This should ease investors that are 'sitting on the fence'........
Moody's cuts Monsanto <MTC.N> long-term debt
NEW YORK, Nov 19 - Moody's Investors Service downgraded the ratings on Monsanto's long term debt to A2 from A1.
The company's Prime-1 rating for commercial paper is confirmed.
This concludes the review which began on May 12, 1998 following the company's announcement of its intention to acquire full ownership in DEKALB Genetics Corp. and Delta & Pine Land Company.
Ratings downgraded: Multiple Shelf Registration: senior unsecured to (P) A2; subordinated debt to (P)A3; preferred securities to (P)"a3" Monsanto Company -- senior notes, debentures, and industrial revenue bonds to A2 from A1; Monsanto Employee Stock Ownership Plan -- guaranteed notes to A2 from A1.
Rating affirmed: Monsanto Company -- commercial paper at Prime-1.
The one notch downgrade reflects the stressed nature of the balance sheet due to debt incurred primarily to finance acquisitions.
The higher debt is partially offset by the 100% equity issuance to finance the roughly $1.3 billion Delta & Pine Land transaction, as well as at least $1.5 billion in new equity and equity-like securities.
Proceeds from divestitures will also help reduce debt and improve the financial profile in the near to medium term.
Notwithstanding the stretched financial profile, the A2 and Prime-1 ratings reflect Monsanto's emergence as a premier competitor in the agricultural chemical market and its strong position as a mid-tier pharmaceutical company with a very strong new product pipeline.
Driven by new technology and acquisitions, Monsanto is well positioned in the dynamic and competitive agricultural chemical markets and its market share gains in traditional and biotech products is likely to continue.
The ratings also reflect Moody's expectation that management remains committed to conservative financial policies and will place high priority on reducing debt and further restoring financial flexibility through the medium term and prior to any acquisitions of meaningful size.
From a strategic perspective, Moody said it views the recent heavy acqusition activity as highly strategic and essential to Monsanto's skill base and capabilities in the rapidly evolving agricultural biotech arena.
DEKALB Genetics Corp. is a global leader in agricultural genetics and biotechnology for seed and swine, with strong positions in the soybean and corn markets.
Delta & Pine Land Co. is a leading cotton seed breeder and marketer.
Both seed companies have leading technology and good geographic coverage.
A number of past acquisitions and partnerships and internal developmental efforts have positioned Monsanto as a leading life science company and among the leaders in launching new biotech-based agricultural products.
Additional product launches across a range of geographic and crop markets are expected in the near term.
But these strengths are tempered somewhat by the fast pace and intensity of competition in emerging biotech products and due to the risks inherent in these markets, Moody's added.
The outlook for Monsanto's operating performance before interest expense is very favorable and will benefit from a rich new product pipeline in pharmaceuticals and agricultural chemicals.
The company has 10 new pharma products slated for launch over the next three years. Higher costs for product launch will likely limit earnings and cash flow growth in the near term, but the medium term outlook is more favorable and free cash flow is expected to be used to help further reduce leverage.
Headquartered in St. Louis Missouri, Monsanto today is a diversified company with business lines in agricultural products, pharmaceuticals, food ingredients, and low calorie sweeteners.
15:53 11-19-98
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