CF Industries (CF) Debt, Issuer Default Ratings Upgraded

CF Industries (NYSE:CF) had their Issuer Default and long-term debt ratings upgraded by Fitch Ratings.


Fitch upgrades the following:

CF Holdings

I--DR to 'BBB-' from 'BB+'.

CF Industries

--IDR to 'BBB-' from 'BB+';

--Senior Secured Revolver to 'BBB' from 'BBB-';

--Senior Secured Term Loan to 'BBB' from 'BBB-';

--Senior Unsecured Notes to 'BBB-' from 'BB+'.

Fitch said in a press release:

"CF has benefitted from a strong tailwind in food demand and farm economics. This produced enough cash flow to let the company repay approximately $1.2 billion in debt since last year's acquisition of Terra Industries Inc. (Terra). Cash flow from operations totalled almost $1.2 billion in 2010 with only nine months of Terra's business included. CF held capital expenditures to $258 million versus $236 million for CF alone in the prior year. After dividends free cash flow was over $900 million.

"Leverage fell to 1.5 times (x) gross debt/EBITDA at the end of last year from 2.9x at the end of the prior June. By the close of the upcoming first quarter, CF will have repaid all of its term loan debt, leaving only the $1.6 billion in senior unsecured notes that it issued to finance the Terra acquisition plus some Terra notes that were assumed. CF's nearest debt maturity is a nominal $13 million in old Terra notes that come due in 2017 followed by $800 million of 6.875% unsecured notes due in 2018.

"In addition to $800 million in cash and equivalents on its balance sheet, CF has an undrawn $500 million secured revolver that matures in 2015. This will be CF's only secured debt after the term loan is repaid. Financial tests within the revolver include an interest coverage ratio of 3.0x and a maximum leverage ratio of 3.50x stepping down to 3.25x.

"Fitch expects another good season for CF in 2011. Fitch believes that low natural gas prices will combine with a strong demand for nitrogen and phosphate based fertilizers to produce a record cash flow. Demand is being pulled along by good farm economics owing to high grain prices, pulled in turn by the growing demand for food in less developed economies and corn-for-ethanol production here in the United States. As a result gross debt/EBITDA should contract further to less than 1.0x, and cash flow after capital expenditures should exceed $1.5 billion."

CF Industries closed Friday at $126.02, gaining $2.04, or 1.65 percent.




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