Fitch Rates Mosaic's Term Loans 'BBB'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned a 'BBB' rating to The Mosaic Company's (Mosaic) $800 million unsecured term loan facility consisting of a $370 million Term A-1 loan and a $430 million Term A-2 loan. The A-1 tranche has a maturity of three years from the earlier of full funding or Sept. 19, 2014, and the A-2 tranche has a maturity of five years from the earlier of full funding or Sept. 19, 2014. The Rating Outlook is Stable.

TERM LOAN FACILITY

The term loan will rank equally with Mosaic's existing $3 billion of senior unsecured debt. Mosaic plans to use the proceeds of the term loan facility to replenish cash balances used to complete the purchase of CF Industries Holdings, Inc.'s (CF) phosphate assets. The term loan facility has similar financial covenants with the company's revolving credit facility: maintenance of Total Debt to EBITDA of less than 3.5x and the Interest Coverage Ratio greater than 3x. If the term loans are fully drawn, Mosaic's leverage pro forma at Dec. 31, 2013 would be 1.9x on a total debt to EBITDA basis. The term loan facility is prepayable at par.

KEY RATING DRIVERS

Mosaic's ratings reflect the company's position as one of the world's largest fertilizer producers with good cost control, advantaged geography, and long mine lives. The ratings consider the company's generally conservative financial management, strong liquidity, and robust cash flow from operations.

Mosaic recently purchased CF's South Pasture phosphate mine and beneficiation plant, Plant City phosphate manufacturing facility and ammonia terminal and fertilizer warehouse in Tampa for $1.2 billion and to fund CF's asset retirement obligation escrow for $200 million. In addition, Mosaic and CF entered into ammonia supply agreements whereby CF will supply Mosaic with ammonia. Fitch views the transaction as strategically beneficial for Mosaic since the company will be able to add contiguous operating acres to its land holdings in Florida. The supply agreement benefits Mosaic as well since it will not spend capital to build out its own ammonia capacity.

Mosaic has agreed to repurchase a significant number of shares through various agreements with large shareholders. Mosaic has placed a flexible ceiling on the amount that it is willing to spend on share repurchases via a hard ceiling on the amount of leverage it is ready to endure. The company is willing to operate with a leverage of 1.5x mid-cycle EBITDA, extending to 2.0x if a compelling strategic investment arises. Above 1.5x Mosaic would redirect free cash flow (FCF) to debt repayment in order to maintain financial metrics consistent with investment grade ratings, a discipline that is commensurate with a 'BBB' rating.

For 2013, Mosaic earned EBITDA of $2 billion on revenues of $9 billion. Total debt amounted to $3 billion with the nearest maturity of $89 million coming due in 2018. Fitch forecasts roughly $2 billion in EBITDA and negative FCF of $500 million in 2014.

Mosaic had substantial liquidity at Dec. 31, 2013. The company has an undrawn $1.5 billion credit facility which matures in 2018. The company had $19 million of letters of credit outstanding at Dec. 31, 2013 which reduced its borrowing capacity under the revolver. Cash balances were substantial with $5.3 billion at Dec. 31, 2013. Mosaic's credit facility allows for a maximum total debt to EBITDA of 3.5x and a minimum interest coverage of 3.0x. Fitch believes Mosaic will continue to maintain meaningful cushion with respect to those covenants.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--A rapid accumulation of cash from operations following the use of leverage to repurchase shares;

--A higher level of consistency in cash flow generation.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Negative FCF which in combination with stock repurchases significantly erodes liquidity;

--A very sharp and sustained reduction in the sales prices or sales volumes of Mosaic's fertilizers leading to leverage above the company's target.

Fitch rates Mosaic as follows:

The Mosaic Company (parent)

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

--Senior unsecured guaranteed revolver 'BBB';

--Senior unsecured notes 'BBB'.

MOS Holdings Inc.

--Long-term IDR 'BBB'.

Mosaic Global Holdings

--Long-term IDR 'BBB';

--Senior unsecured debentures 'BBB'.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (August 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology -- Effective 12 August 2011 to 8 August 2012

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825474

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Contacts

Fitch Ratings
Primary Analyst
Christopher M. Collins, CFA, +1 312-368-3196
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Sean T. Sexton, CFA, +1 312-368-3130
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Christopher M. Collins, CFA, +1 312-368-3196
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Sean T. Sexton, CFA, +1 312-368-3130
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com