OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Bunge Finance Europe B. V.'s EUR500 million senior unsecured notes due 2023. The new notes are fully and unconditionally guaranteed by Bunge Ltd. (Bunge). Bunge intends to use net proceeds from the issuance for general corporate purposes, including repayment of outstanding indebtedness such as borrowings under Bunge's revolving credit facilities. The Rating Outlook is Stable.

A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

Agribusiness Segment Concentration

Bunge has a leading position in oilseed processing and logistics, and accordingly the agribusiness segment contributes the vast majority of overall operating income. While there is some diversification of the business portfolio provided by the food and ingredients businesses, the agribusiness segment currently represents more than 80% of operating income. In an effort to offset earnings concentration and help reduce volatility, over the longer term, Bunge targets increasing the contribution of the food and ingredients businesses (edible oil and milling products) to approximately 35% of total operating income through a combination of organic growth and asset purchases.

Operating Performance Driven by S. A. Agribusiness

During 2015, adjusted operating income grew approximately 2% year over year driven by strong results in agribusiness that offset weakness in the Food and Ingredients segment. Fitch expects overall operating income growth to be flat to slightly positive in 2016 as some potential dislocations present themselves in the second half of 2016 related to expected South American crop reductions that could potentially benefit U. S. exports and North American crush margins that have been weak. Fitch believes that the company will maintain EBITDA in the range of $1.8 billion over the intermediate term. Long term, the outlook for the agriculture industry is favorable given higher consumption of protein in developing countries and increasing demand for biofuels.

Relatively Stable Leverage Expected

The steady, low commodity-pricing environment following the pricing spike due to drought conditions in 2012 has limited short-term financing requirements for working capital needs. However, with the potential for dislocations and the U. S. dollar weakening against other crop growing region currencies, Fitch believes that some pricing volatility could begin to occur in the second half of the year that may increase Bunge's short-term financing needs. Nevertheless, Fitch sees gross leverage (which adds debt related to receivables securitization) maintained in the low 3x range for 2016. Gross leverage for the latest 12 month (LTM) period was 3.2x.

RMI Supports Ratings

In addition to evaluating traditional leverage metrics, Fitch also considers leverage ratios that exclude debt used to finance readily marketable inventories (RMI). RMI, which is hedged and very liquid, could be converted to cash if needed. This high level of liquid inventories, coupled with cash, provides substantial financial flexibility during periods of earnings volatility associated with agricultural cycles, thus partially mitigating financial risk. Bunge's RMI adjusted leverage -- which Fitch calculates by subtracting 90% of RMI (after applying a 10% haircut) from total debt -- was 1.2x for the LTM period ending March 31, 2016.

Shareholder Returns Increasing

Share repurchases have ramped up the past two years to $300 million annually compared to none in 2012 and 2013. Fitch expects repurchases holding at $300 million in 2016, absent a leveraging acquisition. Bunge repurchased $181 million in shares during the first quarter 2016. In addition, dividends have increased in the low double-digits annually, which Fitch projects will continue. Fitch recognizes the risk for an agribusiness company vulnerable to volatile working capital swings directing significantly more cash flow to shareholders but views it as manageable given anticipated cash flow generation.

KEY ASSUMPTIONS

Key assumptions within Fitch's rating case in 2016 for Bunge include:

--EBITDA margins modestly expanding from 2015 level of 4.3%;

--Capital spending to remain below historical levels at approximately $850 million;

--Positive free cash flow (FCF) incorporating a growing dividend;

--Share repurchases at the same level as the prior year;

--Dividend increase in the low double-digit range;

--Modest acquisition activity focused on bolt-on purchases;

--Gross debt leverage in the low 3x range and RMI adjusted leverage in the 1.2x range;

RATING SENSITIVITIES

Future developments that may individually or collectively, lead to a negative rating action:

--Fitch sees Bunge generally operating with gross debt leverage in the range of 2.5x to 3.5x. However, rating pressure will arise if persistent EBITDA margin compression and/or a meaningfully higher debt leads to unadjusted leverage exceeding 3.5x over two crop cycles;

--Lack of funds from operations (FFO) coverage of capital spending and dividends, such that meaningful incremental debt funding becomes necessary;

--A material and sustained increase in leverage from a significant debt financed transaction, most likely a large acquisition.

Future developments that may individually or collectively, lead to a positive rating action:

--Fitch does not see positive rating action over the intermediate term given vulnerability of the credit profile to significant periodic commodity supply/demand imbalances;

--However, a commitment to operate with total debt leverage in the low 2.0x range, coupled with positive FCF generation could support an upgrade of the ratings.

--In addition, diversification of the corporate portfolio with increased contribution from the value-added food and ingredients businesses such that EBITDA margins increase to the mid-single digits and exhibit more stability over the commodity pricing cycle could support an upgrade.

LIQUIDITY

Abundant Sources of External Liquidity Supports Operations

Bunge's internal sources of liquidity include $523 million of cash and cash equivalents and FCF that can fluctuate from positive to negative from year to year. Bunge generated a deficit of $288 million in 2015 due primarily to the timing of large advances to suppliers of approximately $400 million in the fourth quarter. Fitch expects FCF margins turning modestly positive in 2016 assuming relatively stable commodity pricing conditions and no large swings in working capital.

A key credit concern of commodity processors is access to sufficient liquidity given historically volatile working capital needs. Bunge has abundant sources of external liquidity provided by various credit facilities available to fund its operations globally, with approximately $5.0 billion in capacity under its revolving bank agreements and commercial paper program, of which $3.3 billion was available at the end of the first quarter of 2016. In addition to the committed credit facilities, Bunge through its financing subsidiaries will from time-to-time enter into bilateral short-term credit lines as necessary. As of March 31, 2016, there were no outstanding borrowings.

The bank commitments at Bunge Limited Finance Corp. (BLFC) are comprised of unsecured bilateral three-year agreements of $200 million maturing in June 2016 and $500 million maturing November 2016 with $200 million of borrowings outstanding, a $865 million five-year CoBank revolving credit agreement maturing May 30, 2018 with $375 million outstanding, and a five-year syndicated unsecured revolver totalling $1.1 billion maturing in November 2019 with no borrowings outstanding. In addition, Bunge has a three-year $1.75 billion revolving credit facility established by Bunge Finance Europe B. V. (BFE) with $977 million in borrowings outstanding. The revolver, which can be expanded by $250 million, matures in August 2018 and can be extended by two one-year periods. A $600 million liquidity facility at Bunge Asset Funding Corp. (BAFC) backstops a $600 million commercial paper program that had $150 million outstanding.

Bunge also participates in a receivables securitization program that provides funding up to $700 million. Bunge subsidiaries sell receivables to a bankruptcy remote entity (Bunge Securitization B. V.) that subsequently sells the receivables. Receivables sold under the program (and derecognized on the balance sheet) were $487 million and $524 million as of March 31, 2016 and Dec. 31, 2015, respectively.

Bunge has material maturities during the next three years including $213 million in 2016, $937 million in 2017 and $461 million in 2018. Long-term notes maturing during this time include $250 million of unsecured notes due in April 2017 and $600 million of unsecured notes due in June 2017. Fitch expects Bunge to manage the maturing notes through either long-term debt issuances or with bank borrowings as the company did for the $500 million of unsecured notes due in March 2016 given the company's current sources of liquidity and access to the capital markets.

Fitch currently rates Bunge and its subsidiaries as follows:

Bunge Limited

--Long-term IDR 'BBB';

--Preference shares 'BB+'.

Bunge Limited Finance Corp. (BLFC)

--Long-term IDR 'BBB';

--Senior unsecured bank facility 'BBB';

--Senior unsecured notes 'BBB'.

Bunge Finance Europe B. V. (BFE)

--Long-term IDR 'BBB';

--Senior unsecured bank facility 'BBB'.

Bunge N. A. Finance L. P. (BNAF)

--Senior unsecured notes 'BBB'.