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Announcement:

Moody's assigns Baa2 rating to Agrium's proposed debentures

Global Credit Research - 15 Dec 2010

New York, December 15, 2010 -- Moody's assigns a Baa2 rating to Agrium Inc.'s proposed $500 million debentures due 2041. The debentures are a drawdown from a previously rated SEC registered shelf. Proceeds from the debentures will be used for general corporate purposes including the repayment of (i) US$125 million aggregate principal amount of the company's 8.25% debentures due February 15, 2011; and (ii) a portion of the outstanding borrowings under Agrium's bank facilities used to fund part of the Australian Wheat Board (AWB) acquisition. The use of proceeds is consistent with management's stated objective of maximizing and growing the base retail business unit, providing a stable earnings flow from diversified fertilizer assets and continuing to expand through acquisitions.

Agrium's diverse business mix and credit metrics comfortably support the Baa2 rating. Providing further support to the Baa2 rating is the company's selling price advantage, a function of logistics, in the Pacific Northwest relative to the majority of North American nitrogen producers. Agrium's retail business ($6.4 billion in revenues for the LTM period ending September 30, 2010) typically provides a more stable flow of cash than the wholesale fertilizer business albeit at lower margins. The rating is supported by four additional considerations: 1) the prospect of strong near term fertilizer supply/demand fundamentals and strong results from retail operations that generate robust credit metrics; 2) the prudent growth initiatives, both organic and through acquisition, and the track record of managing this growth in a manner supporting the Baa2 ratings; 3) management's willingness not to over pay for acquisition related growth; and 4) past history of active reduction of debt, after periods of extraordinary growth. Moreover, we expect management will maintain its historically conservative financial policies and investment discipline. Indeed the use of substantial amounts of cash to fund the AWB acquisition, along with proposed future asset sales (described below), demonstrates management's commitment to maintaining conservative financial policies. At September 30, 2010 Agrium had close to $900 million in cash on its balance sheet much of which was used to fund AWB's US$1.2 billion purchase price.

On December 3, 2010, Agrium announced it had acquired AWB for A$1.236 billion (approximately US$1.208 billion), following which AWB became a wholly-owned subsidiary of Agrium. Agrium financed the acquisition using cash on hand and borrowings under its bank facilities. Proceeds from the proposed debentures offering will repay a portion of the bank facilities used to purchase AWB. The purchase of AWB continues Agrium's strategy of growing its retail business and provides the ability to enhance products and services to growers in Australia and New Zealand by using Agrium's international fertilizer and crop protection sourcing capabilities. Management has estimated some A$17 million of synergies in 2011 with a plan, focused on margin improvement, for full synergies of approximately A$40 million annually by 2012.

AWB is one of Australia's leading agribusinesses and conducts two businesses — Rural Services (known as Landmark) and Commodity Management (CM) providing services across the agriculture sector. Rural Services includes over 200 company operated retail locations and wholesale customer locations in Australia that offer a wide range of agribusiness products and services to customers including merchandising, farm services, wool marketing, livestock sales, real estate agency, insurance and financial services. The Commodity Management division has two key operating hubs, Australia and Geneva, and a smaller, locally-oriented business in India. In Australia, AWB's Commodity Management division provides services and products required to market agricultural commodities from farm gate to first stage processors, offering inland transport, storage and handling from point of origin through to domestic and export facilities, including rail and storage and handling infrastructure across Australia's eastern states.

The CM division also acquires and sells grains, pulses and oilseeds, enhancing margins by taking arbitrage positions, within defined risk limits, when opportunities arise in the market. This business was established in 2002 as a platform for to grow AWB's international presence and business through the trading and supply of commodities to existing and new customers. Agrium has announced that a definitive agreement has been reached with Cargill, Incorporated (Cargill A2/P-1) pursuant to which Cargill has agreed to acquire a majority of the commodity management businesses of AWB with anticipated completion in the first half of 2011. The purchase price, a combination of cash and debt assumption, will be the net asset value of the acquired businesses as at the completion date of the transaction plus a premium. If the transaction had occurred at September 30, 2010, Agrium estimates that the proceeds from the sale, together with the release of working capital from AWB Harvest Finance Ltd., would have been approximately A$870-million. Agrium continues to evaluate the disposition of other businesses and the value of these could be approximately A$55-million. Combined with the proceeds from the sale to Cargill the possible proceeds total an estimated value of A$925-million for the commodity management businesses that Agrium has agreed to, or intends to, divest. Of this total, approximately A$240-million would represent indebtedness assumed by Cargill related to the acquired businesses. Completion of the disposition to Cargill is subject to customary closing and other conditions, including the receipt of all required regulatory approvals.

Agrium's liquidity is viewed as strong given the expectation of stable operating cash flows combined with adequately sized bank facilities, significant cash balances of close to $900 million at the end of September 2010, while diminished, are expected to build again from operations and proposed asset sales. The company also benefits from a favorable debt maturity schedule. Agrium's credit profile and ratings are enhanced by improving industry fundamentals which drive positive cash flow from operations. Agrium's liquidity profile consists of a $775 million five-year syndicated revolving unsecured credit facility that Agrium Inc. and its wholly owned subsidiary, Agrium U.S. Inc., entered into on July 2007. Further supporting Agrium's historic liquidity profile, is a $200 million accounts receivable (A/R) securitization program through which certain subsidiaries sell their accounts receivable balances to a financial institution on a non-recourse basis. The facility provided Agrium with the flexibility to immediately realize cash for the sale of receivables up to the amount of the program. The A/R securitization program agreements expire in December 2012. The company recently halted usage of this program in favor of less expensive credit facilities.

Agrium has a well structured historic debt profile with seven issues of long term debt maturing between 2011 through 2036. The shortest maturity is a debt issue of $125 million maturing in February of 2011 (likely to be repaid from the proposed debt offering) and the largest is a $500 million debt issue maturing in May 2019. The average size of the maturities is just over $300 million and as a group, the seven issues totaled $2.1 billion at the end of 2010.

Historically, Agrium would typically see peak revolver usage in the early to mid spring when seasonal inventories and receivables are expanding. Non-cash working capital can be affected by an increase in accounts receivable resulting from a late start of the spring fertilizer application season and stronger than normal sales activity late in the quarter. These receivables are expected to be collected in the months of June and July.

The stable rating outlook reflects the prospect of robust industry conditions and anticipated positive free cash flow generation during 2011 and 2012. We believe that Agrium will maintain its historically conservative financial policies and investment discipline. We expect management to lower its debt position following sizeable debt financed acquisitions. Despite the prospect of an improving agricultural environment in 2011 and beyond there are several considerations weighing on a positive rating move in the near term. Two concerns focus on Agrium's willingness to consider large debt financed acquisitions including the ensuing integration efforts, and the possibility of future cash commitments associated with strategic joint venture opportunities. In the event that Agrium exceeds our expectations for cash generation and debt reduction, we would consider a rating upgrade if debt-to-EBITDA of 2.0x and current debt-to-capital to 30% were achieved on what would be a sustainable multi-year basis. There is limited downward pressure at the current time. However, should the company pursue a larger than expected number of purely debt financed acquisitions (an event that is deemed unlikely at this time) a rating downgrade or negative outlook may be warranted. Also, should the global agricultural industry unexpectedly deteriorate, negative ratings pressure could also develop as a result of depressed cash flow and earnings metrics especially if retained cash flow-to-debt were to drop below 20% or if debt-to-EBITDA were to exceed 3.0x.

The last rating action was on March 18, 2010 when Agrium's ratings were affirmed and removed from review for possible upgrade.

The principal methodology used in rating Agrium was Moody's Global Chemical Industry rating methodology, published in December 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Agrium Inc., headquartered in Calgary, Alberta, Canada, is a leading global producer and marketer of agricultural nutrients and industrial products and a major retail supplier of agricultural products and services in both North and South America and Australia. Agrium produces and markets three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled release fertilizers and micronutrients. Agrium reported net sales of US$9.6 billion for the last 12 months ending September 30, 2010 an increase of some $500 million over the full year 2009.

New York
William Reed
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Baa2 rating to Agrium's proposed debentures
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