Reuters: Mergers News: TEXT-S&P puts Gavilon Group ratings on watch positive

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TEXT-S&P puts Gavilon Group ratings on watch positive May 30th 2012, 18:12 Wed May 30, 2012 2:12pm EDT 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. Link this Share this Digg this Email Reprints

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