NEW YORK — Moody’s Investors Service has upgraded the senior unsecured debt rating of Ingredion Inc. to Baa2 from Baa1. Ingredion’s outlook was described as stable.
Moody’s attributed the upgrade to success Westchester, Ill.-based Ingredion has enjoyed in shifting its product line toward higher-margin specialty ingredients and away from lower margin commodity ingredients. Specifically, Ingredion’s specialty ingredients business accounts for 28% of sales, versus 21% four years ago, Moody’s said. Ingredion’s product portfolio remains heavily tilted toward corn-based ingredients, but Moody’s said the shift toward specialty products is expected to continue well into the future.
“Ingredion aims to bring the percentage of overall sales in specialty ingredients up to 32% to 35% by 2022,” Moody’s said. “This shift not only improves the company’s earnings and cash flow, but reduces potential earnings volatility from business more focused on commodity corn processing.”
Moody’s said its upgrade assumes that Ingredion will remain a leading supplier of starches and sweeteners and will maintain conservative financial practices.
A Baa1 rating is Moody’s highest in the B family. Baa ratings are defined as “medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.”
The Baa1 senior unsecured debt rating assigned to Ingredion by Moody’s, reflects the agency’s view that Ingredion enjoys relatively stable earnings and cash flow driven by good geographic, product, and end market diversification. Additionally, Moody’s described Ingredion’s financial policies as “conservative,” with debt to EBITDA at a modest at 2.0 times.
“While the company is willing to increase financial leverage for an acquisition, Moody’s believes that post acquisition financial leverage would still remain moderate,” the agency said. “Moody’s estimates that the company will generate around $270 million of free cash flow during the next 12 months.”
The rating also reflects that the company has some exposure to price fluctuations of co-products (i.e. byproducts of corn processing), competition against other ingredient manufacturers that are part of much larger corporations, and declining U.S. high fructose corn syrup consumption.”
Further diversification or other steps that diminish the volatility of the company’s profits could earn Ingredion an additional upgrade, Moody’s said.