DBRS Assigns Rating of BBB (high), Stable Trend to Potash Corporation $500 Million New Senior Unsecured Notes

DBRS Limited (DBRS) has today assigned a rating of BBB (high) with a Stable trend to $500 million aggregate principal amount of 3.000% Senior Unsecured Long-Term Notes due April 1, 2025 (the Notes), to be issued by Potash Corporation of Saskatchewan Inc. (Potash or the Company). Potash intends to use the net proceeds of the offering of the Notes for general corporate purposes, which the Company indicates may include the redemption of $500 million aggregate principal amount of its outstanding 3.750% notes maturing on September 30, 2015, although the Company is not required to redeem these notes prior to maturity. DBRS views the proposed debt issue as a prudent part of the Company’s ongoing program to meet its funding needs.

The Notes will be issued pursuant to an indenture dated February 27, 2003, between Potash and U.S. Bank National Association (as successor trustee to The Bank of Nova Scotia Trust Company of New York), the trustee for the Notes. The indenture governing the Notes is, and the Notes will be, governed by and construed in accordance with the laws of the State of New York.

The Notes will be senior unsecured obligations of Potash and will rank equally in right of payment with all of Potash’s existing and future senior unsecured indebtedness. The terms of the Notes will include a change of control provision which, upon the occurrence of both (1) a change of control and (2) a downgrade of a particular series of notes below an investment-grade rating (as specified), will require Potash to make an offer to purchase such series of notes at a price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest to the date of repurchase. The Notes will also be redeemable, in whole or in part, at the option of Potash at any time and from time to time at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed on the redemption date (not including any portion of any payments of interest accrued to the redemption date), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of 12 30-day months) at a specified discount rate, plus any accrued and unpaid interest to the date of redemption.

Potash had a solid year in 2014 with annual operating profit of $2.1 billion, down 9.3% as a result of lower potash prices and nitrogen prices, partially offset by higher potash sales tonnages and higher phosphate prices. The Company’s sales of potash were up 15.4% for the year to 9.3 million tonnes and were second highest in its history. Net income for the year was down 13.9% from 2013 to $1.5 billion. World 2014 potash consumption is estimated to have been a record 61 million tonnes.

Financially, 2014 was a relatively balanced year for the Company with net debt increasing $682 million, largely because of $1.1 billion in purchases of the Company’s own shares. Potash’s gross debt totalled $4.2 billion at year end, up $269 million from the end of 2013. Gross debt leverage was 32.6% at December 31, 2014, somewhat higher than the 29.2% at the end of 2013. Capital expenditures (capex) dropped to $1.1 billion for the year compared with $1.6 billion spent in 2013 and $2.1 billion in 2012 as its expansion projects continued to wind down. Capex was about 1.6 times depreciation.

Potash expects its 2015 potash operational capability to be maintained at 10.9 million tonnes, although the Company has higher nameplate capacity. Its 2015 capex is expected to be approximately $1.2 billion, close to 2014 levels. In early 2015, the Company announced a 9% increase in its quarterly dividend rate to $0.38 per share per quarter in 2014 from $0.35 per share.

The assigned rating is based on Potash’s prospectus supplement dated March 23, 2015, to the Company’s prospectus dated June 28, 2013, both as filed with the U.S. Securities and Exchange Commission, as well as Potash’s public security document filings to March 23, 2015.

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

The applicable methodologies are Rating Companies in the Mining Industry (September 2014) and Rating Companies in the Industrial Products Industry (January 2015), which can be found on our website under Methodologies.