Fitch Affirms CF's IDR at 'BBB'; Outlook Revised to Stable

CHICAGO--()--Fitch Ratings affirmed the Issuer Default Ratings (IDR) of CF Industries Holdings, Inc. (NYSE: CF) and CF Industries, Inc. (CF Industries) at 'BBB'. Fitch has also affirmed the ratings of CF Industries' unsecured revolving credit facility and senior notes at 'BBB'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The Stable Outlook reflects Fitch's expectation that CF will manage to its target leverage range of 2.0x-2.5x during this period of high capital spending and possible additional debt-financed share repurchases during a softer price environment. The Donaldsonville projects are expected to be in mechanical completion and pre-commissioning during 2015, and Fitch expects more visibility on spending during the year.

COMPANY PROFILE

The credit benefits from CF's position as the largest nitrogen fertilizer producer in the U.S. and the second largest globally as well as its position as one of the lower cost producers, globally, given the shale gas advantage. CF is the largest nitrogen fertilizer producer in North America. The company operates five nitrogen fertilizer production facilities in the U.S. and two in Canada. In 2013, those facilities combined have 39%, 36%, 47% and 22% of North American ammonia, granular urea, UAN (urea ammonium nitrate solution) and ammonium nitrate production capacity, respectively.

INDUSTRY PROFILE AND OUTLOOK

The U.S. nitrogen fertilizer market benefits from corn's dominance for feed, fuel and export, nitrogen's impact on yield for the crop, the need to apply nitrogen annually, and the U.S. being structurally short of supply. The U.S. imported (net of exports) about 36% of its nitrogen consumption in 2013 and is likely to rely on imports even after planned projects add up to 5.1 million tons of gross ammonia capacity. Fitch believes ammonia prices will be softer in 2015 given fewer plant outages combined with lower planted acres given high corn stocks.

EXPECTATIONS

Despite expectations for lower ammonia prices, Fitch expects CF to generate EBITDA margins in excess of 40% and annual EBITDA of about $2.2 billion in 2014 and 2015.

CF is spending $3.8 billion on expansion projects at its Port Neal, IA and Donaldsonville, LA facilities to increase production and product mix flexibility with planned completion by 2016. Fitch believes this will result in negative free cash flow after capital expenditures and dividends for 2014 and 2015 aggregating about $2 billion. The project is reportedly on time and on budget with $1.4 billion of the total spent through Sept. 30, 2014. In the first quarter of 2014, CF closed the sale of its phosphate business to Mosaic for $1.4 billion in cash thereby bolstering liquidity.

LEVERAGE

In 2013 and 2014 to date, CF has issued an aggregate of $3 billion in debt and repurchased $3 billion in equity in view of managing toward its leverage target 2.0x-2.5x mid-cycle EBITDA. In August 2014, the board of directors approved a further $1 billion in share repurchases through 2016. Fitch believes there could be further borrowing to fund this program during 2015, which could result in 2015 leverage peaking near 2.5x. Additional borrowings beyond $1 billion could push leverage above 2.5x in 2015 and 2016 which could pressure the ratings if sustained.

LIQUIDITY

As of Sept. 30, 2014, CF had total liquidity of $3.6 billion, consisting of $2.7 billion of cash and $995.1 million available under the $1 billion unsecured revolving credit facility due May 2018 (after $4.9 million utilization for letters of credit). As with CF Industries' existing bonds, CF Industries' revolver is guaranteed by CF. The revolver contains two financial covenants: a minimum EBITDA/interest coverage ratio of 2.75:1.00 and a maximum total debt less unrestricted cash/EBITDA leverage ratio of 3.75:1.00. Fitch expects CF to continue to operate well within its financial covenants. Liquidity is ample in consideration of the expected cash burn. CF has no scheduled debt due before the $800 million 6 7/8% notes are due May 2018.

RATING SENSITIVITIES

Positive: Future developments, though not expected in the next 12 months, that could lead to positive rating actions include:

--FCF (cash flow from operations less capital expenditures and dividends) grows faster than expected;

--Debt/EBITDA managed to below 1.5x on a sustained basis.

Negative: Future developments that could lead to negative rating actions include:

--Significant cost overruns on the company's capital projects;

--FCF expected to be negative beyond 2015;

--Available liquidity expected to be less than $1.5 billion;

--Total Debt to EBITDA expected to be greater than 2.5x on a sustained basis.

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

Applicable Criteria and Relevant Research:

--'Corporate Rating Methodology' (May 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=958195

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Monica M. Bonar
Senior Director
+1 212-908-0579
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Sean T. Sexton, CFA
Managing Director
+1 312-368-3130
or
Committee Chairperson
Glen Grabelsky
Managing Director
+1 212-908-0577
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Monica M. Bonar
Senior Director
+1 212-908-0579
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Sean T. Sexton, CFA
Managing Director
+1 312-368-3130
or
Committee Chairperson
Glen Grabelsky
Managing Director
+1 212-908-0577
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com