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Global Credit Research - 05 May 2010
Approximately C$ 1.0 billion of rated debt affected
New York, May 05, 2010 -- Moody's Investors Service assigned a Ba1 rating to Viterra, Inc.'s
(Viterra) proposed C$500 million in notes. Viterra's Ba1
Corporate Family Rating (CFR) and other ratings were affirmed (see list
below). Proceeds from the proposed notes are to be used for debt
reduction and for general corporate purposes. The proposed notes
would rank pari passu with all of Viterra's existing and future senior
unsecured indebtedness including its proposed C$1.6 billion
new global unsecured guaranteed revolving credit facility. The
assignment of Ba1 rating to the proposed senior notes is contingent on
the completion of the debt issuance as proposed. Viterra's Speculative
Grade Liquidity Rating of SGL-2 indicating a good liquidity profile
over the next 12 months was also affirmed. The outlook is stable.
The proposed issuance of the C$500 million in notes and the C$1.6
billion global revolving credit facility follow the September 2009 acquisition
of ABB Grain Ltd. of Australia (ABB). While the C$1.4
billion acquisition was comprised of a prudent mix of 50% equity
and 50% cash the lack of a global unsecured revolving credit facility
was a modest credit concern, so this proposed debt issuance will
improve the overall credit profile of Viterra. Specific benefits
achieved through this proposed issuance include: an improved maturity
schedule, decrease in interest rate, removal of security requirements
on debt, covenant consistency, and central global liquidity
facility. The unsecured structure of Viterra's proposed credit
facilities is a clear credit positive, as unsecured revolvers/debt
are typically commensurate with investment grade ratings, while
secured debt is unusual at the investment grade level.
The Ba1 ratings reflect the growth aspirations of Viterra management and
incorporate an expectation of the financial impact of future acquisition
activity. Prior to a positive rating move we would look for the
agricultural market dynamics to remain healthy, for continued success
by management at integrating ABB and other potential acquisitions,
and for investment grade credit metrics to be achieved and sustained over
a multi-year period. Importantly we would like to see sustainable
generation of investment grade credit metrics within Viterra's new
business profile. The generation of free cash flow is a typical
trait for investment grade issuers, thus a free cash flow to debt
ratio of over 8% on a sustainable basis would be seen as a positive
for the rating.
The stable outlook incorporates the assumption that future acquisition
activity of material size would be prudently financed. The outlook
also reflects the desire by Moody's to see Viterra to perform over a longer
period of time with its relatively new consolidated group of assets given
the acquisition related growth strategy that management has undertaken.
Viterra's annual revenues have grown from C$1.5 billion
at the end of 2006 to C$7.0 billion at the LTM ending January
31, 2010 and ABB could add C$2 billion in revenues in 2010
to the C$6.6 billion 2009 Viterra stand-alone revenues.
Issuer: Viterra Inc.
Probability of Default Rating - Ba1
Corporate Family Rating- Ba1
Guaranteed Senior Unsecured Bonds due 2020 -- Ba1; LGD4 56%
LGD Ratings Adjusted:
CAD 8.5% Guaranteed Senior Unsecured Canadian Bonds due
08/01/2017- Ba1; moved to LGD4 56% from LGD3 49%
CAD 8.5% Guaranteed Senior Unsecured Canadian Bonds due
07/07/2014 -- Ba1; moved to LGD4 56% from LGD3 49%
CAD 8% Guaranteed Senior Unsecured Canadian Bonds due 04/08/2013
-- Ba1; moved to LGD4 56% from LGD3 49% *
*Ratings likely to be Withdrawn
Viterra's SGL-2 rating, reflecting a good liquidity profile,
is indicative of the company's significant cash generating capabilities,
balanced by the high seasonal demands on working capital for its grain
handling and agriproducts businesses (over 75% of Viterra's agriproducts
are delivered from April through June). Ongoing liquidity concerns
for grain processors center on volatility of crop and farm input pricing.
For example, a significant increase in the cost of commodity grains
can increase the working capital burden for Viterra and other processors,
and these price movements will increase the cash requirements in managing
the business. Viterra's liquidity is supported by its sizeable
cash and marketable securities of approximately C$625 million as
of the first quarter filings January 31, 2010. Additionally,
we estimate that Viterra will only have C$400 million drawn on
the proposed C$1.6 billion global multi currency credit
facility at closing; the facility is used for managing the seasonal
swings in working capital. Sustaining capital spending for 2010
is estimated at C$220 million. Viterra does not pay a dividend
on its common stock and the company further benefits from having no near
term maturities of its long-term debt.
Moody's most recent announcements concerning the ratings for Viterra was
on January 25th, 2010, when we confirmed ratings concluding
our review as the company addressed a possible covenant breach in a bank
facility at ABB.
The principal methodology used in rating Viterra was Moody's Global Food
- Protein and Agriculture Industry rating methodology, published
in September 2009 and available on www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Rating Methodologies
sub-directory on Moody's website.
Viterra Inc., formerly known as Saskatchewan Wheat Pool Inc.,
is headquartered in Regina, Saskatchewan, and is the largest
grain handler in Canada. The Viterra entity was formed on May 29,
2007 after the acquisition of Agricore United ('AU') by Saskatchewan Wheat
Pool. Viterra operates through five business segments; Grain
Handling and Marketing, Agri-Products, Agri-Food
Processing, Livestock Feed and Services, and Financial Products,
but derives the majority of their income through the Grain Handling and
Marketing and Agri-Products business segment. In September
2009 Viterra acquired ABB for A$1.6 billion (C$1.4
billion) with 50% equity and 50% cash, adding global
diversity, improved access to Asia, and market share.
Revenues were C$7.0 billion for the 12 month period ending
third-quarter January 31, 2010.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's rates Viterra's proposed senior notes Ba1
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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