S.&P. said the ratings on Decatur, Illinois, U.S.-based ADM “reflect a strong business risk profile, which factors in the company’s position as one of the world’s leading agribusiness companies, with major North American market positions in agricultural processing, merchandising, and ethanol production.”
The ratings service said it views ADM’s financial profile as intermediate, which reflects “a highly liquid balance sheet and a recent history of maintaining credit measures that are close to medians for the ‘BBB’ rating category.” The credit measures include an adjusted debt to EBITDA ratio of about 2.3x for the fiscal year ended June 30, 2011, which S.&P. said it believes will improve to closer to 2x by fiscal year-end 2012. In addition, the ratings service said it believes the company maintains strong liquidity and that its management team prudently has managed the risks inherent to agribusiness.
“Despite operating in what we believe to be the low-margin and challenging agricultural industry with inherent volatility in commodity prices, on average, ADM has generated stable EBITDA margins close to 5%,” S.&P. said. “However, we do believe ADM’s financial policies have become more aggressive, following its recent announcement that it may increase its share repurchase activity through fiscal 2013, subject to the evaluation of additional factors, including liquidity and balance sheet strength. We expect ADM will manage its buyback activity in a manner that will enable the company to maintain credit measures that support the rating.”