DBRS Confirms Agrium’s Senior Debt at BBB, Trend to Stable

DBRS has today confirmed the Senior Debt rating of Agrium Inc. at BBB with a Stable trend (Agrium or the Company) following the approval of a plan for Agrium to acquire Australian farm service provider, AWB Limited (AWB), for approximately $1.2 billion by AWB shareholders and Australian courts. DBRS believes that the transaction is now very likely to be completed and the acquisition will complement Agrium’s existing retail business as well as enhance its business presence in the Australian and New Zealand markets, providing a positive addition to the Company’s business profile. DBRS feels that the scale of the transaction is within the Company’s financial capacity, with approximately $900 million in cash on hand as at September 30, 2010, and significant unutilized short-term credit capacity. DBRS expects that the financial metrics of a combined Agrium and AWB will remain within the range of those expected for the Company’s BBB Senior Debt rating although on a short-term basis, Agrium’s gross leverage may rise as high as 40% as the Company funds the $1.2 billion acquisition of AWB’s shares and consolidates (or repays) the approximately AUD540 million net debt on AWB’s September 30, 2010 balance sheet. DBRS expects Agrium will be judicious in preserving its liquidity as the transaction closes, and in restoring its credit metrics closer to their previously robust levels for the BBB rating on the Company’s Senior Debt.

On November 16, 2010, AWB shareholders approved resolutions to facilitate the Scheme of Arrangement in relation to the proposed acquisition by Agrium of AWB for approximately $1.2 billion, pursuant to an implementation agreement announced on August 19, 2010 (see DBRS news release November 16, 2010). On November 17, 2010, the Supreme Court of Victoria, Australia approved the Scheme of Arrangement between AWB and its shareholders under a scheme implementation deed dated August 20, 2010 between AWB and Agrium. There does not appear to any further hurdles that may hinder or materially alter the proposed transaction. DBRS expects the AWB acquisition to close in early December.

Fertilizer markets continue to show improvement and DBRS’s expectation for 2011 for fertilizer producers and retailers is for a solid year based on strong agricultural commodity prices. Accordingly, given the affordability of the AWB acquisition to Agrium, the transaction’s positive addition to the Company’s business profile, Agrium’s liquidity, including the financing arrangements within AWB, and the mildly negative but transitory impact on Agrium’s credit metrics, we have removed Agrium from its Under Review with Developing Implications status and confirmed the Company’s ratings.

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.