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Rating Action:

Moody's changes Monsanto's outlook to negative

08 May 2015

Approximately $8 billion of debt securities affected

New York, May 08, 2015 -- Moody's Investors Service affirmed the A3 ratings of the Monsanto Company (Monsanto) and changed its outlook to negative from stable. These actions follow the announcement by Syngenta AG (A2, negative) that it has rejected Monsanto's unsolicited bid of CHF449 per Syngenta share in a combination of cash and stock. This would value Syngenta at roughly US$45 billion with approximately US$20 billion paid in cash. While Syngenta has rejected Monsanto's offer, the negative outlook reflects heightened event risk at Monsanto, as well as uncertainty over the funding of the cash payment required for any eventual deal.

"Monsanto's bid is indicative of a more aggressive financial policy, especially after it has levered up to undertake a sizable share repurchase program over the past 10 months," stated John Rogers, Senior Vice President at Moody's.

RATINGS RATIONALE

The A3 long-term debt and Prime-2 commercial paper ratings reflect Monsanto's leadership position in genetically modified (GM) and hybrid seeds, modest leverage (1.6x Net Debt/EBITDA, Retained Cash Flow/Net Debt of 45%) and excellent liquidity. These metrics include Moody's standard adjustments to financial statements, which increase debt by $1.8 billion ($1.6 billion operating leases and less than $200 million of pensions). The A3 rating assumes that management will adjust the pace of share repurchases as it approaches its unadjusted 1.5x net debt/EBITDA target (1.3x, as of February 28, 2015) to incorporate the seasonal generation of free cash flow and will not exceed this target for any sustained period.

Monsanto's market position is supported by the largest germplasm library in the industry, technology licensing agreements with its main competitors and clearly defined research pipeline. The company is exposed to headline risk related to GMO crops, litigation, weed resistance to glyphosate herbicide and its market position. The A3 rating incorporates the expectation that Monsanto will continue to pursue modest acquisitions to enhance its technology portfolio and market position. While the company is subject to large seasonal swings in working capital and free cash flow, it is expected to maintain a large cash balance, which will reduce seasonal variability in the amount of short term debt outstanding.

Monsanto commercial paper rating at Prime-2 reflects excellent liquidity with over $2 billion of cash on its balance sheet and Moody's expectation that it will generate over $1 billion of free cash flow. Its secondary liquidity is provided by a $3.0 billion credit facility maturing in 2020; this facility also backstops its commercial paper program. In addition, it has various agreements with banks that allow the sales of receivables and undertake customer financing in the US, Europe and Latin America There was roughly $50 million outstanding under the receivable programs and Monsanto guaranteed $85 million under the customer finance agreements as of February 28, 2015. Monsanto has roughly $700 million of debt maturing in 2016.

NEGATIVE OUTLOOK

The negative outlook reflects the heightened event risk at Monsanto due to its unsolicited offer for Syngenta and the likelihood that Monsanto's rating would be downgraded if it were to reach an agreement with Syngenta. Given the size of Monsanto's initial offer, it would have to issue a substantial amount of additional equity to fund the cash portion of the transaction in order to retain an investment grade rating. Any transaction would also likely result in a downgrade of Syngenta's ratings; the company's rating outlook is already negative.

The combination of Monsanto and Syngenta would create an extremely large company in the agricultural chemical and seeds market with sales of almost three times its nearest competitor. However, Moody's believes that regulators would force the combined company to sell certain assets or license technologies to other competitors prior to approving this combination. Monsanto will have to increase its bid to successfully negotiate an agreement with Syngenta. However, even if Syngenta accepted this offer, the combined company would have roughly $32 billion of balance sheet debt (assuming that 90% of the cash required is funded with debt, 10% from existing cash balances) and roughly $8 billion of EBITDA (assuming over $500 million of synergies). Moody's adjusted credit metrics would deteriorate significantly with Net Debt/EBITDA rising to over 4x. Monsanto would have to generate upwards of $10 billion from the issuance of additional equity or the sale of assets.

Moody's would not raise Monsanto's rating while the potential for such a large transaction is high. In addition, its stated financial policy would not generate credit metrics supportive of a higher rating. However, if Monsanto's financial policy is adjusted to maintain a Moody's adjusted Debt/EBITDA of below 1.5x and Retained Cash Flow/Debt of over 40%, a ratings upgrade would be considered. Monsanto's ratings could be downgraded if any transaction would sustainably weaken its Moody's adjusted Debt/EBITDA above 2.5x, Retained Cash Flow/Debt below 25% or Free Cash Flow/Debt below 5% or if the level of liabilities arising from litigation were to rise materially above current expectations.

The principal methodology used in this rating was the Global Chemical Industry Rating Methodology published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in St. Louis, Missouri, Monsanto Company is a global producer of agricultural chemicals and seeds. It is the largest producer of genetically modified seeds globally and is one of the largest producers of hybrid seeds. Monsanto's businesses are managed through two segments: Seeds & Genomics and Agricultural Productivity. The company has revenues of over US$15 billion.

Headquartered in Basel, Switzerland, Syngenta is one of the world's largest agribusinesses with sales of over US$15 billion. The largest markets for Syngenta's integrated Crop Protection and Seeds businesses are North America (24% of sales), Europe, Africa and Middle East (30%),Latin America (28%) and Asia-Pacific (13%), with Lawn & Garden accounting for the remaining 5% of group sales. While Syngenta's growing presence in Latin America has helped reduce the degree of seasonality affecting the company's revenues and earnings, sales and operating profit are still weighted towards the first half of the calendar year, reflecting the planting and growing cycle in the Northern Hemisphere.

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.

John P Rogers
Senior Vice President
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 B 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 changes Monsanto's outlook to negative
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