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24 Dec 2009
New York, December 24, 2009 -- Moody's Investors Service affirmed the Baa2 long-term debt
rating of the guaranteed subsidiaries of Bunge Ltd. (Bunge) and
changed the rating outlook to negative from stable. This action
is in response to the company's announcement that it has reached
an agreement to acquire Usina Moema Participacoes S.A. (Moema
Par), a holding company in Brazil that owns one sugarcane mill and
has ownership interests in five others, for an effective interest
in the mills of about 60%. Total consideration of $896
million includes approximately $416 million in Bunge Ltd.
stock issued to Moema Par shareholders and $480 million of debt
to be assumed. Additionally, Bunge has indicated it is in
negotiations to acquire some or all of the remaining third-party
interests in the five partially-owned sugarcane mills. If
that occurs, the size of the transaction would increase to approximately
$1.5 billion, including additional equity and an increase
in debt assumed to approximately $710 million.
The ratings affirmation reflects the strategic fit, scale and operational
diversification provided by the acquisition and the relatively neutral
impact of the financing, which includes common equity roughly in
line with the debt to be assumed. The combined competitive position
of the Bunge and Moema Par sugar operations will constitute a significant
presence in a highly fragmented sugar and bioenergy industry chain in
Brazil. However, the change in outlook to negative is based
on concerns over Bunge's elevated financial leverage, poor
financial results in 2009, and the execution and integration risk
associated with expansion into sugar and ethanol, as well as the
company's increased concentration of operations in Brazil.
Bunge has generated negative free cash flow after capital spending during
2009, in addition to large cyclical working capital usage.
Moreover, Bunge's fertilizer operations have generated large
losses as farmer usage of fertilizers declined in 2009 and the company
booked large inventory losses against a backdrop of falling prices and
the stronger Real. Moody's remains concerned that the balance
between Bunge's strategic growth and leverage reduction may not
be compatible with its current Baa2 rating.
With the capital already invested by Moema Par in the sugar operations,
Bunge's combined sugar and bioenergy operations should generate
high margins and free cash flow that can be reinvested in sugar and its
other core agricultural processing, food products and fertilizer
businesses. The sugar operations will have the capacity,
within a range, to switch between production of raw sugar for export
markets and ethanol production to be sold into Brazil's growing
domestic ethanol industry.
The outlook for most of Bunge's core businesses is reasonably favorable
in 2010 based on expected demand growth for soybeans and edible oils and
a return to a more normal fertilizer cycle in Brazil. However,
Moody's plans to monitor the performance of Bunge's core businesses
over the near-term and the integration and actual cash flow profile
of the sugar and bioenergy businesses. Major indicators Moody's
will be looking for to stabilize the rating are a clear trend of free
cash flow generation (funds from operations less dividends and capital
spending), a recovery in the fertilizer business, and the
ability to manage normal working capital requirements that will liquidate
with the farming cycles and not be capitalized as long-term debt.
The last rating action affecting Bunge Ltd. occurred on July 29,
2008, when Moody's changed the company's rating outlook
to stable from negative.
Bunge's ratings were assigned by evaluating factors we believe to
be relevant to the credit profile of the issuer, such as i) its
business risk and competitive position versus others within its industry,
ii) its capital structure and financial and liquidity risk profile,
and (iii) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of Bunge's core agricultural processing and fertilizer operations
where Bunge's ratings are believed to be comparable to those of
other issuers of similar credit risk.
Bunge Ltd. is headquartered in White Plains, New York.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's changes Bunge's outlook to negative
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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