Fitch Ratings has affirmed the Issuer Default Ratings (IDR) of CF
Industries Holdings, Inc. (NYSE: CF) and CF Industries, Inc. (CF
Industries) at 'BBB'. Fitch has also affirmed the ratings of CF
Industries' unsecured revolving credit facility and senior notes at
'BBB'. The Rating Outlook is Stable.
KEY RATING DRIVERS
The Stable Outlook reflects Fitch's expectation that CF will manage to
its target leverage range of 2.0x-2.5x during this period of high
capital spending though total debt-to-EBITDA is expected to peak at
about 3.7x in 2016 given less than full-year results from acquired
CF's ratings benefit from its position as the largest nitrogen
fertilizer producer in North America and the second largest globally, as
well as its position as one of the lower-cost producers globally, given
the shale gas advantage. The company operates five nitrogen fertilizer
production facilities in the U.S., two in Canada, and two in the UK. In
2014, the facilities in the U.S. and Canada combined have production
capacity of 38%, 34%, 46% and 22% of North American ammonia, granular
urea, UAN (urea ammonium nitrate solution) and ammonium nitrate,
INDUSTRY PROFILE AND OUTLOOK
The U.S. nitrogen fertilizer market benefits from corn's dominance for
feed, fuel and export, nitrogen's impact on yield for the crop, the need
to apply nitrogen annually, and the U.S. being structurally short of
supply. The U.S. imported (net of exports) about 36% of its nitrogen
consumption in 2014 and is likely to rely on imports even after planned
projects add up to 5.1 million tons of gross ammonia capacity. Fitch
believes ammonia prices will be softer in 2015 and 2016 given fewer
plant outages combined with lower planted acres given high corn stocks.
CHS STRATEGIC VENTURE
In August 2015, CHS, Inc. announced that it will purchase a minority
interest in CF Industries Nitrogen, LLC (CF Nitrogen) for $2.8 billion.
CHS will be entitled to semi-annual profit distributions from CF
Nitrogen based generally on the volume of granular urea and UAN
purchased by CHS pursuant to the supply agreement.
Once CF's capacity expansion projects are completed, it will have total
production of 18.9 million tons, exclusive of new capacity expected from
the combination with OCI N.V. Under the supply agreement, CHS will have
the right to purchase up to 1.7 million tons, or 8.9% of the 18.9
million tons capacity at market prices.
CF Nitrogen currently owns the Donaldsonville, LA, Port Neal, IA, and
Yazoo City, MS production facilities. CF intends to contribute the
Woodward, OK plant to CF Nitrogen prior to closing. The transaction is
expected to close Feb. 1, 2016, subject to satisfaction of certain
The transaction provides CF with additional liquidity and fixed volume
off-take and CHS with producer economics on fixed volume. Fitch views
the transaction as credit-neutral in the long term.
CF OCI TRANSACTION
The companies agreed to combine CF with OCI's European, North American
and Global Distribution businesses in a transaction valued at
approximately $6.5 billion, based on CF's current share price, including
the assumption of approximately $2 billion in net debt.
The transaction has a compelling strategic rationale. OCI's Wever
project can be integrated into CF's existing distribution and logistics
supply chain in North America providing operational synergies. OCI's
Geleen operation along with GrowHow expands CF's European Operations.
The transaction will also diversify product offerings into methanol, a
complementary product with similar operations and economic drivers as
nitrogen. CF expects operational and structural synergies to run about
$500 million per annum after-tax.
The resulting capital structure is expected to be consistent with CF's
target of 2.0x-2.5x total debt-to-mid-cycle EBITDA. The transaction is
expected to close in 2016 after customary regulatory and shareholder
approvals. Fitch views the transaction as rating-neutral in the short
Despite expectations for lower ammonia prices, Fitch expects CF to
generate EBITDA margins in excess of 40% and annual EBITDA of about $2
billion in 2015 and 2016. Total debt-to-EBITDA is expected to peak in
2016 under 4x before dropping below 2.5x in 2017
CF is spending roughly $4.6 billion (of which $3.1 billion has been
spent through Sept. 30, 2015) on expansion projects at its Port Neal, IA
and Donaldsonville, LA facilities to increase production and product mix
flexibility with planned completion during 2016. Fitch believes this
will result in negative free cash flow (FCF) after capital expenditures
and dividends for 2015 of about $1.7 billion. Fitch expects FCFs to be
negative as much as $600 million in 2016 before capital spending drops
and the company generates positive FCF.
Fitch's key assumptions within the rating case for CF Industries include:
OCI combination announced Aug. 6, 2015 occurs by year-end 2016;
strategic venture with CHS announced Aug. 12, 2015 closes in the first
quarter of 2016;
--Fitch's natural gas price deck;
near the bottom of the market and flat on average through the forecast
--$100 million of cash on hand is assumed to be necessary
to run the business and not readily available for permanent debt
--Share-buybacks are suspended through 2016.
Positive: Future developments that, though not expected in the next 12
months, could lead to positive rating actions include:
flow from operations less capital expenditures and dividends) grows
faster than expected;
--Total debt-to-EBITDA managed to below 1.5x
on a sustained basis.
Negative: Future developments that could lead to negative rating actions
--FCF expected to be negative beyond 2016;
liquidity expected to be less than $1.5 billion;
debt-to-EBITDA expected to be greater than 2.5x on a sustained basis.
As of Sept. 30, 2015, CF had total liquidity of $2.9 billion, consisting
of $943 million of cash and $2 billion available under the $2 billion
unsecured revolving credit facility due September 2020 (after $4.9
million utilization for letters of credit). As with CF Industries'
notes, CF Industries' revolver is guaranteed by CF.
The revolver contains two financial covenants: a minimum EBITDA/interest
coverage ratio of 2.75:1.00 and a maximum total debt less unrestricted
cash/EBITDA leverage ratio of 3.75:1.00. The $250 million 4.49% private
notes due 2022, $500 million 4.93% private notes due 2025, and the $250
million 5.03% private notes due 2027 all have the same financial
covenants as the revolver. Fitch expects CF to continue to operate well
within its financial covenants.
Liquidity is ample in consideration of the 2015 and 2016 expected cash
burn. CF has no scheduled debt due before the $800 million 6 7/8% notes
are due May 2018.
FULL LIST OF RATING ACTIONS
Fitch affirms CF Industries Holdings, Inc. as follows:
Default Rating (IDR) at 'BBB'.
Fitch affirms CF Industries, Inc. as follows:
--IDR at 'BBB';
unsecured credit facility at 'BBB';
--Senior unsecured notes at
Additional information is available at www.fitchratings.com
Oil And Gas Price Assumptions (November 2015)
Corporate Rating Methodology - Including
Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
Oil and Gas Price Assumptions November 2015
Dodd-Frank Rating Information Disclosure Form
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ''. PUBLISHED RATINGS, CRITERIA
AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO
AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY
HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS
RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE
LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151222006020/en/
Copyright Business Wire 2015