OREANDA-NEWS. Fitch Ratings has affirmed the Long-term Issuer Default Rating (IDR), revolving credit facility (RCF) rating, and senior unsecured note ratings of Monsanto Company (Monsanto) at 'A-'. Fitch has also affirmed Monsanto's Short-term IDR and commercial paper rating at 'F2'. Roughly $11.6 billion of obligations, including the $3 billion RCF, are affected by these actions. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS
The Stable Outlook is based on robust operating performance and expectations for long-term sales and earnings growth. Fitch expects Monsanto to continue to generate substantial positive free cash flow in most fiscal years and to maintain leverage with net debt/EBITDA generally at or below 1.5x and below 2x in 2016.

Leading Market Position: Monsanto's rating reflects its substantive market positions in corn, soybean, cotton and vegetable seeds and traits, and crop protection products. The company has R&D-driven expertise in plant biotechnology and breeding that enables high profit margins and strong cash flows. Monsanto's portfolio benefits from patent protection for most of its key products which creates high barriers of entry for new market entrants.

Farm Economics Pressured: High stocks following two bumper crop years is resulting in low prices for corn and soybeans which in turn is resulting in lower planted acres, crop protection volumes and seed demand. The U.S.D.A. projects lower planted acres for corn worldwide for the 2015-2016 season to result in corn prices below $4.00 per bushel.

Seasonality: Some customers pre-pay for their products, which combined with the cyclical nature of farming, results in seasonal working capital swings. The May 31 quarter is the highest working capital use quarter and the August 31 quarter is the highest free cash flow quarter.

Shareholder-Friendly Actions: The rating is constrained by the company's share buyback programs and sizeable dividends. As of Nov. 30, 2015, the company had about $1.1 billion remaining under its June 2014, two-year share repurchase authorization of up to $10 billion.

Headline Risks: Consumers are looking to have food products using genetically modified organisms (GMO) labelled as such, which may cut into demand for Monsanto's traits. The issue of the use of glyphosate and health risk has generated recent headlines, despite long-term regulatory approval in a variety of jurisdictions.

Strong Profitability and Free Cash Flow: The company generated $4.3 billion of operating EBITDA in the LTM period ended Nov. 30, 2015, corresponding to 30% of net sales. Over the same period, operating cash flow after dividends and capital expenditures but before acquisitions (FCF) was approximately $1.2 billion. The company guides to FY2016 FCF (defined as the total of cash flows from operating activities and investing activities) of $1.6 billion to $1.8 billion and Fitch believes FY2016 FCF will be at least $1.1 billion.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Monsanto include:
--Crop protection selling prices decline in FY2016 to reflect lower grain prices and competition offset by improved seed and trait prices and volumes;
--Revenue growth beyond FY2016, improving to 6%;
--EBITDA margins decline to 28% in FY2016 on lower pricing and macro headwinds, improving modestly thereafter on greater seeds and traits sales and lower relative GA and R&D;
--Capital expenditures of $1.2 billion per annum on average;
--Debt and FCF share repurchases consistent with net debt/EBITDA target of 1.5x.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Total Debt/EBITDA declines on a sustained basis below 1.25x.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Total Debt/EBITDA increases on a sustained basis above 2.25x;
--Liquidity, at least $2 billion of which is cash, of less than $3 billion;
--Regulatory actions that threaten Monsanto's business model.

LIQUIDITY

Solid Liquidity: The company maintains high cash balances and high availability under its $3 billion RCF due March 2020. The revolver has a maximum consolidated leverage ratio (substantially total debt/EBITDA) of 3.5x. Estimated maturities of long-term debt over the medium term are $300 million in FY2016, $900 million in FY2017, $300 million in FY2018 and $800 million in FY2019.

Cash and cash equivalents were $2.3 billion, of which $970 million was held by foreign entities as of Nov. 30, 2015. Fitch assumes 35% of the cash at foreign entities is not readily available to repay debt to represent leakage upon repatriation.

Higher Near-term Leverage: Fitch expects weaker earnings to result in leverage temporarily above Monsanto's target capital structure of 1.5x net debt/ongoing EBITDA but below 2x net debt/EBITDA.

Fitch has affirmed Monsanto Company's ratings as follows:

--Long-term IDR at 'A-';
--Senior unsecured RCF at 'A-';
--Senior unsecured debt at 'A-';
--Short-term IDR at 'F2';
--Commercial Paper at 'F2'.

The Rating Outlook is Stable.