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Rating Action: Moody's assigns A3 ratings to Potash Corp notes
Global Credit Research - 04 Mar 2014
New York, March 04, 2014 -- Moody's Investors Service assigned an A3 rating to a proposed $1 billion offering of Potash Corporation of Saskatchewan's (PCS) senior unsecured notes. Proceeds from the debt issued will be used for repayment of debt maturing in May 2014 and for general corporate purposes. Moody's also assigned a (P)A3 rating to PCS's senior unsecured shelf registration. The ratings outlook is stable.
"The A3 rating incorporates the expectation that Potash's metrics will remain below 2.2x Debt/EBITDA in 2014 despite the drop in potash prices and volumes over the past two quarters," stated John Rogers Senior Vice President at Moody's.
RATINGS RATIONALE
The A3 rating reflects PCS's historically strong credit metrics, its low cost position in potash fertilizers and stable market positions in nitrogen and phosphate fertilizers. The ratings also reflect the company's considerable cash flow from operations in 2013 of over $3 billion, despite the drop in potash prices and volumes in the second half of the year. Moreover, cost reductions initiated after the drop in potash prices, combined with declining capital spending on capacity expansions, should increase financial flexibility over the next two years. Long term growth in fertilizer demand is supported by the need for greater agricultural productivity, especially in developing countries, which will be primarily driven by increases in food demand and biofuels production (primarily ethanol and biodiesel). As of December 31, 2013, PCS had Debt/EBITDA of roughly 1.4x, Retained Cash Flow/Debt of 43% and Free Cash Flow/Debt of 15%.
PCS' rating outlook is stable. An upgrade is unlikely over the next several years until the ultimate impact of new greenfield capacity additions is determined and management formalizes a financial policy that will ensure that Debt/EBITDA will be sustained below 1.5x and Retained Cash Flow/Debt will remain above 50%. A downgrade Is unlikely over the near term but could result from material debt-financed acquisitions or aggressive shareholder enhancement activities that cause Net Debt/EBITDA to rise meaningfully above 2.0x for a sustained period.
