OREANDA-NEWS. Fitch Ratings has rated the $4.5 billion delayed draw senior unsecured term loan of E.I. duPont de Nemours and Company (NYSE: DD; DuPont) at 'A' with a Rating Watch Negative. A full list of ratings is provided at the end of this release.

The term loan will be available for up to seven draws for a period of one year. Loans are scheduled to be repaid on March 22, 2019. Both term loan and revolving credit facilities have a maximum indebtedness-to-capital covenant of 0.6667x, with no adjustments for write-downs, and a mandatory prepayment requirement upon the spin-off of the Agricultural Company. Proceeds of the term loans will be used for general corporate purposes including repayment of current maturities of debt and to support seasonal working capital.

Fitch placed DuPont's ratings on Rating Watch Negative on Dec. 11, 2015 following the announcement of the proposed merger of equals between DuPont and Dow Chemical Company. The merger is to be a share-based transaction expected to close in the second half of 2016 and is subject to regulatory and shareholder approval. Subsequent to the merger, DowDuPont Inc. (as the new entity will be called) is to be partitioned into three separate public companies that are expected to be capitalized as investment grade.

The Rating Watch Negative reflects uncertainty as to the structure of DuPont's successor.

KEY RATING DRIVERS

Agriculture Growth
The Agriculture segment accounted for nearly 40% of DuPont's operating income. This sector is expected to continue to be challenged by low crop prices, and thus farmer income, as well as tight credit in Brazil. Longer term, Fitch expects the segment to show solid growth from DuPont's strong product portfolio and new product launches.

Weather conditions, food prices, and, for corn, ethanol prices, all impact planting and earnings in the short run, resulting in volatility. In addition, the Agricultural segment is highly seasonal with most of the cash flow generated in the fourth quarter and most of the earnings and revenue in the first half of the year.

Substantial Foreign Operations
DuPont has operations in about 90 countries worldwide. While more than two-thirds of 2015 net property by balance sheet valuation was located in the United States, about 60% of revenue is from customers outside of the U.S. The company does hedge certain foreign currency-denominated revenues and occasionally hedges other foreign currency transactions. DuPont routinely hedges its net exposure related to foreign currency-denominated monetary assets and liabilities by currency. In 2015, net sales were down 7% from 2014 from the strengthening of the U.S. dollar.

As of Dec. 31, 2015, $4.2 billion of the $6.2 billion cash and equivalents and marketable securities on the balance sheet was held outside of the U.S. Fitch defines readily available cash as cash on the balance sheet less amounts viewed to be required to run the business or expected to be taxed or distributed to minority interests when repatriated. Fitch estimates $1 billion of DuPont's cash is not readily available.

Pension Obligations
The company's defined benefit programs were in aggregate 67% funded at the end of 2015. There were no contributions to the main U.S. pension plan in 2015 and the company expects to contribute $230 million to the plan in 2016. Fitch will analyze the pension funding requirements of the successor to DuPont as part of its ratings analysis.

Leverage Expectations
Fitch expects DuPont to generate free cash flow after capital expenditures and dividends, but for leverage to increase during the year given seasonality. DuPont generally manages its capital structure within Fitch's expectations of net debt-to-EBITDA of 1.5x or lower and total debt-to-EBITDA of 2.0x or lower. As of Dec. 31, 2015, net debt-to-EBITDA was about 1x, total debt-to-EBITDA was about 2x, and FFO-adjusted net leverage was 1.6x.

Company Profile
DuPont benefits from global reach, end-market diversification, and leading market positions. The company's product portfolio is primarily R&D based and often patent protected, enabling sustainable market advantages and high operating profit margins. The consolidated operating EBITDA margin for 2015 was 18.4%.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
--Fitch assumes that Dow and DuPont will not provide cross guarantees and that DowDuPont Inc. will not provide a guarantee of Dow or DuPont debt.
--Fitch assumes the Agriculture Company will succeed DuPont, and have credit metrics and a credit profile generally consistent with those of DuPont as of Dec. 11, 2015.
--2016 results consistent with current guidance.
--Sales growth of 3% on average beyond 2016.
--EBITDA margins of 18% on average.
--3% annual increase in dividends as adjusted for the spin-off of the Chemours Company on July 1, 2015.
--Capital expenditures at $1.5 billion beyond 2016.
--Scheduled debt payments are not refinanced.
--Share buy-backs as the company has already announced as intended.

RATING SENSITIVITIES

The Rating Watch is not expected to be resolved prior to definitive information on the break-up or if the merger is terminated. Fitch will evaluate the credit quality of each subsidiary based on its assessment of earnings, cash flows and capital structure.

A negative rating action could occur for DuPont or its successor if total debt-to-EBITDA is greater than 2x or FFO-adjusted net leverage is greater than 1.5x on a sustained basis.

A positive rating action could occur for DuPont or its successor if total debt-to-EBITDA is below 1.5x on a mid-cycle basis in combination with annual FCF over $1.5 billion on a sustained basis.

ROBUST LIQUIDITY
At Dec. 31, 2015, cash on hand was $5.3 billion and marketable securities were $906 million. At Dec. 31, 2015, the company has $4.9 billion of unused credit lines, of which $4 billion was due in May 2019. The facilities are used to back-up commercial paper and issue letters of credit (LOCs). At Dec. 31, 2015, $203 million of LOCs were outstanding. In addition, the company has a committed receivable repurchase agreement for up to $1 billion that expires Nov. 30, 2016.

Debt maturities are $1.1 billion in 2016, $4 million in 2017, $1.3 billion in 2018, $503 million in 2019, $1 billion in 2020 and $4.8 billion thereafter.

FULL LIST OF RATINGS

Fitch has the following ratings for E. I. DuPont de Nemours and Company:

--Long-term Issuer Default Rating (IDR) at 'A'; Rating Watch Negative;
--The senior unsecured bank revolver at 'A'; Rating Watch Negative;
--$4.5 billion term loan at 'A'; Rating Watch Negative;
--Senior unsecured notes at 'A'; Rating Watch Negative;
--Senior unsecured debentures at 'A'; Rating Watch Negative;
--Short term IDR at 'F1';
--Commercial Paper at 'F1'.