Nov 5 - Standard & Poor's Ratings Services said today it is assigning its
'BBB-' rating to Land O'Lakes Inc.'s proposed unregistered rule 144A $250
million senior unsecured notes due 2022. The notes will rank equally with the
company's existing and future senior unsecured obligations and will be
guaranteed by each of the subsidiaries that guarantee the company's existing
bank term and revolving credit facilities and existing senior unsecured notes.
The company will use proceeds of the note issuance to pay down existing balances
under the company's revolving credit facility and receivables securitization
facility, and for general corporate purposes, including acquisitions and
The ratings on Land O'Lakes reflect our view that the company has a
"satisfactory" business risk profile and "significant" financial risk profile.
Key credit factors in our assessment of the business risk profile include the
company's diverse portfolio of businesses, strong brand awareness, and leading
market positions, which we believe help offset some of the earnings volatility
inherent to the company's agricultural commodity businesses (particularly
industrial dairy and eggs). However, we believe the company's debt levels will
grow by more than $300 million year over year, which would result in
weaker-than-expected credit measures in fiscal 2012, including a pro forma
average adjusted debt to EBITDA closer to 3.5x and funds from operations (FFO)
to average debt of about 25%, compared with respective pro forma ratios of
about 3.7x and 25% for the 12 months ended June 30, 2012. These ratios are now
closer to ranges for a "significant" financial risk profile (which includes
leverage of 3x-4x and FFO to debt between 20%-30%). The negative outlook
reflects our estimate that the company may not reduce its debt balances enough
to allow credit measures to improve to levels that support the ratings,
including an average adjusted debt to EBITDA ratio of about 3x through its
seasonal working capital cycle, and an FFO to average debt ratio of about 30%.
Related Research And Criteria
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
Land O'Lakes Inc.
Corporate credit rating BBB-/Negative/--
Land O'Lakes Inc.
$250 mil. notes due 2022 BBB-