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Rating Action:

Moody's assigns Prime-2 rating to Potash's commercial paper program

18 Mar 2011

New York, March 18, 2011 -- Moody's Investors Service assigned a Prime-2 commercial paper rating to Potash Corporation of Saskatchewan Inc. (PCS). Moody's also affirmed PCS's Baa1 senior unsecured ratings. The rating outlook is positive.

RATINGS RATIONALE

Potash Corporation of Saskatchewan Inc. (PCS) is establishing a $1.5 billion 4(2) commercial paper program (rated Prime-2) that, in conjunction with its existing long-standing Canadian program, has an aggregate principal limit of $1.5 billion. The proceeds from the proposed commercial paper program will be used for general corporate purposes. Potash's $1.5 billion commercial paper program is expected to be fully backed by the company's $2.5 billion revolving credit facility, which matures in December 2012. At December 31, 2010, the credit facility had no outstandings under the revolver.

PCS's good liquidity reflects the company's consistent cash flow and marketable securities tempered by its planned capital expenditures and the prospect of share repurchase activity, which may increase if cash balances increase over time. Moody's expects Potash's free cash flow to be positive in fiscal 2011. PCS's largest revolver of $2.5 billion is more than sufficient to cover expected commercial paper usage. PCS's remaining facilities are expected to be used, if needed, for investment spending and share repurchase activity.

The Prime-2 rating also reflects Moody's expectation that PCS will refinance the existing revolver by the end of 2011. The revolver allows for same day "swingline" availability of up to $255 million and Moody's expects PCS to manage the combined maximum daily CP maturities under its US and Canadian CP programs such that the maximum daily swingline availability of $255 million will not be exceeded. The total amount of the $2.5 billion can be borrowed with one day notice.

The $2.5 billion facility contains no material adverse change (MAC) representation at time of borrowing but does have an environmental and litigation MAC representation at each borrowing. The financial covenants include a total leverage of less than 3.5 times before provincial taxes, a debt to capital of no more than 60% and a tangible net worth test of $1.25 billion - all with good headroom. Moody's estimate of the leverage test at fiscal yearend 2010 was approximately 1.2 times.

"The Baa1 rating and positive outlook incorporates our positive view on future global fertilizer demand in 2011 and beyond and the expectation that the company will continue to participate in future profitable global growth in the fertilizer industry," said Moody's analyst Bill Reed.

The following summarizes the ratings activity:

Ratings Affirmed:

Potash Corporation of Saskatchewan, Inc.

Long Term Rating at Baa1

7.750% senior unsecured notes due May 31, 2011 at Baa1

4.875% senior unsecured notes due March 1, 2013 at Baa1

5.250% senior unsecured notes due May 15, 2014 at Baa1

3.750% senior unsecured notes due September 30, 2015 at Baa1

3.250% senior unsecured notes due December 1, 2017 at Baa1

6.500% senior unsecured notes due May 15, 2019 at Baa1

4.875% senior unsecured notes due March 30, 2020 at Baa1

5.875% senior unsecured notes due December 1, 2036 at Baa1

5.625% senior unsecured notes due December 1, 2040 at Baa1

Outlook affirmed at positive.

The Baa1 rating reflects PCS's historically strong bondholder protection measurements, its leading cost positions, and strong market positions in all three primary commodity fertilizers. The ratings also reflect the company's sizable free cash flow of $936 million over the year ending December 31, 2010, even after material increases in capital spending. During the 2010 fiscal year PCS increased capital spending to a level of $2.0 billion versus $1.2 billion for the full year 2008. This level of free cash flow ($936 million), even after substantial increases in capital spending, reflects an unprecedented improvement in the historic operating/pricing environment, albeit down significantly from the peak spot prices seen in 2008.

In addition, the ratings reflect the company's currently strong financial profile which has shown significant improvements over the last 24 months. PCS's strong future financial performance is predicated on the recovery of potash demand and expectations of robust long-term performance in its key potash fertilizer markets; potash constitutes 46% and 70% of the company's LTM December 31, 2010 sales and gross margin respectively. While most of 2009 fiscal year experienced potash industry sales volumes well below historic norms as demand fell, 2010 reflected a resurgence in demand as global grain demand remained high, grain prices rose, and the global economic picture stabilized.

The 2009 weak demand was due largely to the global recession in which constraints to liquidity and concerns about economic recovery resulted in farmers choosing to mine the fields for nutrients (an unsustainable strategy). More recently with rising crop prices and the meaningful decline in yields, farmers have aggressively purchased fertilizer for seasonal applications. Hence, in 2010 fertilizer sales volumes returned and are expected to further improve in 2011.

PCS 's positive outlook reflects the consistently strong financial metrics achieved as a result of the long-term favorable market dynamics balanced by the significant capital expenditures over the next few years. The outlook also incorporates management's expressed interest in furthering their global investments in potash supplies through acquisition and additional investment as well as the possibility that management may revisit additional shareholder enhancement strategies but structuring them in keeping with credit metrics that support a potentially higher rating.

Upward movement in the rating will be driven by a sustainable improvement in financial performance that should allow for meaningful free cash flow generation despite elevated capital expenditures over the next two years. We would look for conservative financial policies concerning shareholder enhancement programs, normalized volume and working capital levels, as well as relative stability in the global economy prior to considering a ratings upgrade. We would also expect management, in the event of another downturn, to use the cash generated by contracting working capital to reduce debt and actively manage its balance sheet debt levels. Specifically, we expect to see debt/EBITDA to remain sustainably within a range of 1.5x to 2.3x.

The rating or outlook could be negatively pressured as a result of the pursuit of material debt-financed acquisitions, aggressive debt financed shareholder enhancement activities, materially negative changes to the cash flow and debt metrics, or weaker than anticipated markets.

Moody's most recent announcement concerning the ratings for PCS was on November 19, 2010 when the Baa1 rating was affirmed and the outlook was moved to positive.

The principal methodology used in this rating was Global Chemical Industry rating methodology published in December 2009.

Headquartered in Saskatoon, Saskatchewan, Canada, Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer producer, manufacturing all three primary commodity fertilizers - nitrogen, phosphate, and, most significantly, potash. Potash Corporation reported US $6.0 billion in sales for the year ending December 31, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Prime-2 rating to Potash's commercial paper program
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