Nutrien Ltd. Assigned #BBB# Corporate Credit Rating On Merger Of Agrium Inc. And Outlook Stable

Stocks and Financial Services Press Releases Thursday March 8, 2018 11:41
TORONTO--8 Mar--S&P Global Ratings
TORONTO (S&P Global Ratings) March 7, 2018--S&P Global Ratings today said it assigned its 'BBB' long-term corporate credit rating to Nutrien Ltd. The outlook is stable.

At the same time, S&P Global Ratings removed its ratings on Agrium Inc. and Potash Corp. of Saskatchewan Inc. (PotashCorp) from CreditWatch. We view Agrium Inc. and PotashCorp as core entities to Nutrien so we are equalizing our ratings on the subsidiaries with that on Nutrien.

No structural subordination exists for Agrium's and PotashCorp's senior unsecured debt outstanding, we therefore rate this 'BBB', the same as our corporate credit rating on Nutrien.

We have also affirmed our 'A-2' global short-term and global scale commercial paper (CP) ratings on both Agrium and PotashCorp; however, we are lowering our Canada scale CP rating on PotashCorp to 'A-2' (Cdn) from 'A-1(Low), which aligns it with the 'BBB' corporate credit rating.

Our ratings on Nutrien reflects S&P Global Ratings' opinion of the company's competitive cost and leading market position in potash and nitrogen, significant scale and operational diversity, stable cash flow generation from its retail segment, and strong EBITDA margins, which rank in the top quartile of our global commodity chemicals peer group. Our assessment of Nutrien's financial risk profile benefits from the cost synergies we have incorporated into its base-case scenario.

As a result, we believe there is meaningful cushion in our estimated three-year (2018-2020) cash flow and leverage ratios at the 'BBB' rating. In our view, the company's overall competitive position and credit profile is commensurate with those of its 'BBB' rated peers.

The stable outlook reflects our view of Nutrien's market-leading position in potash and nitrogen fertilizer production; the wholesale segment's low consolidated cost structure, stable EBITDA, and margin performance in the company's retail segment; and that Nutrien's projected cash flow and leverage metrics will remain consistent with the expectations under our base-case scenario during our 24-month rating outlook period. Although our cash flow forecasts are somewhat supported by cost synergies in 2018-2020, there is significant cushion in our projected three-year (2018-2020), weighted-average cash flow and leverage ratios to accommodate unexpected market events, without weakening the company's overall financial risk profile and the 'BBB' rating.

We believe there is a low likelihood that Nutrien's business risk profile could weaken during our 24-month outlook period; therefore, a negative rating action could primarily occur if the company's FFO-to-debt and discretionary cash flow (DCF)-to-debt ratios deteriorated below the minimum levels needed to support the 'BBB' rating. Specifically, if Nutrien's three-year, weighted-average FFO-to-debt ratio fell below 30%, and the company increased its dividend payout, such that our weighted-average DCF-to-debt ratio fell below 5%, and we expected these metrics to remain below these levels for an extended period, the company's financial risk profile would no longer support the 'BBB' rating. In that case, we would lower the corporate credit rating to 'BBB-'.

Despite its strong market position in potash and nitrogen fertilizer production and the stable cash flow generation from the company's retail segment, the business risk profile is constrained by our assessment of the commodity chemicals industry risk profile. As a result, Nutrien's business risk profile is unlikely to strengthen sufficiently to support an upgrade. Nevertheless, we could consider a positive rating action if the company strengthened and maintained its fully adjusted three-year, weighted-average FFO-to-debt ratio at or above 45%, without a corresponding increase in the dividend payout ratio. An upgrade would also be contingent on the company's financial policies being supportive of maintaining these measures. Although less likely to occur during our 2018-2020 outlook horizon, we could also consider an upgrade if Nutrien achieved a meaningful expansion of its retail segment, such that it lowered the overall volatility of the company's cash flow generation and materially strengthened its return on capital.


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