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Fitch Rates Cargill Inc.'s EUR500 Million Medium-Term Notes 'A'

February 4, 2014

CHICAGO --(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A' rating to Cargill, Incorporated's (Cargill) EUR500 million 2.5% medium-term notes due Feb. 15, 2023 . The Rating Outlook is Stable. Fitch anticipates that Cargill will use the net proceeds from this issuance for general corporate purposes, including the repayment of debt at maturity. The new notes will be issued under Cargill's existing $6 billion Euro Medium Term Note program. KEY RATING DRIVERS Earnings Rebound Shows Near Term Sustainability: The ratings and Outlook reflect that Cargill's earnings have recovered from a weak earnings period and high leverage for the rating level in fiscal 2012. Fiscal 2013, which ended May 31, 2013 , and the first half of fiscal 2014 have shown earnings stabilization back to more normalized levels, which in combination with lower commodity related debt provide support that Cargill can maintain gross leverage in the mid 2x or lower range during most periods. Debt Down and FCF Up: Cargill's total debt is down almost 15% from the end of fiscal 2012 to $13.0 billion at Nov. 30, 2013 . More importantly, annual free cash flow (FCF) has been strongly positive since fiscal 2012 and is $3.3 billion for the latest 12 months (LTM). Commodity prices have moderated significantly, with corn, soybean and wheat spot prices down approximately 40%, 18% and 20%, respectively, fiscal year to date through Jan. 31, 2014 . Working capital is a large source of funds ( $1.5 billion in the fiscal first half) with lower commodity related working capital needs. Fitch expects debt to remain near current levels and FCF to be at the high end of Cargill's historical range in fiscal 2014. Mostly Positive Earnings Trends: Origination & Processing, as well as Cargill's other crop-related businesses, are benefitting from the very large global crops available to process, transport and merchandise in fiscal 2014. Animal nutrition has seen margin improvement and U.S. beef processing results have improved from better utilization after a plant closure. Partially offsetting these results, energy earnings were weak and South American crush volumes were lower on an industry wide buildup in oilseed crush capacity. Large, Diverse Operations: Cargill's ratings reflect its competitive position as the largest agricultural company based in the U.S. and as one of the biggest privately owned companies in the world. Its operations span every major country and almost every agricultural commodity. Key agricultural operations include oilseeds processing, corn milling, meat processing, and animal nutrition. The ratings incorporate Cargill's extensive geographic and product line diversification, which lessens operating earnings volatility during most years. Expect Balanced Use of Cash: Cargill typically has a modest level of dividends and share repurchases in the absence of infrequent large family shareholder liquidity events which are not anticipated in the near term. Fitch expects that Cargill will maintain a balanced use of cash and a high amount of liquidity over the intermediate term. Given Cargill's liquidity, bolt-on-to-moderate sized acquisitions and potentially higher capital expenditures can be accommodated with cash and cash flow to maintain current ratings. Earnings and Cash Flow Volatility: Balancing out Cargill's credit strengths is the company's exposure to financial businesses that provide earnings diversification but have high earnings volatility. Moreover, the company is susceptible to periodic negative FCF when commodity prices rise and working capital increases in tandem, which occurred in fiscal 2011. Quarterly earnings and cash flow can be particularly volatile, so Fitch views earnings on an annual basis, in conjunction with near to intermediate term earnings expectations. RMI Supports Ratings: In addition to evaluating traditional leverage metrics, Fitch also considers leverage ratios that exclude debt used to finance readily marketable inventories (RMI). RMI is hedged and highly liquid. Fitch takes a discretionary 10% haircut to reported RMI. RMI adjusted leverage was 1.2x for the LTM period ending Nov. 30, 2013 . Nonetheless, since RMI adjusted metrics are generally strong for the rating level even when the company has stress on its operating earnings and cash flow, Fitch places more emphasis on gross leverage. Gross total debt to EBITDA was 2.6x and EBITDA to gross interest expense was 7.3x for the LTM. Based on Fitch's expectations for mostly positive earnings trends in fiscal 2014, as noted above, Fitch anticipates that Cargill's gross leverage for fiscal 2014 could improve slightly within the mid 2x range. Abundant Liquidity: Cargill has $4.4 billion cash and cash equivalents, as well as $5 billion undrawn credit facilities at Nov. 30, 2013 that provide backup liquidity to its CP programs. These facilities consist of a $1.875 billion , 364-day facility expiring Oct. 24, 2014 and a $3.125 billion five-year facility maturing in Oct. 25, 2018 . The company also maintains an undrawn $1.25 billion 364-day facility in non-U.S. markets expiring in March 2014 . Long-term debt maturities consist of $903 million due in fiscal 2015 and $780 million due in fiscal 2016 that the company is likely to refinance. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --Sustained weak earnings trends, debt financed share repurchases or acquisitions resulting in an extended period where total debt/EBITDA is likely to remain in the high 2x range, could lead to a downgrade. Two consecutive years of materially negative FCF would also support a downgrade. Future developments that may, individually or collectively, lead to a positive rating action include: --An upgrade is not anticipated due to the company's historically high gross leverage for the rating level, periodic negative FCF and vulnerability to significant periodic agricultural supply/demand imbalances that lead to earnings and cash flow volatility. Fitch currently rates Cargill and its subsidiaries as follows: Cargill --Long-term Issuer Default Rating (IDR) 'A'; --Senior unsecured notes 'A'; --Credit facility 'A'; --Short-term IDR 'F1'; --Commercial paper 'F1'. Cargill Ltd. --Short-term IDR 'F1'; --Commercial paper 'F1'. Cargill Global Funding PLC (co-borrower) --Long-term IDR 'A'; --Credit facility 'A'; --Short-term IDR 'F1'; --Commercial paper 'F1'. Cargill Asia Pacific Treasury Ltd (co-borrower) --Long-term IDR 'A'; --Short-term IDR 'F1'; --Credit facility 'A'; --Commercial paper 'F1'. The Rating Outlook is Stable. Additional information is available at ' www.fitchratings.com '. Applicable Criteria and Related Research : --'Corporate Rating Methodology' ( August 2013 ). Applicable Criteria and Related Research : Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819488 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 . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. 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. Fitch Ratings Primary Analyst Judi M. Rossetti , CPA/CFA Senior Director +1-312-368-2077 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 or Secondary Analyst Carla Norfleet Taylor , CFA Director +1-312-368-3195 or Committee Chairperson Wesley E. Moultrie II , CPA Managing Director +1-312-368-3186 or Media Relations: Brian Bertsch , +1-212-908-0549 ( New York ) brian.bertsch@fitchratings.com Source: Fitch Ratings


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