DBRS Places Cargill’s A (high) and R-1 (middle) Ratings Under Review with Developing Implications

DBRS has today placed Cargill, Incorporated (Cargill or the Company) and Cargill Limited’s A (high) and R-1 (middle) ratings Under Review with Developing Implications. The action follows Cargill’s announcement that it intends to distribute the 286 million shares of Mosaic (64% of Mosaic’s outstanding shares) that it holds to its own shareholders and debt holders.

DBRS’s review will focus on the execution of the transaction and Cargill management’s intentions with regard to ultimate debt reduction from proceeds raised in the exchange of Mosaic shares with lenders. With the split-off of the investment in Mosaic, Cargill loses some exposure to the growth-oriented fertilizer sector and the liquidity benefit the holding offered, yet Cargill will remain extremely well diversified and perhaps display decreased volatility going forward. DBRS would expect Cargill to reduce gross debt in a meaningful way in order to offset the effective monetizing of its holding in Mosaic. If debt is not reduced by a level that DBRS believes would be required to keep Cargill’s financial risk profile at least steady, then the current ratings would be under pressure.

This transaction is motivated by Cargill’s desire to remain a private company while providing financial flexibility to its private shareholders including the charitable trusts and foundation formed through the estate planning of Margaret Cargill (one of Cargill’s largest shareholders, who passed away in 2006). The transaction is also expected to benefit Mosaic by improving its long-term strategic and financial flexibility, as well as increase the liquidity of its common stock.

With regards to this transaction, Cargill plans to exchange approximately 179 million shares of Mosaic with Cargill shareholders for Cargill stock ($12.1 billion based on Mosaic’s November 30, 2010 stock price of $67.63 per share). Cargill expects to exchange its remaining 107 million Mosaic shares with third parties for Cargill debt owned by third parties ($7.2 billion based on Mosaic’s November 30, 2010 stock price of $67.63 per share). Pursuant to a ruling from the U.S. Internal Revenue Service, the transaction is expected to be tax free to Cargill, Mosaic and their respective shareholders. Mosaic, Cargill and the charitable trusts have entered into a series of agreements to effect the transaction, including terms intended to provide for an orderly disposition of the Mosaic shares. The transaction is expected to close in the second calendar quarter of 2011.

In terms of Cargill’s exchange with lenders, the Company will issue an amount of short-term debt which will be retired with Mosaic shares, retaining the cash proceeds on its balance sheet. The cash would be available to repay debt or to reinvest in Cargill’s business. Cargill’s November 30, 2010 balance sheet (ex-Mosaic) included $16.6 billion of recourse debt (i.e., ex-Mosaic) and $2.1 billion of cash and cash equivalents. Cargill debt could potentially decline by $7.2 billion (based on November 30, 2010 Mosaic share price) on a pro forma basis if the transaction is executed successfully and all of the cash proceeds are used for debt repayment.

Mosaic’s and Cargill’s board of directors have approved the transaction. The closing of the transaction is subject to certain conditions, including: (i) approval by the majority of Mosaic’s minority shareholders; (ii) the receipt of certain regulatory approvals; (iii) no withdrawal or adverse change to the IRS ruling obtained with respect to the transaction; and (iv) other customary conditions. Accordingly, there can be no assurance as to when the transaction described above will occur and it is possible that it may not occur at all. Cargill retains the right to terminate the transaction subject to payment of a termination fee to Mosaic’s minority shareholders under certain circumstances.

Notes:
The Cargill Limited ratings are guaranteed by its U.S. parent, Cargill, Incorporated.

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

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