A report from Fitch Ratings Inc states that it has affirmed the issuer default ratings (IDR) of CF Industries Holdings Inc (CF) and CF Industries Inc. (CF Industries) at 'BB+'.
Fitch revised the rating outlook to negative from stable to reflect drop-in earnings expectations and a risk of higher leverage through the ratings horizon. Fitch believes that weakness in the nitrogen fertilizer market is likely to persist into 2018 with a gradual recovery thereafter.
Key rating drivers
Largest nitrogen producer: CF Industries Holdings Inc benefits from its position as the largest nitrogen fertilizer producer in North America and globally, as well as its position as one of the lower cost producers globally, given the shale gas advantage. The company operates five nitrogen fertilizer production facilities in US, two in Canada and two in UK. CF accounted for roughly 43 percent of North American ammonia capacity in 2016.
Expected ammonia weakness: Fitch believes ammonia prices will remain relatively low through 2018 on global oversupply before improving on better demand and supply rationalization. Recovery in domestic nitrogen fertilizer prices depends on capacity closures, which would accelerate from strengthening global energy prices. In particular, stronger Asia Pacific coal markets could accelerate closures and further improve CF's cost position.
Recovering FCF: Spending on expansion projects at CF's Port Neal and Donaldsonville facilities is substantially complete, and annual capital spending in 2017 and thereafter should drop to below $450 million. Fitch expects FCF after dividends to be positive on average and at least $200 million in each of 2019 and 2020.
A report from Fitch Ratings Inc states that it has affirmed the issuer default ratings (IDR) of CF Industries Holdings Inc (CF) and CF Industries Inc. (CF Industries) at 'BB+'.
Fitch revised the rating outlook to negative from stable to reflect drop-in earnings expectations and a risk of higher leverage through the ratings horizon. Fitch believes that weakness in the nitrogen fertilizer market is likely to persist into 2018 with a gradual recovery thereafter.
Key rating drivers
Largest nitrogen producer: CF Industries Holdings Inc benefits from its position as the largest nitrogen fertilizer producer in North America and globally, as well as its position as one of the lower cost producers globally, given the shale gas advantage. The company operates five nitrogen fertilizer production facilities in US, two in Canada and two in UK. CF accounted for roughly 43 percent of North American ammonia capacity in 2016.
Expected ammonia weakness: Fitch believes ammonia prices will remain relatively low through 2018 on global oversupply before improving on better demand and supply rationalization. Recovery in domestic nitrogen fertilizer prices depends on capacity closures, which would accelerate from strengthening global energy prices. In particular, stronger Asia Pacific coal markets could accelerate closures and further improve CF's cost position.
Recovering FCF: Spending on expansion projects at CF's Port Neal and Donaldsonville facilities is substantially complete, and annual capital spending in 2017 and thereafter should drop to below $450 million. Fitch expects FCF after dividends to be positive on average and at least $200 million in each of 2019 and 2020.
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