Moody's outlook for Bunge turns negative

by Josh Sosland
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NEW YORK — While the Baa2 long-term debt ratings of Bunge Ltd. were affirmed in a credit review by Moody’s Investor Service, the rating outlook turned negative from stable.

“This action is in response to volatility in the company’s financial performance over the past several years, which has resulted in credit metrics that are materially weaker on average than expected for its Baa2 rating,” Moody’s said in a Feb. 27 update. “The negative outlook reflects Moody’s concern that Bunge may be better positioned in a lower rating category unless it can improve its credit metrics in 2013 and expect to maintain stronger metrics over the longer term.”

John Rogers, senior vice-president at Moody’s, said the Bunge rating benefits from strong earnings but that this positive has been undercut by higher debt levels necessitated by high crop prices.

Moody’s said the Baa2 long-term debt rating is supported by a “moderate amount of balance sheet debt, a relatively conservative balance sheet (as measured by net working capital to net balance sheet debt), an established position in the agricultural commodity industry, and meaningful geographic diversity.”

“Bunge’s ratings have been stressed by volatility in its financial metrics over the past six years with extremely weak metrics in several of those years,” Moody’s said. “While the company has divested problem businesses like fertilizers, its large investment in Brazilian sugar has underperformed expectations, which led to a large write-off in the fourth quarter of 2012.”

The agency noted that Bunge’s net debt to EBITDA ratio has exceeded 3.0 times through much of 2012 and “potential working capital demands in 2013 may create significant headwinds to improving credit metrics.”

“Should Bunge’s credit metrics continue to underperform Moody’s expectations (i.e., net debt/EBITDA remains above 3.0x and retained cash flow net debt continues to be less than 20%) in 2013, Moody’s would lower the company's rating by a notch,” Moody’s said. “If the company is able to lower net debt/EBITDA toward 2.5x and raise retained cash flow/net debt toward 25%, Moody's would return the outlook to stable.”
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