Agrium Inc.’s (AGU) new $1 billion commercial paper program was assigned a Prime-2 rating by Moody's Investors Service. Moody’s also affirmed Agrium’s existing senior unsecured ratings.
The proceeds from Agrium’s $1 billion commercial paper program are expected to be used for general corporate purposes. The program will be supported by the company's $2.5 billion multi-jurisdictional revolving credit facility, which will mature in 2017. This credit facility has a $500 million swingline to offer same-day availability for funds in New York.
Agrium anticipates a reasonable usage of the program of about $200 million in the initial days, due to the seasonal nature of its cash flows. The company’s liquidity is likely to be disrupted in 2014 and 2015 due to increased capital expenditure, rising dividends and the possibility for further share repurchases under its existing program.
Agrium’s $2.5 billion revolving credit facility is adequate to cover the commercial paper program which will remain well below the $1 billion limit at any given time barring any acquisition opportunities. Moody’s also expects the company to manage the commercial paper program such that the maximum daily maturities range between $50 million to $200 million. Failure to maintain these daily maturities below the $500 million swingline same-day limit would pressure the Prime-2 rating.
Moody’s Prime-2 rating to Agrium is based on its good liquidity given consistent gross cash flow, moderate cash balance, large availability in excess of $2 billion (as of Sept 30, 2013) under its backup facility and other revolving credit facilities. The rating also reflects Agrium’s diverse business mix and its strong global retail presence along with an extensive logistical network. Agrium's strong credit metrics including Retained Cash Flow/Debt of 37.1%, EBITDA/Interest of 14.1x, and Debt/EBITDA of 1.6x also contribute to the strong rating.
Moody’s may also upgrade the rating on Agrium if it generates Retained Cash Flow/Debt above 30% and maintains a Debt/EBITDA which is no higher than 2x. However, Moody’s could downgrade the rating if the world agriculture markets decline, if Retained Cash Flow/Debt drops below 20% or if Debt/EBITDA were to exceed 3x on a sustained basis.
Agrium currently carries a Zacks Rank #3 (Hold).
Other companies in the fertilizer and related industries with favorable Zacks Rank are The Scotts Miracle-Gro Company (SMG), China Bluechip (CBLUY) and The Andersons, Inc. (ANDE). All of them retain a Zacks Rank #2 (Buy).