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TEXT-S&P rates Land O'Lakes proposed notes
November 5, 2012 / 7:25 PM / in 5 years

TEXT-S&P rates Land O'Lakes proposed notes

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
strategic investments.  

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

Ratings List
Land O'Lakes Inc.
 Corporate credit rating        BBB-/Negative/--

Rating assigned
Land O'Lakes Inc.
 Senior unsecured
  $250 mil. notes due 2022      BBB-

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