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Related Issuers
Rating Action:

Moody's upgrades Albaugh CFR to Ba3, stable outlook

03 May 2019

New York, May 03, 2019 -- Moody's Investors Service ("Moody's") upgraded the corporate family rating of Albaugh, LLC to Ba3 from B1, the probability of default rating to Ba3-PD from B1-PD and senior secured ratings to Ba3 from B1. The outlook is stable.

"The upgrade reflects sales and earnings growth despite some headwinds from raw material cost increases and trade disruptions," said Anastasija Johnson, senior analyst at Moody's. "The company's modest leverage and strong retained cash flow generation support a higher rating despite the company's concentration in commodity glyphosate herbicide."

Upgrades:

..Issuer: Albaugh, LLC

.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PD

.... Corporate Family Rating, Upgraded to Ba3 from B1

....Senior Secured Bank Credit Facility, Upgraded to Ba3 (LGD3) from B1 (LGD3)

Outlook Actions:

..Issuer: Albaugh, LLC

....Outlook, Remains Stable

RATINGS RATIONALE

The Ba3 corporate family rating reflects Albaugh's position as one of the smaller global off-patent crop protection producers with a growing new product portfolio, but a high concentration in commodity herbicides. The rating also reflects strong credit metrics such as modest leverage (Moody's adjusted debt/EBITDA of 2.3 times at the end of 2018) and strong retained cash flow generation. The rating is constrained by the company's heavy concentration in generic herbicides (76% of sales), particularly in glyphosate (42% of sales), although the company continues expanding is geographic presence and product portfolio. The company currently has a portfolio of 88 active ingredients compared to 38 in 2014 and its growth portfolio represents roughly one third of its sales.

The rating incorporates expectations that the company will continue to expand its growth portfolio either through new product registrations or acquisitions. Given high chemical industry multiples in recent deals, potential acquisitions could lead to higher leverage, although the company has, so far, maintained modest credit metrics. Moody's expects the company to maintain sales and earnings growth in 2019 driven by new formulations of core products in Argentina, and new product sales in Brazil and Europe; however, North American volumes most likely will be reduced due by severe winter weather and flooding that negatively impacted first quarter sales. The rating is constrained by exposure to seasonal and weather-dependent agricultural segment, limited scale in a competitive industry and narrow margins. Margins have been negatively impacted by raw material increases, supply interruptions from China and tariffs on Chinese-produced raw materials, as well as foreign currency fluctuations. An escalation of the trade dispute with China, albeit unlikely, would be temporary credit negative for the company. The rating incorporates expectations that the trade dispute with China will be resolved and that Nutrichem will continue to hold a 20% stake in the company.

Albaugh is expected to have good liquidity. The company had $100.9 million of cash on hand as of December 31, 2018, primarily held in the US, but generated negative free cash flow in 2018 due to a build-up of working capital ahead of expected tariffs on Chinese raw materials. The company is expected to generate minimal free cash flow in 2019. Moody's expects the company to draw on the revolver to fund seasonal working capital needs during the year. The $125 million revolving facility is due in 2022. Annual amortization payments on the $350 million term loan due 2024 are 1% of the principal. The term loan has no financial covenants, but the revolver has a total net leverage covenant of 4.25 times. The company has sufficient headroom under the covenant and is expected to remain in compliance over the next 12 months. The credit facility allows for $125 million of incremental borrowing as long as first lien net leverage ratio does not exceed 3.25 times. The credit facility allows for increased dividend distribution for up to $12.5 million and for future growth of the restricted payment basket along with EBITDA growth.

The stable outlook reflects our expectations that the company will continue to growth sales and earnings and maintain strong credit metrics.

Moody's could upgrade the rating if the company increases revenues sustainably above $2.5 billion and reduces reliance on core commodity glyphosate to less than 25% of sales. The ratings could be upgraded if the company generates positive free cash flow on a more consistent basis, while maintaining Moody's adjusted leverage below 3 times on a consistent basis and RCF/Debt above 20%.

Moody's could downgrade the rating if the there is a significant deterioration in the company's operating conditions, if the company increases its leverage above 4 times on a sustained basis, and retained cash flow to debt declines below 10%.

Headquartered in Ankeny, Iowa, Albaugh, LLC is a global manufacturer and seller of generic herbicides, fungicides, insecticides, and seed treatments. Albaugh has operations in the US and Canada, Argentina, Brazil, Mexico and Europe. The company generated revenue of $1.4 billion in the twelve months ended December 31, 2018. The company is majority owned by founder Dennis Albaugh with a 20% stake owned by the Chinese agrochemical developer and manufacturer and Albaugh's supplier, Nutrichem.

The principal methodology used in these ratings was Chemical Industry methodology published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Anastasija Johnson
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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