Moody's downgrades Agricore loans to Ba3

Moody's Investors Service said it affirmed Agricore United's corporate family and probability-of-default ratings at Ba3 and speculative grade liquidity rating at SGL-2 and downgraded its senior secured revolving credit facility, senior secured term loan and AU Holdings' senior secured term loan to Ba3 (LGD3, 45%) from Ba2 (LGD3,40%).

The outlook remains developing.

The downgrade follows the company's announcement that it would merge with privately held James Richardson International Ltd. and reflects the uncertainty surrounding Agricore's financial profile and ownership, the agency said.

Under the terms of the proposed merger, Agricore's shareholders will receive C$6.50 per share in cash and shares in the combined company. After the merger, Richardson Agricore Ltd. will be owned 50.5% by James Richarchson International, 20% by Ontario Teachers' Pension Plan and 29.5% by pre-merger shareholders.

The affirmation of Agricore's Ba3 corporate family rating is based on Moody's view that - pending further developments concerning any acquisition - the company's fundamental credit profile continues unchanged. The key rating factors currently include Agricore's moderate size, high leverage, weak debt protection measures, moderate franchise strength and relatively weak profitability.

The agency said the downgrade of Agricore's senior secured bank facilities follows the January conversion of C$105 million 9% convertible subordinated debentures to equity, which reduced the amount of junior debt in the company's capital structure and resulted in a higher expected loss-given-default rate for the facilities.

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