DBRS Confirms Potash Ratings on Launch of $2 Billion Share Purchase Program

DBRS has today confirmed the BBB (high) Senior Unsecured Debt rating and the R-1 (low) Commercial Paper rating, both with Stable trends, of Potash Corporation of Saskatchewan Inc. (Potash or the Company) following the Company’s announcement of the launch of a share repurchase program authorizing up to $2 billion in repurchases of outstanding common shares. The share repurchase program can be expected to temporarily reduce the Company’s equity base and increase its indebtedness, but DBRS believes that Potash has the credit capacity and liquidity to sustain the program in addition to its normal operating activities and an ambitious capital expenditure program. Although the Company has the liquidity to carry out the share buyback program and, on a pro forma basis, its financial metrics would still acceptable for the R-1 (low) Commercial Paper rating, DBRS notes that Potash’s credit metrics would be at the low end of the range of acceptability for the R-1 rating category.

The outlook for fertilizer markets and the Company’s operating cash flow for 2010 and 2011 is positive. In addition, DBRS expects that Potash will continue to manage its financial resources to restore any near-term deterioration in credit metrics that the program may cause, as well as maintain a prudent amount of liquidity to meet its financial obligations.

Potash has indicated that its share repurchase program may commence on November 18, 2010, and will terminate no later than November 17, 2011. The Company intends to complete the share repurchases, representing just under 5% of its outstanding shares, by December 31, 2010. Common shares purchased under the program will be cancelled by the Company.

DBRS believes that Potash has the financial capacity to carry out the planned share repurchase program. As at September 30, 2010, Potash had unutilized credit facilities available amounting to approximately $2.9 billion, in addition to approximately $360 million in cash on hand. The Company’s $2.2 billion operating cash flow in the first nine months of 2010 has been sufficient to support approximately $1.5 billion in capital expenditures and dividends. DBRS expects that the recovery of fertilizer markets seen in the first three quarters of 2010 will continue in the fourth quarter of the year and into 2011, due to high crop commodity prices, generally low fertilizer inventories and rising fertilizer demand, particularly in Potash’s export markets. Despite the expected continuation of high capital expenditures in 2011, DBRS notes that capex will largely be supported by operating cash flow during the year. In addition, Potash faces the maturity of $600 million in debt during 2011, which DBRS expects to be refinanced out of existing financial resources or replaced by additional debt issues, helping to maintain short-term liquidity.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.