Fitch Affirms CF's IDR at 'BBB'; Outlook Revised to Stable
20 December 2014 - 2:34AM
Business Wire
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
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Fitch RatingsPrimary AnalystMonica M. BonarSenior Director+1
212-908-0579Fitch Ratings, Inc.33 Whitehall StreetNew York, NY
10004orSecondary AnalystSean T. Sexton, CFAManaging Director+1
312-368-3130orCommittee ChairpersonGlen GrabelskyManaging
Director+1 212-908-0577orMedia Relations:Brian Bertsch, +1
212-908-0549brian.bertsch@fitchratings.com