Oct. 26, 2009 (Business Wire) -- Fitch Ratings has determined that the special dividend of $1.30 per share announced today by The Mosaic Company (Mosaic) will not impact the company's debt ratings. The special dividend payable in December 2009 will total approximately $580 million and will be paid out of cash reserves which were a little over $2.6 billion at the close of the company's first fiscal quarter (which ended this past August).
Fitch affirms the ratings of Mosaic and Mosaic Global Holdings as follows:
The Mosaic Company
--Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured notes at 'BBB';
--Unsecured revolver at 'BBB'.
Mosaic Global Holdings
--IDR at 'BBB';
--Senior unsecured notes and debentures at 'BBB'.
Fitch has also assigned a 'BBB' rating to Mosaic's $500 million unsecured revolver which replaced a similar $450 million secured facility in July 2009. The Rating Outlook is Stable.
Mosaic's free cash flow (FCF) for the current fiscal year (ending May 2010) could be negative. In addition to the special dividend, the company is expanding its production capacity at its three principal potash mines (Esterhazy, Colonsay and Belle Plaine) which will bring this year's capital budget to $1.0-$1.2 billion. Current cash flow has declined due to a postponed demand for fertilizers. High prices have put off product demand (for nitrogen, phosphate and potash) and retailers, who have been de-stocking their inventories at successively lower prices, have been reluctant to restock the supply chain, preferring to await firm orders for field applications. Mosaic's shipments of phosphates and potash have declined 1% and 58%, respectively, in year-over-year comparisons of the first quarter while prices realizations have fallen 73% and 22%, respectively. FCF declined from $352 million in the first quarter of 2008 to -$86 million in the first quarter of 2009.
Fertilizer demand should revive and ultimately return to pre-recession levels during the planting season next spring or the following year. Grain demand is healthy, and grain prices support profitable farm economics. Corn is supported by ethanol blending requirements which alone absorb approximately 30% of U.S. production. Mosaic's cash flow should benefit from the firm's leading market positions in phosphates and potash, currently fortified by a weak U.S. dollar. The timing of this recovery and Mosaic's planned mine development expenditures will exert opposing pressures on funding.
In reserve Mosaic will have in excess of $2 billion in cash (pro forma) on its balance sheet after the special dividend, $1.4 billion in debt, plus the added liquidity of a $500 million undrawn revolver (excluding outstanding letters of credit). Mosaic has established a substantial internal liquidity threshold in contemplation of agricultural cycles and can slow back its mine development plans if need be; however, the company would be reluctant to do so unless absolutely necessary.
Additional information is available at 'www.fitchratings.com'.
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