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Fitch Affirms CF Industries at 'BBB'; Outlook Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Ratings (IDR) of CF Industries Holdings, Inc. (NYSE: CF) and CF Industries, Inc. (CF Industries) at 'BBB'. See the full list of ratings actions at the end of this release.

Debt in the amount of $5.6 billion and the $2 billion revolving credit are affected by this action.

The Rating Outlook has been revised to Negative from Stable.


The Negative Outlook reflects the risk that prolonged weakness in the nitrogen fertilizer market may result in leverage above CF's target total debt/EBITDA range of 2.0x-2.5x beyond 2018. The outlook could be stabilized if Fitch expects FFO adjusted net leverage to return to the range of 2.0x-2.5x by the end of 2018.


Despite expectations for lower ammonia prices, Fitch expects CF to generate operating EBITDA margins in excess of 30% and annual operating EBITDA of about $1.3 billion in 2016 and 2017.

CF terminated the merger transaction with certain of OCI N.V.'s businesses in May 2016 giving rise to a $150 million breakage fee. Fitch excludes the effect of transaction costs, project costs, gains and losses, and equity earnings/losses from its calculation of operating EBITDA.


Fitch believes FFO adjusted net debt best reflects CF's leverage, since it captures distributions to CHS, Inc. and cash-build in advance of debt maturities. Fitch expects FFO adjusted net leverage to peak in 2016 at 4.4x, declining to below 2.5x between 2018 and 2019.


In February 2016 CHS purchased a minority interest in CF Industries Nitrogen, LLC (CF Nitrogen) for $2.8 billion. CHS is entitled to semi-annual distributions from CF Nitrogen as a result of its equity interest in CF Nitrogen based generally on the volume of granular urea and UAN purchased by CHS pursuant to the supply agreement.

Once CF's capacity expansion projects are completed, it will have total production of 18.9 million tons. Under the supply agreement, CHS will have the right to purchase up to 1.7 million tons, or 8.9% of the 18.9 million-ton capacity at market prices.

The $2.8 billion in proceeds provides sufficient liquidity support for CF's final year of project spending.

Cash Flow

Spending on expansion projects at CF's Port Neal, IA and Donaldsonville, LA facilities is expected to be completed by the end of 2016 and capital spending thereafter should drop to below $500 million. Fitch...