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Rating Action:

Moody's assigns Baa2 rating to Nutrien, concludes review of PCS and Agrium ratings

08 Feb 2018

New York, February 08, 2018 -- Moody's Investors Service ("Moody's") assigned a Baa2 issuer rating to Nutrien Ltd. (Nutrien), confirmed the Baa2 unsecured ratings of Agrium Inc. (Agrium), lowered the unsecured ratings of Potash Corporation of Saskatchewan Inc. (PCS) to Baa2 from Baa1 and affirmed the P-2 commercial paper ratings of both Agrium and PCS. This concludes the review on the ratings of Agrium and PCS that was initiated on September 13, 2016 after the announcement of the planned merger. The ratings outlook for Nutrien, Agrium and PCS is stable.

"The Baa2 rating for Nutrien reflects credit metrics that are expected to remain stronger than most of their peers in the trough of the fertilizer cycle and substantial flexibility to undertake acquisitions and share repurchases over the next several years," stated John Rogers, Senior Vice President and lead analyst on Nutrien.

Assignments:

..Issuer: Nutrien Ltd.

.... Issuer Rating, Assigned Baa2

Downgrades:

..Issuer: Potash Corporation of Saskatchewan Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

Confirmations:

..Issuer: Agrium Inc.

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

Affirmations:

..Issuer: Agrium Inc.

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

..Issuer: Agrium U.S. Inc.

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

..Issuer: Potash Corporation of Saskatchewan Inc.

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

Outlook Actions:

..Issuer: Agrium Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Nutrien Ltd.

....Outlook, Assigned Stable

..Issuer: Potash Corporation of Saskatchewan Inc.

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

The Baa2 issuer rating at Nutrien is supported by its position as the largest producer of fertilizers globally, low-cost positions in potash and nitrogen fertilizers, a substantial and growing retail business that provides some stability to earnings and cash flow and the expectation for $4.5 -- 5.0 billion in after tax proceeds from divestitures over the next nine months. The rating is tempered by management's growth strategy that will likely prioritize acquisitions, and to a lesser extent, share repurchases over debt reduction in the trough of the cycle. The rating also assumes that all legacy debt at Agrium and PCS will be pari passu, and that any debt subsequently issued by Nutrien will be pari passu with the legacy debt at Agrium and PCS.

Gross debt credit metrics are expected to remain acceptable for the rating of a cyclical commodity company in the trough of the cycle over the next two years at roughly 3.0x leverage. Net Debt metrics could remain significantly stronger over this period depending on the size and pace of acquisitions and share repurchases. As of year-end 2017, pro forma estimated credit metrics, before synergies and accounting adjustments for the merger, were Debt/EBITDA of 3.4x, Retained Cash Flow/Debt of 17% and Free Cash Flow of over $400 million. Including the $500 million of expected synergies, Debt/EBITDA is estimated at 3.0x and Retained Cash Flow/Net Debt at 20%. These metrics include Moody's standard adjustments to financial statements, and exclude equity earnings due to the anticipated divestitures. Net Debt metrics were not considered as the rating assumes the company will not use any of the proceeds for debt reduction.

The confirmation of the Baa2 ratings at Agrium and the downgrade of the rating at PCS to Baa2 rely on management's statement that they will make the debt of Agrium and PCS pari passu. Additionally it reflects the assumption that there will be no structural or contractual advantage provided to any material amount of debt within the capital structure. Furthermore, it assumes that the necessary changes will be made within 3-6 months.

The affirmation of the Prime-2 ratings at Agrium and PCS reflect excellent liquidity due to a substantial amount ($6 billion of back up facilities) a $500 million receivables securitization and a Euro 200 million facility. The company has roughly $1.6 billion of short-term debt outstanding at year end 2017. In addition, assets sales are expected to generate $4.5 -- 5.0 billion of after tax proceeds by the end of the third quarter (roughly $700 million received in January 2018). There were no outstandings under the receivables securitization facility at year-end. While both Agrium and PCS have independent commercial paper programs at the current time, Moody's expects that the company will transition to one program at Nutrien over the next 3-6 months.

The stable outlook assumes that the company will generate at least $500 million of run rate synergies by the end of 2019, the Retail segment will continue to demonstrate modest top line growth and improvement in margins, and its potash and nitrogen fertilizers will continue to benefit from improved pricing (potash remaining above 2016 levels and nitrogen remaining above 2017 levels). While Moody's believes that fertilizer prices have bottomed, Moody's is factoring in very little upside to pricing over the next two years, especially in potash as a new entrant brings on additional capacity and capacity expands at existing facilities.

The ratings of Nutrien, Agrium and PCS could be downgraded if Debt/EBITDA remains above 3.5x and Retained Cash Flow/Debt remains below 15% for an extended period (more than 12-18 months) during the fertilizer downturn. Although unlikely, due to the expected duration of the fertilizer industry downturn, Moody's could upgrade the ratings of Nutrien, if Debt/EBITDA declines below 2.0x and Retained Cash Flow/Debt rises above 30% for most of the cycle. Additionally an upgrade would be contingent on management's commitment to maintain more conservative metrics over the cycle along with the expectation that Debt/EBITDA would not rise above 3.0x and Retained Cash Flow/Debt would not fall below 20% for more than four quarters in the trough of the cycle.

The principal methodology used in these ratings was Chemical Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Nutrien Ltd. is the world's largest fertilizer producer, manufacturing all three primary commodity fertilizers - nitrogen, phosphate, and potash -- as well as a major retail supplier of agricultural products and services in both North & South America and Australia. The company's low-cost potash and ammonia capacity provide a sustainable competitive position in the industry, despite the weak near-term fundamentals. Nutrien has pro forma sales of roughly $18 billion. Agrium Inc. and Potash Corporation of Saskatchewan Inc. are wholly owned subsidiaries of Nutrien.

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.

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

Brian Oak
MD - Corporate Finance
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.
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