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TEXT-Fitch rates Ingredion's proposed notes 'BBB'
September 17, 2012 / 2:52 PM / 5 years ago

TEXT-Fitch rates Ingredion's proposed notes 'BBB'

Sept 17 - Fitch Ratings has assigned a 'BBB' rating to Ingredion Inc.'s
 (INGR) proposed $300 million senior unsecured notes due in 2017. The
Rating Outlook is Positive.

INGR intends to use the net proceeds to repay approximately $200 million of
borrowings under its revolving credit facility and the remainder for general
corporate purposes. The notes are being issued under the company's indenture
dated Aug. 18, 1999. Significant covenants include, but are not limited to,
limitations on liens and restrictions on sale-leaseback transactions. The notes
carry a change of control provision which, upon a change of control and the
notes ceasing to be rated investment grade, requires INGR to offer to repurchase
the notes at 101% of par plus accrued interest.

INGR's ratings are supported by its competitive position in corn refining and
starch-based ingredients, global operations and diverse customer base. The
company's clear, conservative financial policies and financial flexibility are
also reflected in the ratings. The ratings are constrained by INGR's smaller
size and less diversified product portfolio versus global competitors and the
company's primary focus on corn-based products. Although the company's business
model has shifted more toward ingredients, INGR's operating income and cash flow
are still subject to periodic volatility related to agricultural cycles,
particularly for corn.

The Positive Outlook reflects INGR's significant progress integrating the
primarily debt-financed $1.4 billion acquisition of the National Starch business
of Akzo Nobel N.V. (National Starch) completed in October 2010, along with
earnings outperformance since the acquisition, which has led to low leverage for
the rating level. The Positive Outlook also considers the company's larger size
and broader starch-based ingredient portfolio since the acquisition. National
Starch's expertise and leadership in specialty and modified starches,
particularly for the processed foods industry, complement INGR's core competency
in corn refining. In addition, the acquisition provides INGR with greater
geographic breadth in Asia and Europe and strengthens the company's U.S.

Working capital usage has been a significant factor in limiting the company's
free cash flow (FCF) generation during three of the past five years, resulting
in modest average annual FCF generation of approximately $50 million. Excluding
working capital swings, Fitch anticipates INGR can generate approximately $200
million annual FCF. In August 2011, INGR announced the resumption of share
repurchases. Fitch expects that share repurchases will be executed in a
conservative manner out of available FCF. Bolt-on acquisitions, particularly to
expand the company's ingredients expertise, are also part of INGR's strategy.
Fitch expects bolt-on acquisitions will be funded with FCF or with a modest
increase in debt so that leverage remains appropriate for the ratings.

The recent rise in corn prices due to deterioration in the U.S. crop as a result
of this summer's severe drought presents a challenge for INGR. Risks to INGR's
earnings growth include the company's ability to price through higher corn costs
from the recent corn price ascent, and the uncertain global economic situation
which could lower demand for starch-based products. Concurrently, INGR is facing
significant currency headwinds, which the company also plans to pass through to

For the latest 12 months ended June 30, 2012, total debt to operating EBITDA was
2.2x, funds from operations (FFO) adjusted leverage was 2.9x and operating
EBITDA to gross interest expense was 10.8x. These metrics compare favorably to
Fitch's expectations at the closing of the acquisition.

INGR consistently maintains strong liquidity. At June 30, 2012, the company's
liquidity included $440 million cash and cash equivalents (including $391
million outside the United States) and $650 million available under its $1
billion credit facility expiring June 6, 2014. Credit facility financial
covenants include a maximum net leverage ratio of 3.0x, as well as a minimum
interest coverage ratio of 3.5x. The company's $200 million private placement
notes due in March 2020 contain a maximum net leverage ratio of 3.25x and a
minimum interest coverage ratio of 3.25x that are not present in INGR's other
notes. Fitch expects INGR will maintain sufficient cushion with respect to its
financial covenants. The company's next significant long-term notes maturity is
$350 million 3.2% notes due Nov. 1, 2015.

Fitch's current ratings for INGR are as follows:

--Long-term Issuer Default Rating (IDR) 'BBB';
--Bank credit facility 'BBB';
--Senior unsecured debt 'BBB'.
The Rating Outlook is Positive.


Future developments, that may individually or collectively lead to a positive
rating action include:

Continued solid operating performance including successful pass-through of
higher corn costs without significant volume declines, along with maintenance of
conservative financial policies generally in accordance with the company's
long-term leverage target below 2.25x. Margin maintenance or improvement would
also support the positive rating action.

Future developments, that may potentially lead to a Stable Outlook or negative
rating action include:

Another large debt-financed acquisition, significant debt financed share
repurchases, or sustained weaker than anticipated operating performance
resulting in higher leverage could result in an Outlook revision back to Stable
or a negative rating action. The severity of the rating action would depend on
the magnitude of the leverage increase.

Additional information is available at ''. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012.

Applicable Criteria and Related Research:
Corporate Rating Methodology

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