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TEXT-S&P puts Gavilon Group ratings on watch positive
May 30, 2012 / 6:13 PM / 6 years ago

TEXT-S&P puts Gavilon Group ratings on watch positive

May 30 - Overview	
     -- We are placing our ratings on U.S.-based The Gavilon Group LLC 	
(Gavilon), including the 'BB' corporate credit rating, on CreditWatch with 	
positive implications.	
     -- Tokyo-based Marubeni Corp. (BBB/Negative) recently announced
that it will buy Gavilon for $3.6 billion excluding debt. 	
     -- We believe that Gavilon's credit profile will improve with the 	
acquisition by the larger and financially stronger Marubeni Corp. 	
	
Rating Action	
On May 30, 2012, Standard & Poor's Ratings Services placed its 'BB' corporate 	
credit rating and issue-level ratings on Omaha, Neb.-based The Gavilon Group 	
LLC on CreditWatch with positive implications, meaning that we could either 	
raise or affirm the ratings upon completion of our review.	
	
Gavilon Group had reported debt outstanding of $2.1 billion as of March 31, 	
2012. 	
	
Rationale	
The CreditWatch placement follows Marubeni's announcement that it will be 	
acquiring 100% of the direct and indirect equity interests of Gavilon for an 	
equity purchase price of about $3.6 billion, excluding debt. Marubeni expects 	
the transaction to close after obtaining the necessary regulatory approvals 	
and fulfilling closing conditions. We believe that Gavilon's credit profile 	
will improve with the acquisition by higher-rated Marubeni Corp. 	
(BBB/Negative/--). We also believe that Gavilon will benefit from increased 	
operating scale and international diversity, as well as parental support as 	
part of Marubeni Corp. (For more information, see the article published May 	
30, 2012 on RatingsDirect on the Global Credit Portal.) 	
	
We assess Gavilon's business risk profile as 'fair' and its financial risk 	
profile as 'significant'. Key credit factors in Gavilon's business risk 	
assessment include the company's earnings volatility, business segment 	
diversification, improving market position, and sound risk management 	
practices. However, credit measures are currently on the weaker end of the 	
range of indicative ratios for a significant financial risk profile. We 	
estimate Gavilon's ratio of adjusted debt to EBITDA for the 12 months ended 	
March 31, 2012 increased to 4.1x from 1.8x for the fiscal year ended Dec. 31, 	
2011, as compared to the debt-to-EBITDA range for a significant financial risk 	
profile of 3x to 4x. Similarly, adjusted funds from operations to debt 	
declined to about 20% for the 12 months ended March 31, 2012 from 51.5% for 	
the fiscal year ended Dec. 31, 2011, as compared to 20% to 30% for a 	
significant financial risk score. (As with other agribusiness companies, we 	
net a portion of Gavilon's readily marketable grain inventories against its 	
short-term borrowings when calculating credit measures.) 	
	
CreditWatch	
Standard & Poor's will seek to resolve the CreditWatch listing when more 	
information about the company's debt plans and corporate structure becomes 	
available. 	
	
Related Criteria And Research	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Key Credit Factors: Criteria For Rating The Global Branded Nondurable 	
Consumer Products Industry, April 28, 2011	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- 2008 Corporate Criteria: Standard & Poor's Ratings--And Their Role In 	
the Financial Markets, April 15, 2008	
	
Ratings List	
Ratings Affirmed; CreditWatch/Outlook Action	
                                    To                  From	
The Gavilon Group LLC	
 Corporate Credit Rating            BB/Watch Pos/--     BB/Negative/--	
Senior Secured	
  US$775 mil term bank ln due       BB+ /Watch Pos      BB+ 	
  12/06/2016 	
   Recovery Rating                  2                   2	
	
The Gavilon Group LLC	
Gavilon Grain LLC	
Gavilon Fertilizer LLC	
Gavilon LLC	
Senior Secured	
  US$2.75 bil revolving credit fac   BBB- /Watch Pos     BBB- 	
  bank ln due 12/31/2013  	
   Recovery Rating                   1                   1	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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