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Rating Action:

Moody's assigns B1 CFR to Albaugh; outlook stable

30 Apr 2014

First-time rating assignment

New York, April 30, 2014 -- New York, 30 April 2014 -- Moody's Investors Service has today assigned a corporate family rating (CFR) of B1 and a probability of default rating (PDR) of B1-PD to Albaugh, Inc (Albaugh). The outlook on the ratings is stable. Concurrently, Moody's has also assigned a B1 rating to Albaugh's proposed $400 million first-lien senior secured credit agreement, which consists of a $100 million revolving credit facility (RCF) due 2019 and a $300 million term loan B facility due 2021. Moody's understands that the proceeds of the proposed credit agreement will be used to refinance existing indebtedness and general corporate purposes. This is the first time that Moody's has assigned ratings to Albaugh, and all ratings are subject to the receipt of final debt documentation.

"Albaugh's B1 CFR primarily reflects the company's narrow product portfolio of generic herbicides and the fact that glyphosate-based products continue to account for nearly half of its sales," says Anthony Hill, a Moody's Vice President -- Senior Analyst and lead analyst for Albaugh. "The high sales concentration in glyphosate-based products potentially leaves the company susceptible to volatility in EBITDA and cash generation."

Assignments:

..Issuer: Albaugh Inc.

.... Probability of Default Rating, Assigned B1-PD

.... Corporate Family Rating, Assigned B1

....$100 million Senior Secured Bank Credit Facility, Assigned B1 LGD3, 42%

....$300 million Senior Secured Bank Credit Facility, Assigned B1 LGD3, 42%

RATING RATIONALE

Albaugh's B1 CFR reflects the company's limited product diversity and scale. Albaugh primarily sells generic, crop protection chemical products to the North and South American markets. Glyphosate, which is an herbicide applied to large commodity row crops such as corn and soy, accounted for approximately 50% of the company's financial year-end (FYE) December 2013 revenues. Albaugh's operations are concentrated in North and South America, with significant exposure to the US, Brazil and Argentina. Its large asset concentration in Argentina is a concern due to unpredictable government policies.

The B1 CFR also reflects Albaugh's good credit metrics, adequate liquidity and the relatively stable market for agricultural chemicals. Moody's also believes that the market for agricultural chemicals has good growth potential due to global population growth, increasing food consumption, and need for crop yield improvements. Additionally, Albaugh's facilities are strategically placed to realize cost savings from the receipt and delivery of raw materials and finished products, with a couple of facilities well integrated vertically. Despite separate product registration processes in most countries, which is a barrier to entry, the market for generic herbicides is fairly competitive. Moody's believes that Albaugh has a sizable and sustainable market position in the Americas. However, it competes against larger and better-capitalized companies such as Monsanto (A1 stable), BASF (A1 stable), DuPont (A2 stable) and Dow Chemical Company (Baa2 stable), as well as emerging regional players that are expanding into the Americas such as Nufarm Limited (Ba2 negative).

Albaugh has an adequate liquidity profile primarily supported by the proposed $100 million RCF. Moody's understands that the company may draw up to $20 million of the RCF at the close of the proposed offering for working capital needs. Additionally, Moody's expects the company to hold approximately $35 million of cash on hand at FYE December 2014. Moody's anticipates the company will generate negative free cash flow (FCF) for FYE December 2014 largely due to one-time investment in working capital; however, Moody's projects FCF to turn positive within the company's 2015 fiscal year. Moody's expects capital expenditures will be less than $35 million per year over the next three years. Moody's understands that the term loan B facility will annually require prepayment of 50% of excess cash flow (excess cash flow sweep).

Applying Moody's Loss Given Default (LGD) methodology, the PDR is equal to the CFR. This is based on a 50% recovery rate. This is primarily due to Moody's assessment of the underlying value of the assets included as security against the proposed senior secured credit agreement. Also in accordance with the LGD methodology, the RCF and first-lien senior secured credit agreement are rated B1, at the same level as the B1 CFR. While the credit agreement benefits from a first-lien security package, a good proportion of assets are not part of the collateral, including the Argentine facilities.

The stable outlook reflects Moody's expectation that Albaugh will maintain a Moody's-adjusted EBITDA margin of greater than 8%, and generate positive free cash flow (FCF) over the next 18 months.

Given Albaugh significant exposure to the highly competitive commodity herbicide marketplace, Moody's does not expect upward pressure on Albaugh's rating over the coming years. However, an upgrade would be considered if the company is able to (1) maintain an EBITDA margin around 13%; (2) generate a sustained positive FCF/debt ratio of around 10%; and (3) improve its leverage profile such that its debt/EBITDA ratio is solidly below 3.0x, all on a Moody's-adjusted basis.

Conversely, pressure to downgrade the ratings would emerge if Albaugh's liquidity profile and credit metrics deteriorate because of a weakening of its operational performance or acquisitions. Quantitatively, Moody's would consider downgrading Albaugh's rating if (1) its EBITDA margin falls sustainably below 7.5%; or (2) its FCF turns sustainably negative; or (3) its debt/EBITDA ratio rises towards 4.5x, all on a Moody's-adjusted basis.

Headquartered in Iowa, US, Albaugh, Inc. is a privately held manufacturer of generic herbicides, fungicides, insecticides and seed treatments. For financial year-end December 2013 the company generated revenue and Moody's-adjusted EBITDA of approximately $1.2 billion and $99 million, respectively.

The principal methodology used in this rating was the Global Chemical Industry Methodology published in December 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Anthony Hill
Vice President - Senior Analyst
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

Moody's assigns B1 CFR to Albaugh; outlook stable
No Related Data.
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