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Global Credit Research - 12 Apr 2011
New York, April 12, 2011 -- Moody's Investors Service assigned an A2 rating to the proposed senior
unsecured notes offering of Monsanto Company (Monsanto, A2 senior
unsecured; Prime-1 commercial paper). Proceeds from
the offering will be used for general corporate purposes, which
Moody's assumes will likely include repayment and refinancing of other
Proposed Senior Unsecured Notes - A2
- Senior unsecured (P)A2
- Subordinated (P)A3
- Preferred (P)Baa1
Senior Unsecured - A2
Commercial Paper Prime-1
The A2 debt and Prime-1 commercial paper ratings reflect Monsanto's
strong cash generating capabilities resulting from robust conditions in
both the seed and agricultural chemical markets. Supporting the
ratings are Monsanto's strong financial profile, management's commitment
to R&D in the core growth areas, leading market and technology
positions in seeds and agricultural herbicides, as well as continued
global market penetration. Further aiding the rating is management's
focus on core business competencies as reflected by organic market share
growth and strategic acquisitions in core competencies that serve to broaden
and deepen Monsanto's markets in the seeds and biotechnology areas.
The strengths of the company are somewhat offset by business risk,
large quarterly seasonal swings in working capital and free cash flow
along with significant pension liabilities. However, these
negatives appear to be manageable within Monsanto's current rating due
to the expectation of continued strong financial performance and the low
level of net debt that we project through fiscal year-end 2012.
Monsanto's overwhelming representation among U.S. soybean
and corn producers attracted scrutiny from the company's competitors,
farmers and the U.S. federal government. The complaints
from farmers regarding various bundled grain services and a resulting
lapse in sales led Monsanto to respond by unbundling some grain services,
thus allowing growers to chose products according to their price point
and still use Monsanto products. For the next several years we
do not expect "headline issues" to materially impinge on Monsanto's credit
quality. Moreover, as a result of continuing strong credit
metrics, Monsanto's credit profile is likely to be maintained at
the current rating level, even in the event of potential future
debt and cash-financed acquisitions, in the $1 -
$3 billion range.
Monsanto maintains an excellent liquidity profile. Primary liquidity
is provided by cash balances and short term investments totaling $2.0
billion at the end of the second quarter February 28, 2011 along
with substantial retained cash flow generation of $1.4 billion
for the 12 months ending November 2010 (FYE 2010 cash and equivalents
were $1.5 billion). Cash was utilized over the year
and one half period, FYE 2010 and first half of 2011, to make
treasury stock purchases of $913 million, $1.2
billion in capital expenditures, and $879 million in dividends.
On June 9, 2010 Monsanto announced that its Board of Directors approved
a new three-year share repurchase program, effective July
1, 2010, for up to $1 billion of the company's common
stock. This repurchase program commenced Aug. 24,
2010. This plan if implemented similar to ones in the past will
have a limited impact on the company's credit profile.
Monsanto's primary sources of secondary liquidity are provided by committed
credit facilities over $2.5 billion consisting of:
a $2.0 billion four-year credit facility agreement
maturing in 2015 that backs up commercial paper, a $500 million
U.S. customer revolving financing program, and facilities
of $330 million for customer financing programs in Brazil.
There are currently no borrowings outstanding under the $2.0
billion four-year revolving credit facility and there were no loan
balances outstanding under the U.S. customer financing facility
as of February 28, 2011. At second quarter 2011 end,
there were $72 million outstanding against the international customer
financing program. We also view Monsanto's stock as providing a
measure of liquidity and view it as a potential source of financing should
management unexpectedly choose to contemplate a large acquisition.
Monsanto's stable outlook reflects our belief that their operating performance
will remain strong over the next several years. The outlook also
reflects the profitability from the company's Seeds and Genomics segment.
This segment's profits have remained strong through the last three years
and continues to improve through the first half of 2011, as demand
for more sophisticated seed genetics increases. In addition,
the stable outlook reflects our belief that Monsanto will not incur any
significant debt from acquisitions or substantial new liabilities from
We are unlikely to raise the ratings due to management's continued focus
on returning value to shareholders as evidenced by the $1.0
billion share repurchase program updated in June 2010 as well as the generous
dividend programs of $577 million in 2010 and $552 million
in 2009; the dividend program has been increased eleven times since
2002. Additionally holding back the rating from upgrade is the
highly cyclical nature of the agricultural commodities industry segment,
the potential for competition and price pressure on Roundup herbicide.
We would consider raising the rating if free cash flows as a percentage
of total debt returned to consistent sustainable levels above 35%,
and we would look for ongoing stabilization of the glyphosate market.
Should financial performance decline significantly, Monsanto's ratings
could be lowered. Specifically, Monsanto's ratings could
be lowered if there were a substantial and sustainable decline in the
company's financial performance (i.e., Retained Cash
Flow to Total Debt were to fall below 30% or Free Cash Flow to
Total Debt below 15%), or if unexpectedly the level of liabilities
arising from Solutia were to rise materially above current estimates.
The principal methodology used in this rating was Global Chemical Industry
published in December 2009.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
Headquartered in St. Louis, Missouri, Monsanto Company
is a global producer of agricultural chemicals, conventional seeds,
and genetically modified seeds. Monsanto's businesses are managed
through two segments: Seeds & Genomics and Agricultural Productivity.
Through the Seeds & Genomics segment Monsanto produces seed brands
and develops biotechnology traits in seeds to control insects, weeds,
and solve other agricultural needs. This segment contributed roughly
72% of revenues and 100% of operating earnings in the year
ending August 31, 2010. Through their Agricultural Productivity
businesses Monsanto manufactures Roundup brand herbicides, other
herbicides, and provides lawn-and-garden herbicide
products for the residential market. Geographically Monsanto generated
approximately 43% of total company sales outside the United States
(39% outside of North America) during fiscal year 2010; key
revenue generating areas outside of North America include Latin America
and Europe. Monsanto's chief competitors are Bayer CropScience,
Syngenta, DuPont, and Dow AgSciences.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Monsanto's proposed notes issue A2
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