TEXT-Fitch affirms Monsanto's IDR at 'A+'

Thu Jun 21, 2012 2:08pm EDT

June 21 - Fitch Ratings has affirmed the long-term Issuer Default Rating
(IDR) and debt ratings of Monsanto Company (Monsanto) at 'A+'. Fitch has
also affirmed Monsanto's short-term IDR and commercial paper rating at 'F1'. The
Rating Outlook is Stable. A full rating list is provided at the end of the 
release. 

The ratings reflect Monsanto's leading market positions in corn, soybean, cotton
and vegetables seeds and traits, and its R&D-driven expertise in plant 
biotechnology that enables high profit margins and strong cash flows. The 
company's portfolio benefits from patent protection for most of its key products
which creates high barriers of entry for new market entrants. In addition, 
Monsanto licenses its technologies and traits to its competitors. These 
agreements generate a recurring royalty stream that further supports the 
company's profitability.

Monsanto's credit profile is strong. The company generated $3.7 billion of 
operating EBITDA in the last 12 months (LTM) to Feb. 29, 2012, corresponding to 
almost 29% of net sales. LTM free cash flow was approximately $1.9 billion. 
Gross balance sheet debt to EBITDA leverage stood at 0.6 times (x). Net debt was
negative $1.3 billion including $3.1 billion cash and cash equivalents and $302 
million short-term marketable securities.

The rating is constrained by the company's growth-through-acquisition strategy 
and its sizeable dividends and share buyback program. Monsanto recently 
announced its agreement to purchase Precision Planting, Inc. for $210 million 
with a performance-based payment of up to $40 million. Since fiscal 2007, 
Monsanto has completed multiple acquisitions totaling $3 billion to broaden its 
product portfolio into cotton, vegetables and other seeds and to expand its 
geographical footprint. 

Shareholder-friendly actions include $622 million dividends paid and $340 
million share buybacks net of proceeds from stock option exercises LTM to Feb. 
29, 2012. The Board of Directors recently approved a new $1 billion three-year 
share repurchase program, effective July 1, 2012, to commence after the 
completion of Monsanto's existing $1 billion program started in July 2010.

 

The Stable Outlook is based on robust operating performance and expectations for
continued sales and earnings growth. In the first half of the company's fiscal 
2012, sales grew 19% year over year to approximately $5.5 billion and gross 
profits increased to $3.4 billion or 62% of sales. 

The company has substantial liquidity which totaled approximately $5.4 billion 
at Feb. 29, 2012, based on the company's undrawn $2 billion revolving credit 
facility, cash and cash equivalents and short-term marketable securities. 
Monsanto's facility expires in April 2015 and requires the company to maintain a
total debt to total capital ratio of less than 66 2/3%. Monsanto has significant
headroom under the covenant as Fitch calculates the company's total debt to 
total capital is 15% at Feb. 29, 2012. 

Monsanto has $486 million of 7 3/4% notes maturing Aug. 15, 2012, which Fitch 
expects the company to refinance. Monsanto's next maturity is $300 million of 2 
3/4% notes due 2016, making their maturity schedule very manageable.

Fitch expects Monsanto to continue to generate positive free cash flow in most 
years and to maintain a strong credit profile appropriate for an R&D driven 
company. However, negative free cash flow over multiple years and deterioration 
of credit metrics due to sizeable M&A, substantial dividend increases or share 
buybacks that are debt-financed could lead to a negative rating action. Adverse 
outcomes resulting from the ongoing litigation with competitors or the 
Department of Justice's antitrust investigation that substantially impact 
Monsanto's businesses and market positions could also result in lower ratings or
a Negative Outlook.

Catalysts for an upgrade or a Positive Outlook would be further regional and 
product diversification beyond corn & soybean seeds, traits and genomics in the 
Americas while maintaining sales growth, operating margins and cash flows.

Fitch affirms the ratings of Monsanto as follows:

--Long-term IDR at 'A+';

--Senior unsecured revolving credit facility at 'A+'; 

--Senior unsecured debt at 'A+'; 

--Short-term IDR at 'F1';

--Commercial Paper at 'F1'. 

The Rating Outlook is Stable. 


Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been 
compensated for the provision of the ratings.

Applicable Criteria and
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