DBRS Confirms Viterra Inc. at BBB (low), Assigns Issuer Rating

DBRS has today confirmed Viterra Inc.’s (Viterra or the Company) Senior Secured Notes and Bank Credit Facility at BBB (low) with a Stable trend, reflective of the Company’s solid business and financial profile. (See DBRS press release dated October 29, 2009). In addition, DBRS has assigned an Issuer Rating of BBB (low) with a Stable trend to clarify our views on Viterra’s credit strength in the absence of any security or ranking conditions. It should be noted that the Company was upgraded to BBB (low) in July 2008.

On September 23, 2009, the Company completed its acquisition of ABB for $1.4 billion (approximately $700 million in cash and $700 million in shares) with the cash portion pre-funded with Viterra’s $460 million equity issue (May 2008) and its subscription receipts offering ($450 million) in May 2009. This is reflective of Viterra’s commitment to maintaining a strong balance sheet. The acquisition will improve Viterra’s business and financial profile by providing a number of potential benefits: (1) Greater exposure to higher-growth markets; (2) Increased scale and enhanced market positions; (3) Larger export origination capability (opportunity to take advantage of logistics arbitrage opportunities); (4) Enhanced business and geographic diversification; (5) More consistent distribution of earnings throughout the year; and (6) Reciprocal best practice efficiencies (expected synergies of $30 million to be fully realized within two years).

The acquisition of ABB was consistent with Viterra’s previously-stated ambition to increase investment (including acquisitions) for growth. The Company had expressed that its strategic expansion would be focused on boosting valued-added processing capabilities and growing its core operational footprint geographically.

DBRS estimates EBITDA for Viterra (including ABB) will range from approximately $475 million to $525 million for F2010. The combined entity is also expected to easily remain free cash flow positive ($150 million to $200 million range going forward) with maintenance capex at approximately $140 million per year. That said, DBRS does not expect near-term free cash flow to be used for meaningful long-term debt reduction but instead growth opportunities.

DBRS believes that prudent financing, combined with the enhanced scale and diversification that results from the acquisition, gives the Company an overall credit risk profile that remains within the range of the BBB (low) rating category.

Going forward, DBRS expects Viterra will maintain a growth-oriented disposition, however, DBRS also believes Viterra’s management will remain committed to carrying out its growth strategy in a measured, disciplined and financially balanced manner. As Viterra deploys its cash and free cash flow, DBRS expects the Company’s gross long-term debt to “normal conditions” EBITDA to ultimately settle at the 2.0x or lower range in order to preserve its investment grade profile.

Notes:
The Senior Secured Notes refers to the Series 2006-1, 2007-1 and 2009-1 (the Notes). These Notes were initially issued as senior unsecured notes and are described as such in the issuance documentation. Post-issuance of the Series 2006-1 Notes, a senior pledge bond was issued by Viterra to the Note Trustee to secure the bonds equally with each other and with the Bank Credit Facility (which is secured). The 2007-1 Notes and the 2009-1 Notes also benefit from the senior pledge bond. Hence, DBRS deems these Notes as Senior Secured Notes.

All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Grain Companies, which can be found on our website under Methodologies.

This is a Corporate rating.