustainable farmer income in developing countries are also rising social concerns globally. Cargill has invested in programs to address sustainability, traceability, biodiversity and farmer incomes in developing countries to offset these concerns. Additionally, as one of the largest private companies, Cargill has below average governance risk due to its independent board and a small percentage of insiders on the board.

Cargill is based in Wayzata, MN, and is engaged in the marketing and processing of agricultural and industrial commodities and financial services. It operates in 70 countries, markets its products globally, and is the largest privately held company in the US. It has four business segments: Animal Nutrition & Protein, Origination & Processing, Food Ingredients & Applications, and Industrial & Financial Services. Cargill is diversified by operational and marketing geography, commodity markets, and services. Cargill has revenues of over $100 billion per year, one of the largest companies by revenues in the US.

The principal methodology used in this rating was Trading Companies published in June 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_190422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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