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Announcement:

Moody's rates Monsanto's proposed notes issue A2

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 debt.

Rating Assigned

Monsanto Company

Proposed Senior Unsecured Notes - A2

Shelf ratings

- Senior unsecured (P)A2

- Subordinated (P)A3

- Preferred (P)Baa1

Ratings Affirmed

Monsanto Company

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 Solutia.

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.

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 rates Monsanto's proposed notes issue A2
No Related Data.
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