Fitch Affirms Bunge Limited and Subsidiaries' IDRs at 'BBB'; Outlook Stable

2009-07-01 16:55:04 -

Fitch Ratings has affirmed the following ratings for Bunge Limited (Bunge) and its financing subsidiaries.

Bunge Limited


--Issuer Default Rating (IDR) at 'BBB';

--Preference shares at 'BBB-'.

Bunge Limited Finance Corp. (BLFC)


--IDR at 'BBB';

--Senior unsecured notes at 'BBB';

--Senior Unsecured Credit Facilities at 'BBB'.

Bunge Finance Europe B.V. (BFE)


--IDR at 'BBB'.

Bunge N.A. Finance L.P. (BNAF)


--IDR at

'BBB';

--Senior unsecured notes at 'BBB'.

Concurrently, Fitch has assigned 'BBB' ratings to the following securities.

Bunge Finance Europe B.V. (Bunge Europe)


--$600 senior unsecured Credit Facility due January 2010;

--$650 senior unsecured Credit Facility due April 2011.

Bunge Limited Finance Corp. (BLFC)


--$475 million floating rate senior unsecured term loans due August 2011;

--$250 million 4.33% senior unsecured term loan due February 2011;

--Yen 10 billion floating rate senior unsecured term loan due October 2011.

The Rating Outlook is Stable. Bunge had $3.9 billion of total debt with equity credit and $3.4 billion available borrowing capacity under its $3.6 billion of committed credit facilities at March 31, 2009.

Borrowings by Bunge's subsidiaries carry full, unconditional guarantees by Bunge Limited.

Bunge's ratings are supported by the company's position as the world's leading oilseed processor and the leading producer and supplier of fertilizer to farmers in Brazil. The ratings incorporate periodic operating earnings and cash flow volatility associated with the agricultural sector. While the company's recent weak operating performance is more severe than is typically factored in for the sector, such periods are typically short-lived. Bunge's maintenance of ample liquidity is crucial to support its ratings during periods of weak earnings. A long-term favorable agribusiness outlook is also factored into the ratings.

In contrast to Bunge's record earnings and cash flow generation for the full year 2008, the company incurred net losses in the fourth quarter of 2008 and the first quarter of 2009. For the first quarter ended March 31, 2009 versus the prior year period, total volumes increased 2% to 32.3 million metric tons, net sales fell 26% to $9.2 billion and segment EBIT dropped 146% to negative $203 million. The weakest segment for the quarter was fertilizer, with segment EBIT of negative $262 million due to lower selling prices, higher raw material and finished product costs, as well as 23% lower volumes. Agribusiness EBIT dropped 93% to $18 million due to lower oilseed processing and distribution results, which reflected a slowdown in demand for soybean-based products. Free cash flow (cash flow from operations less capital expenditures and dividends) was negative approximately $500 million for the quarter. While Bunge's free cash flow is typically negative in the first quarter, it was exacerbated by the company's $195 million net loss for the quarter. For the latest 12 month (LTM) period, Bunge generated $1.6 billion of free cash flow due to strong earnings earlier in the period and a decline in soybean prices. However, soybean prices have risen approximately 30% from late March to late June, which will increase debt and reduce cash flow in the near term. Bunge uses revolving credit to finance its working capital. If soybean prices stay at a level close to $12 or increase, the company is likely to generate negative free cash flow in 2009.

Bunge has faced a significant global demand slowdown for its products.

Credit metrics are expected to weaken substantially on an LTM basis over the next two quarters as stronger earnings roll off and recent net losses are included. The first quarter is typically the weakest of the year since it is between harvest periods. Substantial earnings improvement is factored into the ratings as 2009 progresses. As Bunge works through its high cost fertilizer inventory and the supply of fertilizer products in the Brazilian retail channel returns to more normal levels, its margins are expected to improve. Also, soybean crush margins have improved recently due to tight global supplies exacerbated by Argentina's soybean crop shortfall. Nonetheless, if Bunge's 2009 operating results fall materially short of current expectations, there will be downward pressure on the ratings.

In addition to evaluating traditional credit measures, Fitch's analysis of agricultural companies takes into consideration leverage ratios that exclude debt used to finance readily marketable inventories (RMI).

Interest expense on debt used to finance RMI is reclassified as cost of goods sold and thus is excluded from interest expense. Fitch utilizes significant discretion in this calculation. With the adjustments described above, Bunge's total debt/EBITDA was 1.1 times (x) for the LTM ended March 31, 2009 and EBITDA/interest expense was 5.4x. Unadjusted total debt/EBITDA was 2.6x and EBITDA/interest expense was 4.3x. Despite weaker credit metrics anticipated over the next two quarters, as discussed above, credit metrics for the full year 2009 are not expected to weaken materially.

On June 4, 2009, BLFC issued $600 million 8.5% senior unsecured notes due 2019. The notes are guaranteed by the parent company, Bunge Limited.

The net proceeds were used to repay borrowings under its commercial paper (CP) program and credit facilities. As of May 31, 2009, Bunge and its subsidiaries had approximately $261 million CP outstanding, with a weighted average interest rate of 1.27% annually, and approximately $1.9 billion of borrowings under revolving credit facilities at a weighted average interest rate of 1.17% annually. The new notes contain a Change of Control Trigger. Upon the occurrence of a Change of Control at Bunge that results in the notes no longer having investment grade ratings, note holders, subject to certain exceptions, may require BLFC to repurchase the notes at 101% of principal plus accrued interest. The notes also have a coupon step-up provision in the event of rating downgrades. Upon subsequent upgrades the coupon could step back down.
The notes were issued under a new indenture that contains limitations on liens, sale/leasebacks and mergers. During 2008, BLFC entered into several three-year senior unsecured term loans, outlined above, to repay indebtedness. Bunge also had approximately $215 million of borrowing capacity available under its $650 million accounts receivable securitization facilities on March 31, 2009. The company plans to renew $300 million of these facilities that is scheduled to mature in July 2009.

BLFC also entered into new $1.65 billion unsecured committed revolving credit facilities consisting of a $1 billion three-year facility and a $645 million 364-day facility during June 2009. The new credit facilities replaced its $850 million five-year revolving credit facility that would have expired in June 2009 and its $850 million, 364-day revolving credit facility that would have expired in November 2009. The new credit facilities contain limitations on liens, additional indebtedness, sale or transfer of assets or receivables and mergers. The credit agreements are guaranteed by Bunge Limited. Amounts due under the terminated credit agreements were repaid by BLFC with proceeds from initial borrowings under the new credit facilities. Bunge's other $1.85 billion of committed credit facilities have maturities ranging from January 2010 to June 2012. These credit lines include a $600 million liquidity facility that fully backstops its CP program. Fitch expects Bunge to renew the $600 million BFE credit facility expiring January 2010 by the fourth quarter of 2009. Bunge's committed credit facilities are subject to financial covenants, including minimum net worth, maximum debt to capitalization and a minimum current ratio.

Excluding cash at Fertilizantes Fosfatados S.A.-FOSFERTIL (Fosfertil), a non-wholly owned publicly traded phosphate and nitrogen producer in Brazil, Bunge had $197 million cash on March 31, 2009. Cash at Fosfertil is generally not available to Bunge unless a cash distribution is made.
Bunge's liquidity also includes its RMI, which was $2.3 billion on March 31, 2009 factoring Fitch's 10% discretionary haircut to Bunge's reported RMI. This commodity inventory is very liquid due to widely available markets and international pricing mechanisms. RMI is also substantially hedged against price risk.

Bunge has two securities that are evaluated under Fitch's hybrid rating criteria. Bunge's $863 million 5.125% mandatory convertible preference shares are assigned 100% equity credit due to their junior ranking, mandatory conversion to common shares on Dec. 1, 2010, the dividend deferral option combined with the ability to pay in common shares, and the lack of covenants. The ratings for Bunge's $690 million 4.875% convertible perpetual preference shares are assigned 75% equity credit due to the junior ranking of these shares, the dividend deferral option and the non-redeemable feature of these securities.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, ' www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. '.

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Fitch Ratings, ChicagoJudi M. Rossetti, CPA, CFA, +1-312-368-2077Wesley
E. Moultrie II, CPA, +1-312-368-3186Cindy Stoller, +1-212-908-0526
(Media Relations, New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com