Fitch Rates Archer Daniels Midland's Proposed $530MM Sr Unsecured Debentures 'A'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to Archer Daniels Midland Company's (ADM) proposed $530 million 4.535% senior unsecured debentures due March 26, 2042.

Fitch currently rates ADM as follows:

--Long-term Issuer Default Rating (IDR) 'A';

--Senior unsecured debt 'A';

--Convertible notes 'A';

--Credit facilities 'A';

--Short-term IDR 'F1';

--Commercial paper (CP) 'F1'.

The Rating Outlook is Stable.

The new debentures will be issued in exchange for validly tendered old debentures maturing between 2027 and 2097. Approximately $530 million of principal has been validly tendered and not withdrawn by the early tender deadline. The exchange offers commenced Sept. 8, 2011 and will expire Oct. 5, 2011, unless extended. The notes contain a Change of Control Triggering Event. Upon the occurrence of both a change of control and ratings downgrades below investment grade, ADM will be required to make an offer to purchase the new debentures at a price equal to 101% of the principal amount plus accrued and unpaid interest. The debentures will be issued under ADM's indenture dated Sept. 20, 2006, which has been supplemented and amended. The indenture contains limitations on secured funded debt, sale leaseback transactions, as well as mergers and sales of assets. The indenture does not contain financial covenants.

ADM's credit ratings are supported by its leading position in agricultural processing and merchandising, as well as its position as a leading player in bio-energy. The company's competitive advantages include its size, scale and diversification, along with its extensive vertically integrated origination, processing and logistics network. ADM's strong liquidity supports the ratings during periodic earnings and cash flow volatility that can occur due to changes in global supply and demand of agricultural commodities. However, ADM's broad diversification partially mitigates the impact.

ADM's liquidity remains ample. At June 30, 2011, the company's cash and short-term marketable securities were $1.4 billion and readily marketable inventory (RMI) was $7.1 billion ($6.4 billion with Fitch's discretionary 10% haircut). These inventories are generally hedged against price risk and highly liquid. In addition, ADM had $4.6 billion of undrawn committed credit facilities that supported its CP program at June 30, 2011. The company had $620 million of CP and also had $620 million of outstanding standby letters of credit and surety bonds at its fiscal year end. On July 1, 2011 ADM supplemented its liquidity with a new $1.0 billion 364-day accounts receivable securitization facility. As of Aug. 24, 2011, the company had not used this facility.

ADM's total debt with equity credit at June 30, 2011 was $10.3 billion, an increase of 55%, or $3.6 billion, from its fiscal 2010 year end, driven by debt financing of working capital due to higher cost commodities. However, ADM's debt levels have retreated from their peak of $13.4 billion at March 31, 2011 with lower working capital during the June 2011 quarter. Nonetheless, Fitch remains concerned that heightened debt levels have driven up gross leverage despite good operating performance. Upcoming maturities of long-term debt are manageable and include $178 million in fiscal 2012 and $1.8 billion in fiscal 2013.

In addition to evaluating traditional leverage measures, Fitch's analysis of agricultural commodity processors takes into consideration leverage ratios that exclude debt used to finance RMI. Total debt to operating EBITDA, adjusted for RMI, was 1.1 times (x) for the latest 12 months ended June 30, 2011. On an unadjusted basis, total debt to operating EBITDA was 2.9x and funds from operations adjusted leverage was 5.3x for the same period. Unadjusted leverage is down from its peak but is still high for the rating level and is just slightly below leverage at June 30, 2008 when commodity prices had previously spiked. If commodity prices remain heightened, ADM's use of additional sources of equity capital or proceeds from the sale of non-core assets to finance a portion of its working capital needs would provide support to the ratings.

Free cash flow (FCF- cash flow from operations less capital expenditures and dividends) for fiscal 2011 was negative $4.0 billion, a dramatic swing from positive $705 million free cash flow in the prior year due largely to working capital usage driven by higher agricultural commodity prices and inventories, partially offset by lower capital expenditures. Factoring in that agricultural commodity prices remain heightened and volatile, latest 12 months free cash flow may stay negative beyond the near term. However, if commodity prices recede, ADM could benefit significantly from the reduction in working capital becoming a source of funds. ADM incurred a similar increase in working capital in fiscal 2008 and in 2009 working capital became a significant source of funds when commodity prices receded.

Although capital expenditures moderated to $1.2 billion in fiscal 2011, ADM plans for an increase back to approximately $2 billion of capital expenditures in fiscal 2012. That level of capital expenditures, particularly if it combined with higher share repurchases and/or acquisitions would be a concern. Although the company has mentioned that acquisitions are likely to take on a greater role, Fitch expects ADM to be prudent with its financial strategy while commodity prices are elevated and the latest 12 months FCF is negative.

Global crop demand drove record operating profit in fiscal 2011 with improvement in all segments. ADM reported that global demand for crops and agricultural commodities remained strong as of August 2011. However, a pullback in global demand, particularly from China, could weaken operating results. Weak North American oilseed margins and significantly higher net corn costs could also pressure earnings in fiscal 2012. Despite interim volatility, the current prices of corn, soybeans and wheat have moved less than 5% since June 30, 2011. However, commodity price volatility is likely to continue with tight U.S. corn and soybean supplies. Outside the U.S., crops have benefited from good global wheat harvests this year and a record soybean harvest in South America.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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